You are probably asking what the heck is going on. HUD says they will insure FHA loans down to a 540 credit score with 20% down. Most banks were underwriting loans down to a 620 credit score. Now banks are changing their requirements. Most are going to a 640 middle credit score requirement to even look at your loan.
The government is asking banks to make loans, but the banks are tightening up. Most of this is with good reason. All mortgage loans are nothing but risk that are bought and sold on the secondary market. Certain types of loans are put into what is called pools to be bought by investors. Currently the big players in the investment community are Wells Fargo and Chase.
These banks will buy mortgage loans based on risk and manage the defaults. When defaults are higher with a particular risk pool, the investors will stop buying those types of loans and raise the bar.
This is the current case with borrowers with scores below a 640. Evidently loan pools with a score below 640 are not performing well. So the secondary market is heading towards a minimum 640 credit score.
Some financial institutions like Bank of America still provide financing down to a 580, but eventually everyone follows suit.
This is another reason to start planning for better credit management. With the current course banks are taking, your credit score requirements just got tougher.
We saw this change coming at the first of the year. There were banks already requiring this type of score. So naturally the other banks have started this new requirement within that last couple of weeks.
Author: Mike Clover
CreditScoreQuick.com
