Cecala, however, questions whether any borrower with a 620 FICO score would really qualify for Wells' program. Other programs have that minimum, but the average borrower score on loans actually made is closer to 750.
"I don't know what offsetting factors you have for a 620 credit score with such a low down payment. Unless you require them to have a million dollars in the bank, I'm not sure what else you can do," said Cecala, who notes that a 620 credit score usually denotes someone who has an inability to manage credit. "I think it's problematic to make a loan to borrowers in a subprime credit range with a very low down payment like 3 percent down."
Wells Fargo will service the loans, but Fannie Mae will buy them, and that means the loans must be underwritten to Fannie Mae's standards, which are high. Jonathan Lawless, vice president of product development at Fannie Mae, admits that a borrower with a 620 score would be unlikely to qualify.
"It is true that it's a rare event that we see borrowers at that low a FICO score," he said. "There needs to be compensating factors — one is to have a lot of money in the bank or a very good debt to income ratio."
In other words, the borrower would have to have a very high income to negate the credit risk. Lawless does think the Wells Fargo loan will be far more popular than others on the market because of the financial incentive for homeowner education, the lack of restrictions on funding the down payment and the sheer simplicity of the product. Liking the loan is easy enough, but for first-time, low- to moderate-income borrowers, qualifying for the loan may be harder.
"Loans today are remarkably safe because the underwriting has improved so much. That will be the test with this," said Cecala.