Jody Shenn has an interesting article out this morning that shows how the monster banks are cranking up the pressure on independent mortgage brokers.
The article tells us how Wells Fargo and BankAmerica have increased the minimum FICO score for FHA loans they buy wholesale from other lenders. What’s interesting, I think, is the fact that they haven’t raised the minimum FICO score for lending by their own loan officers.
The difference is dramatic. In-house lending for FHA guarantee loans carries a 600 FICO minimum at these banks. With this change, WFC and BAC join JPM, which already had a 640 FICO floor for third party origination.
How does this compare with lending before the crisis?
According to the article, before 2008, a whopping half of FHA’s new loans either had FICO scores below 620 (popular cutoff for “subprime”) or no scores at all. Today, just 3.8% of FHA loans fall into that category. In other words, FHA already tightened credit standards substantially.
The “layering” of another 20 FICO points by these three big banks basically cuts 15% off the independents’ volume. If you happen to be one of those 6.8 million people with a credit score between 620 and 640, you won’t be able to get a loan funded by Wells Fargo unless you’re talking to Wells directly (or Chase, or BankAmerica).
The big get bigger.