Bank of America (BAC) and Wells Fargo (WFC) were among banks that tightened credit standards for mortgages insured by the Federal Housing Administration in a move that may put a crimp in the U.S. housing recovery, Bloomberg News reported Wednesday.

The banks raised the minimum credit score required to qualify for an FHA-backed loan by 20 points to 640, effectively eliminating 6.3 million people from the potential home buying pool, the wire service said, citing Fair Isaac (FICO). The FHA backs about 20% of U.S. mortgages.

The new standards instituted by the lenders, which are tighter than those required by the FHA itself, may delay or cut short what appears to be a recovery in the U.S. housing market. Existing home sales in September rose 10% to a seasonally adjusted annual rate of 4.53 million in September from 4.12 million in August, the National Association of Realtors said in late October.

The FHA last month started requiring credit scores of at least 500, while some banks enacted the 620-point minimum credit score in early 2009, according to Bloomberg.

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Reverse mortgages are designed as financial assistance for people 62 years or older. The reverse mortgage works by allowing the homeowner access to the equity in their home without the issues of a monthly payment for the available funds.

July 21 2013 at 1:34 PM Report abuse rate up rate down Reply

Record profits. Billions in bail out money and you guys continue to tighten lending standards. Shame on you! Keep sticking it to America Mr. Stumpf, Mr. Moynihan, Mr. Dimon ... I just have believe your day will come or I wouldn't be able to sleep at night. How do you?

November 17 2010 at 7:40 PM Report abuse rate up rate down Reply