Wells Fargo, the biggest U.S. mortgage lender, has announced that it will lower its minimum credit score for FHA eligibility on home loans. Its previous threshold was 640, but Wells is dropping the bottom down to 600 -- even lower than the historical "subprime" level defined by scores below 620.
"The goal is to increase access to credit, especially for low- and moderate-income borrowers," said bank spokesman Tom Goyda. "These are fully underwritten, fully documented loans, consistent with FHA program guidelines and responsible lending principles." Wells Fargo's move could encourage other lenders to follow suit, leading to a gradual loosening of mortgage standards that became much more stringent following the housing crisis of 2008.
However, with new lending rules in place this year, banks are not likely to revisit the reckless subprime lending that characterized the early 2000s. The reintroduction of softer lending criteria "is going to be slow, and it's going to be piece by piece." predicts Guy Cecala, publisher of Inside Mortgage Finance.