The Department of Housing and Urban Development recently announced that borrowers who seek an FHA loan, a loan insured by the Federal Housing Administration, must now achieve a FICO score of at least 500 for consideration. According to a CNNMoney article, this is the first time HUD has set hard and fast score cut offs. The questions are, what have they accomplished...and what are they thinking?

HUD’s new score requirements eliminate roughly 1% of the population. That’s right, almost 99% of the U.S population has a FICO score higher than 500. If HUD wants to mitigate risk then 500 was a shade too low (sic).

There is some sense behind the decision though. Because of their stratospheric FICO scores, consumers who fall below 580 will be asked to pony up a 10% down payment. This forces equity into the loan and helps to secure the lender when the loan goes into default (notice I didn’t say "if").

So for the newly minted 70,000,000 consumers who have scores below 650 don’t despair. HUD is still willing to lend you hundreds of thousands of dollars. It’s almost like someone hasn’t been paying attention.

John Ulzheimer – Credit scoring and credit reporting expert and author, John is the President of Consumer Education for Credit.com. Formerly with Equifax and Fair Isaac, John shares his unique insight of the inner workings of credit scoring models and the credit reporting industry on CreditBloggers.com.