Buyers Face FHA Loan Hurdle
Spatter, Sam, Tribune-Review/Pittsburgh Tribune-Review
It's getting more difficult for some homebuyers in Western Pennsylvania and nationwide to obtain a Federal Housing Administration-insured mortgage if their credit score is not 640 or higher.
Major lenders who purchase FHA-insured mortgages have increased the minimum credit score that borrowers need to qualify.
"The major buyers of FHA mortgages nationally are Bank of America and Wells Fargo, along with J.P. Morgan Chase, which have set the minimum score at 640," said Mark Steele, president of Howard Hanna Financial Services, a Pittsburgh-area mortgage lender.
Bank of America and Wells Fargo recently raised their standard from a 620 score. About 6.3 million people fall within the range of 620 to 640, according to Fair Isaac Corp., which created the rating.
Most lenders that originate FHA loans and want to sell them to those big banks generally follow that requirement, Steele said.
In 2009, Wells Fargo purchased 92,673 FHA loans, with Bank of America Mortgage second-highest at 70,319, according to the Mortgage Market Share Report.
The higher score has come under fire from the National Community Reinvestment Coalition. It recently filed a complaint with the Department of Housing and Urban Development alleging that 22 banks nationwide violated fair housing laws by failing to issue FHA- insured loans to borrowers with credit scores above a threshold set by the government.
The Washington-based organization said the FHA requires borrowers to have a credit score of at least 580 to be eligible for the insurance it provides against default.
"The decision by some banks to not follow the FHA's policy is cutting qualified borrowers off from accessing credit," said John Taylor, the coalition's CEO. "This decision is arbitrary because the loans are 100 percent guaranteed, whether the borrower's credit score is 580 or 780."
FHA loans are important to homebuyers.
Nationwide, 20 percent of all mortgages written so far this year had FHA backing, according to Inside Mortgage Finance, a trade magazine. From 1990 to 2007, FHA market share ranged from 2 percent to 12 percent. …