Wells Fargo (WFC) and other mortgage lenders have recently begun reducing credit score cutoffs in an effort to provide greater access to credit for their customers and to take advantage of pent-up demand in the mortgage market. Critics have argued that these moves herald a return to the risky subprime lending that led to the mortgage crisis. But in an environment in which default risk is small, assuming all other underwriting criteria are met, lenders can safely shift credit score cutoffs downwards from the high levels reached during the housing crisis and its immediate aftermath.
Mortgage defaults today are very low. The mortgage delinquency rate—the percentage of borrowers who are behind on their mortgage payments by 60 days or more—fell to 3.61% in the first quarter of 2014, declining for the ninth consecutive period, according to TransUnion.