Want to give an immediate boost to housing sales? Ron Phipps has a suggestion: Mortgage lenders should look beyond borrowers’ credit scores.
Phipps knows of what he is talking. He’s the president of the National Association of REALTORS and the broker/owner of Phipps Realty in Warwick, R.I. He says that home sales would quickly rise if mortgage lenders used just a bit more flexibility in deciding which borrowers qualified for mortgage financing.
Phipps told me during a recent phone interview that Fannie Mae and Freddie Mac are now looking for borrowers to have FICO credit scores of just under 760. That’s a big change from the days when credit scores in the high 600s were considered strong.
It’s true that borrowers can get conventional mortgage financing with credit scores lower than 760. They may, though, have to pay higher interest rates. And these higher rates might knock some buyers out of the market.
“That 760 score is just so much higher than what the average American homebuyer today has,” Phipps said.
Tightening credit standards have played an important part in the housing slowdown, Phipps said. According to data from the National Association of REALTORS, about 15 percent of creditworthy borrowers haven’t been able to get mortgage financing because of the stricter credit-score requirements of Fannie and Freddie.