By Ray Brousseau
When the housing crisis hit in late 2009 and 2010, credit tightened as a natural response. Although the market has largely recovered, financing has remained difficult for borrowers with credit scores below a certain threshold.
According to the January 2017 Ellie Mae Origination Insight Report, 69% of all closed loans had FICO scores over 700. In fact, borrowers with FICO scores between 750 and 799 represented the largest share of closed loans in January for purchase, refinance and conventional loan categories.
The only segment that credit bracket didn’t dominate was Federal Housing Administration (FHA
) loans, where the still relatively high FICO scores of 650 to 699 had the largest share of closed loans.
Because borrowers with lower credit scores are still having difficulty securing financing, there’s a significant amount of pent-up demand. Many lenders are reluctant to work with lower credit scores, leading many potential homebuyers to believe they cannot enter the housing market.
There are, however, some lenders that are making an effort to serve these frustrated potential homeowners in an underserved market. Mortgage professionals with clients who have lower credit scores or challenging credit histories must seek out lenders that have programs that allow for responsible lending to these borrowers. Some lenders have programs – or are experts at using existing government loan programs – that work with borrowers with credit scores as low as 550 for FHA
loans, as well as offering products with smaller down payments, simplified loans with no lender closing costs and more.
By partnering with lenders who not only recognize the need for loan products for an underserved market, but make the effort to specialize in understanding and underwriting these programs, mortgage professional
s can help a broader swath of potential homeowners who have been stuck on the sidelines for far too long.
Ray Brousseau is the president of Carrington Mortgage Services.