Both Wells Fargo and Bank of America, the top two residential mortgage lenders in the nation, have raised minimum credit score requirements on FHA loans, according to Bloomberg.
The pair raised the minimum Fico score to 640 from 620 on FHA-insured loans they buy from other mortgage lenders.
Per Fico, there are roughly 6.3 million Americans that have credit scores between 620 and 640, or about 3.7 percent of the population.
As a result, correspondent lenders like Quicken, which is a top ten mortgage lender, have stopped making many of their FHA loans.
And FHA commissioner David Stevens told Bloomberg the move would exclude as many as 15 percent of FHA borrowers, who often have no other place to turn for home loan financing.
However, Wells Fargo will continue to offer FHA loans with Fico scores as low as 600 via its own loan officers.
And Bank of America still offers FHA loans to its direct customers with Fico scores as low as 620 for purchase money mortgages, though they now require 640 for refinance applications.
Chase, the third largest lender in the nation, had already raised its credit score requirements on FHA loans a while back.
Credit Quality Improves on FHA Loans
But credit quality has improved immensely at the FHA, largely because more creditworthy borrowers have turned to the agency for financing.
And the FHA recently imposed a minimum credit score of 500, while also requiring that borrowers have at least a 580 credit score to qualify for the flagship 3.5 percent down payment program.
At the end of the third quarter, just 3.8 percent of FHA loans had scores below 620 or no credit score, compared to 50.4 percent as of the end of 2008.
Nearly 40 percent of home purchase mortgages and nine percent of refinances were insured by the FHA during the nine-month period ending June 30.
Update: A reader informed me that Wells Fargo will still buy FHA loans with Fico scores as low as 620 if they come from correspondents and mortgage bankers.