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FHA mortgage loan minimum credit scores, October 4, 2010

HUD introduces new minimum FICO credit scores and loan-to-value ratio requirements for FHA-insured loans

| By Greg Fisher

"'The reason why we drew the line at 580 is that there are clear performance drop offs as you drop down credit score tiers,' [FHA Commissioner David] Stevens said." - CNNMoney.com

11/12/09 - "FHA Fiscal Year 2009, Actuarial Review Briefing"

1/20/10 - HUD No.10-016: "FHA Announces Policy Changes to Address Risk and Strengthen Finances" - "The FHA will propose to take the following steps: increase the mortgage insurance premium (MIP); update the combination of FICO scores and down payments for new borrowers; reduce seller concessions to three percent, from six percent; and implement a series of significant measures aimed at increasing lender enforcement."




3/2010 - From the Desk of David H. Stevens - "Let me take a moment to provide more details on these policy changes:... "

3/11/10 - Written Testimony of David H. Stevens, Assistant Secretary of Housing - Federal Housing Administration, Commissioner U.S. Department of Housing and Urban Development, Hearing before the House Financial Services Subcommittee on Housing and Community Opportunity - "Purchase borrowers with FICO scores of 580 and above would be required to make a minimum 3.5% down payment; and those with FICO scores between 500-579 would be required to make a minimum down payment of 10%."

5/13/10 - "Written Testimony of Assiatant Secretary Stevens, Hearing before the Senate Appropriations Subcommittee on Transportation, Housing and Urban Development, and Related Agencies" - Loans with a "LTV above 95% and a FICO score below 580 perform significantly worse than all other groups, as illustrated below."

07/15/2010 - Federal Register - "Federal Housing Administration Risk Management Initiatives: Reduction of Seller Concessions and New Loan-to-Value and Credit Score Requirements" - A Notice by the Housing and Urban Development Department on 07/15/2010" [added 12/3/10]

09/03/2010 - Federal Register - "Federal Housing Administration Risk Management Initiatives: New Loan-to-Value and Credit Score Requirements - A Rule by the Housing and Urban Development Department on 09/03/2010" - Effective Date: October 4, 2010

9/3/1010 - Department of Housing and Urban Development Mortgagee Letter 10-29 - "This Mortgagee Letter introduces new minimum credit scores and loan-to value (LTV) ratio requirements for FHA-insured loans... Borrowers with a minimum decision credit score at or above 580* are eligible for maximum financing."

9/22/2010 - Written Testimony of David H. Stevens Assistant Secretary of Housing - Federal Housing Administration Commissioner U.S. Department of Housing and Urban Development, Hearing before the House of Representatives Committee on Financial Services Wednesday, September 22, 2010

Specifically, FHA implemented a "two-step" FICO floor for FHA purchase borrowers, which will reduce both the claim rate on new insurance as well as the loss rate experienced on those claims. A minimum down payment of 10% is now required of purchase borrowers with FICO scores below 579, and a minimum down payment of 3.5% is required for those with FICO scores at 580 and above. In addition, applicants with credit scores below 500 are no longer eligible for FHA insurance.

* HUD's Federal Register entry states, "HUD has established a threshold score for FHA-insured mortgages that is below the cut-off score of 620 used by many private lenders," and Bloomberg reports, "Mortgage lenders including Wells Fargo & Co. and Bank of America Corp., the two largest, have raised the minimum credit score on FHA-insured loans that they will buy to 640 from 620."


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