If you're a home buyer, the numbers from the Federal Housing Administration look good — credit scores as low as 500 are eligible for some home loans, according to the government's website.
But if you're a Wichita mortgage originator or a home broker, the numbers are shocking, a step way outside the realities of the local residential lending market.
Effective Oct. 4, a credit score of 580 or better is required by the FHA for "maximum financing" on a typical new home purchase.
Credit scores between 500 —"basically bankrupt," one lender said — and 579 are "limited to 90 percent loan to value" on a home loan insured by FHA.
At first blush, it looks like anything goes again in the residential lending industry, with FHA ready to insure loans for poor credit customers.
But local lenders and brokers say there's little use taking those credit scores into the Wichita market.
Most lenders won't write a loan for FHA insurance that they can't sell into the secondary loan market. And investors aren't touching credit scores under 620.
"It's just unheard of," said Gary Walker, residential general manager for J.P. Weigand & Sons. "I mean, the FHA can print anything they want, but if you haven't got anyone who will take the loan, it's worthless."
In Wichita's relatively conservative lending market, it's almost impossible to do a loan with a credit score under 620.
"FHA is a good opportunity for home financing for a number of individuals in our community," said Gary Schmitt, who oversees residential lending for Intrust Bank.
"So, yeah, somebody can do that. But we don't. We do sell FHA loans on the secondary market, and those aren't even close, score-wise. Our investors are at 660 minimum."
Lemar Wooley, an FHA spokesman in Washington, D.C., said the guidelines are "relatively new."
"Prior to this, there was no bottom to eligibility," he said. "Now if you're below 500, you're not eligible, period."
In a December statement, David Stevens, the federal housing commissioner, said the new guidelines are intended to broaden the qualification review for questionable credit borrowers.
"We know that lower credit scores, in and of themselves, indicate a higher risk of default," Stevens said.
"But as we have discussed with industry stakeholders for months, borrowers with the same credit scores can pose very different risks.... It has been well documented that home ownership produces better outcomes for health, education and long term wealth....
"Our message is clear. We are asking our industry partners to consider all the factors to determine the borrower's ability to repay their mortgage and look beyond a simple credit score."