LOS ANGELES (8/5/14)--The Federal Housing Administration (FHA) has relaxed its credit score requirements this year, which could spur on home sales in the coming months, the Los Angeles Times reported last week.
Further, Freddie Mac and Fannie Mae, the Federal Government's two mortgage-investment giants, may soon follow suit.
Leading the charge, the FHA has allowed the average FICO credit score of consumers who have been approved for home loans to drop steadily throughout 2014, according to recent numbers from Ellie Mae (Los Angeles Times Aug. 3).
While lenders look at more than credit scores when assessing a home-loan applicant, experts say high credit score requirements play a large role in keeping many out of the housing market.
There are many people out there who are creditworthy and should be eligible to purchase a home, Phil Bracken, chairman and founder of the nonprofit affordable housing organization America's Homeowner Alliance, told the Los Angeles Times.
The homeownership rate now sits at 64.8%, the lowest it has been since 1995, the Times reported. For those under 35, the rate has declined even further, with only 36.2% of that demographic owning a home.
However, while Fannie Mae and Freddie Mac continue to maintain stringent credit score standards--the average score in June was 755--Mel Watt, the Federal Housing Finance Agency's new director and the head of the two agencies, appears interested in amending those requirements.
Watt recently reached out to lenders to ask for their advice on setting Freddie and Fannie's fees, including fees related to credit scores, the Los Angeles Times reported.