Mortgages with Credit Scores Under 680 See 90% Drop: Fed Official

Mortgages with Credit Scores Under 680 See 90% Drop: Fed OfficialIt’s no secret that lenders have tightened mortgage standards in the aftermath of the housing crisis, but how high does your credit score need to be to qualify for a decent rate on a home loan?
A Federal Reserve official has offered a noteworthy look at the lower range of credit worthiness.
Between 2007 and 2012, originations of prime mortgages fell about 30 percent for borrowers with credit scores greater than 780, compared with a huge drop of about 90 percent for those with credit scores between 620 and 680.
“Originations are virtually nonexistent for borrowers with credit scores below 620,” said Elizabeth Duke, member of the Board of Governors for the Federal Reserve System, in a speech Thursday at the Housing Policy Executive Council.
The median credit score on these originations rose from 730 in 2007 to 770 in 2013, she said.
Meanwhile, scores for mortgages at the 10th percentile — pretty much the bottom run of eligibility — rose from 640 to 690.
Most lenders have been willing to offer rate quotes to borrowers with credit scores of 680 and above.
But fewer than two-thirds of lenders, though, are willing to extend mortgage offers to consumers with credit scores of 620, Duke said.
“And this statistic may overstate the availability of credit to borrowers with lower credit scores: The rates on many of these offers might be unattractive, and borrowers whose credit scores indicate eligibility may not meet other aspects of the underwriting criteria,” Duke said.
Many borrowers who cannot obtain prime mortgages have turned to home loans insured or guaranteed by the Federal Housing Administration (FHA), the U.S. Department of Veterans Affairs (VA), or the Rural Housing Service (RHS).
Duke said that data collected under the Home Mortgage Disclosure Act indicate that the share of purchase mortgages guaranteed or insured by the FHA, the VA, or the RHS rose from 5 percent in 2006 to more than 40 percent in 2011.
“But here, too, loan originations appear to have contracted for borrowers with low credit scores,” Duke said.
The median credit score on FHA purchase originations increased from 625 in 2007 to 690 in 2013, while the 10th percentile has increased from 550 to 650.

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