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NCRC accuses 22 lenders of unfair lending; mortgage industry responds

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The National Community Reinvestment Coalition filed complaints against 22 lenders it claims are violating fair housing laws with discriminatory lending against African-Americans and Latinos. But the mortgage industry immediately fired back, saying tighter lending standards are paramount in the wake of the nation’s foreclosure crisis. The NCRC said it wants federal agencies and banking regulators to investigate the nation’s largest Federal Housing Administration-approved lenders for possible violations of the Federal Fair Housing Act. The organization of community groups said FHA-approved lenders are refusing to offer loans to qualified borrowers with a minimum credit score of 580 and above, which is allowed under FHA policy. NCRC also believes the lenders’ policies violate the Equal Credit Opportunity Act and the Community Reinvestment Act. A recent NCRC investigation found that the majority of top FHA lenders failed to offer applications for federal-guaranteed loans to potentially qualified borrowers with credit scores below 620 or 640, even though FHA guarantees loans with credit scores to 580, the NCRC said. These lenders have policies that establish "credit overlays" above the FHA policy, with minimum credit score requirements as high as 640. One-third of all Americans have credit scores under 620. NCRC conducted "mystery shopping" tests on lenders. Of all lenders tested, 32, or 65%, refused to consider consumers with credit scores below 620. An additional 11, or 22%, refused to extend credit to consumers with credit scores below 640. Only 5, or 10%, had policies in place that served consumers with credit scores at 580 and up, in accordance with the underwriting policy of the FHA, the NCRC said. "Critical to our nation’s economic progress is the ability of homeowners to get quality refinancing, and for homebuyers to reclaim vacant houses by accessing quality mortgage credit," said John Taylor, president and chief executive of the NCRC. "The housing crisis is not the fault of working-class families, but they are the ones suffering the consequences of Wall Street’s malfeasance." An organization representing mortgage bankers, the Community Mortgage Banking Project, quickly fired off a response to the complaints, saying the NCRC’s complaint contradicts "the compelling need for lenders to apply judgment and discretion in setting lending criteria" in the wake of the financial crisis. "FHA has always recognized the need for lenders and investors in FHA loans to establish and maintain their own risk-management tolerances," said Glen Corso, managing director of CMBP. "By setting commonsense credit standards, FHA lenders are exercising prudent judgment and protecting borrowers, neighborhoods, the FHA and U.S. taxpayers from another round of excessively high defaults and foreclosures." "In the wake of the financial crisis, when lending standards were far too loose, it is essential that everyone involved in the lending process — lenders, investors, servicers, regulators and consumers — recognize the need for responsible decision-making," Corso added. "To ask mortgage lenders to ignore the risk factors for certain loans is reckless and misguided." FHA’s own data show that one of every five borrowers with FICO scores between 580 and 619 will experience a serious delinquency (more than 90 days past due), the CMBP said. That is about 2.5 times the rate for borrowers with scores between 620 and 679, and about 10 times the rate for borrowers with scores above 680. As a result, large buyers and servicers of FHA loans have legitimate reasons to set credit score standards that are higher than FHA’s 580 minimum. NCRC has filed complaints against the following lenders:
  • American Equity Mortgage
  • American Financial Resources
  • Bank of the West
  • BBVA
  • Citizens Financial
  • Envoy Mortgage
  • First Residential Mortgage
  • Franklin American Mortgage
  • Freedom Mortgage
  • Metlife Bank
  • Nationstar Mortgage
  • New Day Financial
  • New Penn Financial
  • Paramount Residential Mortgage
  • PHH Mortgage
  • Prospect Mortgage
  • Security National Mortgage
  • Shore Mortgage
  • Sierra Pacific Mortgage
  • Stearns Lending
  • Synovus/ Bank of North Georgia
  • WR Starkey Mortgage
Write to Kerry Curry.

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