[update 1: Clarifies loans meet QM standards]
Carrington Mortgage Services lowered its minimum FICO score to 550 and expanded its guidelines on a number of FHA, VA and USDA loan programs in order to better focus on underserved borrowers, typically those in the sub-640 FICO score range.
The mortgage company is realigning and increasing its attention on providing service to that underserved segment of the market where it can make the most impact.
As a result, the company is choosing to pull back in other areas.
Carrington will eliminate conventional and jumbo loans from its wholesale product line and limit its acceptance of wholesale submissions with FICO scores above 680 starting on April 1, except for VA loans.
According to the lender, one in three consumers have a FICO score below 650, and Carrington is dedicating most of its resources to this effort.
“Effectively meeting the needs of clients in the underserved market requires the ability to both originate quality loans and appropriately service them after the fact,” said Carrington Mortgage Services Mortgage Lending Division Executive Vice President Ray Brousseau.
“While that combination of capabilities is atypical among most lenders, at Carrington, it’s in our DNA! Both Carrington’s lending platform and specialty servicing business were created to serve this particular market segment. That uniquely positions us as the lender of choice for this population of borrowers, and the mortgage brokers and real estate agents who work with them. Our message is clear: You can count on Carrington to serve the underserved and get the tough loans done right,” Brousseau explained.
At the start of the year, lenders began to look for a plan B. Jon Maddox, president of ClearVision, explained that as rates to continue to rise, non-QM products will eventually hit the market since credit is still pretty tight.
"Lenders will find opportunities out of the mainstream," Maddox said. "If the Consumer Financial Protection Bureau and QM stay staunch and inflexible, the products will have to go somewhere, and it will find its own level at some price."
Wells Fargo (WFC) originally announced it is lowered its score first at the beginning of February that it moved its minimum FICO requirement on Federal Housing Administration-backed mortgage loans to 600 from 640 for retail purchase customers.
However, as the industry remained hinged on the idea this is a return to the subprime crisis, it is not necessarily true.
Trey Garrison, a reporter with HousingWire, outlined that just because a loan is less than 600 it does not mean it is subprime in a dangerous sense.
“600 is not subprime, especially with all the criteria they are including, and all the documentation required today,” Garrison said. “But more importantly, just lending to people with less than stellar credit is not what caused the financial crisis. It was lending without any real underwriting, followed by the bundling of these subprimes and selling them as triple AAA that was the real catalyst.”