The Federal Housing Administration says borrowers can get mortgages with low down payments and FICO scores as low as 580. In reality, lenders generally ask for scores of at least 620. Why? Because they can.
About 90 percent of FHA borrowers have scores in the 700 to 800 range, according to a recent report by the George Washington University School of Business.
Many of these borrowers are affluent homebuyers who don't really need an FHA mortgage, the study says. FHA loans were designed to help low to moderate-income borrowers, minority and first-time homebuyers. These borrowers normally have difficulties coming up with large down payments and don't always have sterling credit. The FHA is often their only option when getting a mortgage.
Before the housing market crashed, a large part of FHA mortgages went to borrowers with credit scores in the 600s. In recent years, barely 10 percent of FHA loans helped borrowers with scores of less than 700, according to the study.
A substantial portion of FHA mortgages are going to Americans "making well over the area median income for the county in which they live," according to the study, which was co-authored by Robert Van Order. He is a professor of finance and chair of the Center for Real Estate and Urban Analysis.
Nationally, 30 percent of FHA loans (by number of loans, not dollar value) are going to families making more than 115 percent of the average median income, the study shows.
In some counties, that number is much larger.
Take Hidalgo County, Texas, as an example. More than half of FHA borrowers had incomes greater than 150 percent of area median income in 2010. Only 18 percent of FHA's borrowers in that county earned less than the area median income when they took out their loans.
"Clearly FHA is not a low- or moderate-income program in that county," Van Order says in the report.