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FHA to Consumers with Low FICO Scores: Drop Dead

DEC 7, 2012 12:29pm ET

Is HUD Secretary Shaun Donovan telling consumers with low FICO scores to take a hike? Well, sort of. Although Shaun is a New Yorker, a city with plenty of high wage earners in its five boroughs (asking price for a seven-room cooperative off of Central Park West: $95 million) he also has to keep an eye on the FHA fund which may (or may not) need to tap Uncle Sam for some cash in 18 months. Late this week NMN’s Brian Collins reported that Donovan is toying with the idea of hiking the 580 minimum FICO at the agency. But before you scream at the top of your lungs, keep in mind that in today’s ultra tight underwriting market, very few (3% of the total) FHA borrowers are at that level. So, it’s not a big deal? Maybe so, but down the road, if FHA isn’t the "government’s subprime lender" then who will play that role? Answer: The private sector.