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E-Mail 'Is It Time To Raise FHA Credit Score Standards?' To A Friend

by Peter G. Miller
August 16th, 2010

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This entry was posted on Monday, August 16th, 2010 at 12:40 am and is filed under . You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

3 Responses to “Is It Time To Raise FHA Credit Score Standards?”

  1. Dan Says:

    You are right that HUD minimum standards are curious because the FHA loan program is attracting well-qualified borrowers. However People would end up paying from $170 more per month for the exact same loan after october 4th or up to $279 more when HUD/FHA eventually increases the MIP to 1.5 percent.

  2. Peter G. Miller Says:

    Dan –

    The 1.5 rate does not exist, it is a possibility not a reality.

    As to higher monthly costs, please see:

    Will You Benefit From The New FHA Insurance Premiums? I get an additional monthly cost of $25.64 in a sample case.

  3. s2kreno Says:

    Lenders are increasing their minimum score requirements because of the way FHA decides how approval to do FHA loans can be revoked. if a lender has a 200% higher rate of default than others in its area (this is called a “compare ratio”) its approval can be yanked even if every loan it approves meets FHA guidelines. So, if for example, lender A abides by FHA guidelines, but lender B decides to up its minimum credit score. Assuming that there is a correlation between credit scores and default rates, Lender B should have a lower default incidence than Lender A. So to lower its risk of having a higher ratio than Lender B, lender A has to respond by upping its minimum credit score. Until no lender in that area can afford to risk its approval by abiding by FHA’s minimum of 580. hence the sudden improvement of average FHA borrower scores from 621 a couple of years ago to 694 today.

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