Banking and Finance Law Daily Wrap Up, MORTGAGES—Pew says federal mortgage credit standards remain too tight despite record-low default rates, (Aug 24, 2026)

By Shashi Kant, B.A. LL.B., LL.M.

According to Pew, federal mortgage credit rules stay too tight despite record-low defaults, locking out creditworthy Black, young, and first-time buyers.

Federal mortgage lending standards, tightened in the years following the 2008 financial crisis, remain too restrictive relative to the risk now present in the mortgage market, the Pew Charitable Trusts argues in an August 2026 issue brief. The organization states that credit score thresholds in particular have not loosened alongside other underwriting measures, even though loan performance data show default risk at or near historic lows.

Underwriting reforms since 2008. The brief states that federal mortgage underwriting tightened along four dimensions after the 2008 crisis: credit score, debt-to-income ratio, loan-to-value ratio, and income documentation. Pew notes that two of these four measures, debt-to-income ratio and loan-to-value ratio, have since returned toward pre-recession levels. Credit score requirements, the brief says, have not followed the same trend and remain unusually tight, while income documentation requirements have grown stricter, with low- and no-documentation loans nearly eliminated.

Credit access data. According to the brief, the average credit score for new mortgage borrowers reached 742 in 2024, the highest figure on record and 29 points above the average score of the general consumer population. The brief further states that mortgages issued to borrowers with credit scores between 601 and 660 declined 73 percent between 2000 and 2024, falling from approximately 1.08 million loans to 293,000. Denial rates rise sharply below prime credit tiers, the brief says, citing a 65 percent denial rate for applicants with credit scores under 620 and a 38 percent denial rate for applicants scoring between 620 and 679.

Loan performance data. Pew states that only 0.7 percent of mortgages were 90 or more days delinquent in 2024, a rate the brief describes as near 2002 levels, and that loans in foreclosure stood at 0.1 percent. For borrowers with credit scores between 620 and 700 specifically, the brief reports that only 4 to 5 percent of delinquent loans originated between 2015 and 2024 ultimately ended in default, compared with 55 percent for loans originated between 2000 and 2004. The brief attributes part of this shift to expanded loss mitigation tools, including forbearance, loan modification, and payment deferral programs, which it says now intervene before delinquency becomes default.

Demographic impact. The brief states that credit scores in the 600 to 699 range, the band most affected by tight credit standards, disproportionately capture certain groups: 37.5 percent of Black mortgage borrowers fall within this range, as do 33.5 percent of borrowers under age 25, 26.9 percent of Hispanic borrowers, 26.8 percent of first-time homebuyers, and 25.3 percent of rural borrowers. Pew frames the pattern as a barrier to economic mobility and homeownership access rather than solely a market efficiency issue.

Federal role in the mortgage market. The brief states that approximately 89 percent of mortgages originated between 2018 and 2024 were directly shaped by federal policy. Government-sponsored enterprises Fannie Mae and Freddie Mac accounted for 33 percent of this share, federal loan programs including Federal Housing Administration (FHA), Department of Veterans Affairs (VA), and U.S. Department of Agriculture (USDA) accounted for 32 percent, and private loans underwritten using government-developed automated systems, including Desktop Underwriter, Loan Product Advisor, and TOTAL Scorecard, accounted for the remaining 25 percent. Because federal policy shapes underwriting for nearly all of the market, Pew treats current credit standards as a policy choice rather than an inherent market constraint.

Pew’s recommendations. The brief recommends that federal policymakers reassess risk tolerance by revisiting underwriting thresholds and pricing frameworks that Pew says may be more conservative than current loss data supports. It also recommends modernizing risk assessment tools, including adoption of alternative credit scoring models such as FICO 10T and VantageScore 4.0, cash flow underwriting using bank transaction data, and incorporation of rental payment history and trended credit data. Third, the brief calls for increased transparency, including public disclosure of the parameters underlying automated underwriting systems and more granular credit score reporting beyond the current five-category structure.

Companies: Fannie Mae; Freddie Mac; The Pew Charitable Trusts

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