The following information was published in the March 2011 issue of REALTOR® Magazine:
In a long-awaited shift, Wells Fargo is providing FHA mortgages to borrowers with credit scores as low as 500. The move comes after the National Association of REALTORS® (NAR) and FHA Commissioner David Stevens, among others late last year, criticized the country’s major banks for requiring credit scores as high as 650 in some cases before making loans. At NAR’s annual conference last year in New Orleans, Stevens said banks’ credit policies were out of sync with the FHA and artificially restraining home sales by as much as 20 percent. Under its new policy, Wells Fargo will accept borrowers with credit scores of 500 to 579 if those borrowers can make a down payment of at least 10 percent; gifted funds or other down payment assistance is not allowed. For borrowers with credit scores of 580 to 599, borrowers must put down 5 percent, with the same restriction on gifts and assistance funds. Borrowers with credit scores of 600 or higher can make a 3.5 percent down payment. The new policy took effect Jan. 15.
MY RESPONSE Credit has been tightening up for several years now; it’s good to see at least one lender loosening up… But could Wells Fargo be getting too loose by going to a 500 credit score? The best part of their new policy is that they’re requiring borrowers with lower credit scores to have some “skin in the game.” There were a few years there where credit wasn’t scrutinized AND borrowers were not required to put any money down. We’ve seen many of those borrowers walk away from their “bad investments” because they owed more on their homes than they were worth after paying on them for several years.
I’m looking forward to seeing what this relaxed policy does to make home ownership available to a larger pool of home buyers. While many will still be unable to purchase because they haven’t saved enough money, still others will finally be able to move forward with their dreams.
