• Lisa Simpson
• Dec 16,2010
• In: Foreclosure

FICO Score Requirements Demanded by Lenders Facing Challenge from Coalition of Consumers

A coalition of consumers has thrown a challenge questioning the requirements of FICO scores demanded by lenders as being higher than the standards set by FHA. This is actually causing harm to the minority applicants. On this issue the coalition is planning to file a string of complaints starting from Monday 6th December.

It is a general practice among the lending group to expect the borrowers applying for FHA (Federal Housing Administration) loans to have credit scores (FICO) much above the minimum fixed by FHA – it being a minimum of 580 points. Only then would the applicants qualify to get a loan by making a down payment of 3.5%.

The allegation by the complainants was that by wanting higher FICO scores, the Black and Latino borrowers are discriminated. Their scores were higher than the minimum of 580 but less than 620 or 660 that the lenders often demand. The FICO scores stretch from 300 to 850; high scores indicate that the risk is lower.

FHA gives insurance coverage to the lenders if the loans trip into foreclosure. But there is no justification in wanting scores above the mark stipulated by FHA. Over 20 mortgage lenders targeted for fair lending practices could not be contacted. John Taylor the head of National Community Reinvestment Coalition said among the 20 were the names of “large, medium and small banks” – all stipulating higher then FHA standards.

The coalition is an amalgam of consumers at the local and national level numbering about 600, including civil rights groups wanting economic development. The entity has for long been advocating equal opportunities for all in the field of mortgage lending.

The complaint will soon be filed. In the draft it is said there were “extensive” blind tests conducted to feel the waters. The testers appearing before the loan officers said that they were qualified to apply for FHA insured house loans with scores ranging from 601 to 605.

The officers dealing with loans regularly told them as a matter of routine they (the applicant) could not qualify if the FICO score was below 620. When the dummy applicants argued that they knew about the benchmark score of FHA the answer was blatant – they wanted higher scores otherwise no sanction of loans.

By adopting this policy the Blacks and Latinos, the economically weaker section of American society, are cut off from not only loans but also refinancing.

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