Credit Scores/Bad Credit category archives

This article in the Chicago Tribune spells it out quite well.   As Fannie and Freddie face continuing losses, the fees that borrowers who don’t have a LARGE downpayment and absolutely excellent credit (not just good, but excellent) are finding that it’s more expensive to get the rates that they see quoted.

I was talking to one client who is contemplating upgrading to a larger home yesterday and he was shocked to realize that someone with a 710 credit score and a 20% down has to pay .25 pts to get “the best rate” available.

So, while it’s good to look at what rates are quoted, until you know what you are looking at in terms of loan to value, it’s hard to know what you’ll end up with.

Fees building up costs to obtain lowest mortgage rates — chicagotribune.com

New rules by Freddie Mac and Fannie Mae are raising fees for borrowers with less than perfect credit, those in the mortgage industry say. Other increased costs reflect the uncertainty in the mortgage market, as lenders try to reduce their risk and anticipate rates.

“While rates are low, lending standards are still really tight,” said Amy Bohutinsky, vice president of communications for Zillow.com, the home-value-calculation Web site. “What that means is that people who qualify for these really good rates … fall under a strict and narrow set of guidelines.”

Even borrowers with decent credit aren’t immune to higher fees and mortgage costs. In general, to get the low rates that make the headlines, borrowers often also are paying more points, or prepaid interest, to bring the mortgage rate down.

Dear President Obama,

Welcome to the desert, I hope you have brought with you a plan for the ages that will help you and your team go down as the “financial saviors” of our generation.

You managed to push a very large stimulus package through that will hopefully help get our economy back on track - or at least on something that resembles a track.

I know that you may find this hard to believe, but when you come to town, the “mainstream media” tries to get out in front of you and “build a story” so they have something to talk about when you are here.

Often times, the story that they are reporting is not the story that is happening - but the story that has already happened.

Please don’t think that reality is represented by whatever is being covered on the evening news. I have seen first hand the “theater” that goes on behind the scenes these last couple of days and it is filled with stories about people who have been foreclosed on (old news) or are in crisis and are currently late on their mortgage payments.

Whatever you see, whatever people are telling you about the “current” foreclosure crisis… I worry it might get worse, possibly far worse than it is now.

The reason I worry?

Most of the people that I speak with every day are not currently late on their mortgage payments but are “about to be”. They are searching for help and information about the ramifications of what will happen if they miss a mortgage payment. Or two. Or what the impact on their credit will be if they do a short sale or a loan modification. Or how long I think that they can stay in their home if they quit making payments.

These people who are about to be late on their mortgage payments so that they can still feed their families are supposed to be the good loans - as in the ones that are not supposed to default.

Is anyone in the news media covering the story of what is so close to happening - so many of what appear to be “good loans” about to go bad?

Not that I have seen.

But America is hurting.

From the inside out.

And I just wanted you to be aware of it, because I am a simple soldier on the front lines speaking with these people every day and I know how to write a blog post.

Good luck - and please be aware that there is a big bulge under the rug in America’s living room.

About the size of an elephant.

Justin

The Experian News is right on the myFICO.com home page

This is  bad news for the consumer who for 5 years has been able to get access to all 3 FICO Credit Scores exclusively from one source, myFICO.com. It appears that Fair Isaac was served a termination notice, and that Fair Isaac must remove all products by February 14th unless a remedy occurs.

Meaning for Consumers?

• Consumers will not be able to get FICO scores from all three bureaus directly. Consumers will only have access to their Equifax and Trans Union FICO Scores.  This Experian FICO Score will only be available via their lenders.
• This will likely mean that more consumers will pull non-FICO scores and that these scores will often be quite different from the FICO Scores that lenders see. 30% of users could have a 50 point swing in their scores. Don’t believe me? Watch my TrueCredit review to see that, at the time I pulled both Trans Union scores, my Trans Union FICO was a 790 and my Trans Union non-FICO was a 739 — a 51 point swing. This can lead to a consumer getting a less competitive deal. For example, a consumer with a 680 non-FICO might have a 750 FICO score, but as they don’t know it, a lender may use this knowledge to offer less competitive rates. Sure, the lender will disclose the 750 score, but they may sense a lack of knowledge on the prospect and offer less competitive rates.

Why is this happening?

• Experian owns FreeCreditReport.com and myFICO.com competes with that site, so they have an incentive to break off the contract. With myFICO only able to offer 2 FICO Scores, their product will face comparative challenges from products which offer 3 credit scores from all 3 credit bureaus.
• myFICO has been experimenting with Free FICO Scores and that may be a threat to the folks at Experian
• Experian is in a lawsuit with Fair Isaac over enterprise related scoring issues.

Steps you can take

• Post a complaint to the FTC.
• Write your congressman.
• Get your Experian FICO Score in what little time is left.
• Write about this on the blogosphere

Question:

How many people should you include on your mortgage application in order to qualify for a loan?

Answer:

As few as possible.

Recently I had a file come across my desk from someone who used to work in the mortgage business. They are in the process of possibly losing their house and were wondering what their options are at this point.

In 2002-2007, the husband made significant amounts of money - enough to qualify for a very large mortgage.

When they bought their home in 2006, the husband worked, the wife didn’t and the husband made plenty of money to qualify for their mortgage on his own. For whatever reason, when they bought the house, both husband and wife decided to be on the loan - even though they only used the husband’s income and credit to qualify.

Fast Forward to 2009 and they are now facing the real possibility of both of their credit profiles going-down-the-tubes unless something happens where they get a loan modification done and they are able to save their house from foreclosure.

“Is there any way to get my wife off of the loan so that at least her credit won’t be impacted and at least one of us will have decent credit?”

No.

Not now.

You can’t remove a borrower from a loan without refinancing and in order to refinance, you are going to have to completely re-qualify for a new loan. In this case, this couple can no longer qualify together - much less with only the husband’s income.

When I was younger, I learned a phrase that can be directly applied to this situation:

“Control the downside and the upside will take care of itself.”

Had this couple controlled the downside by having as few people on the loan as possible (i.e. only the husband) if everything went wrong - they could at least save the wife’s credit in the process.

Which is why when I am asked the question “Do you think my wife should be on the loan with me?”

My answer usually is…

It depends.

We live in a world where our top policy-makers can’t seem to fill out their tax returns properly, so is it really any wonder that those same policy-makers can’t seem to spend our tax dollars with any sense of rationality?

We, the tax payers, have given BILLIONS of dollars to big banks such as Citi, Chase and Wells Fargo. By all accounts, this money has been used to cover up bank losses and to decorate offices and bathrooms with all the accoutrements fit for a SOCIOPATH. Not a single person has explained to me why paying for investor losses makes sense. In a true free-market, this should not have even been an OPTION. The banks made the loans, the banks sold the loans, the banks made money, the banks lost money. NOT OUR PROBLEM. But I digress. I am truly, truly irked by the cavalier attitude shown BY THE BANKS toward American homeowners who are in trouble, or who just want out of their 10% interest rate!

Case in point, I received a call this morning from a woman in Ohio who has a funny situation with Chase.By ‘funny’, I mean totally aggravating. She had an ARM, which was set to adjust this past December, and she inquired as early as LAST JULY about refinancing into a fixed rate. Keep in mind that her LOAN is with Chase, and she was willing to STAY with Chase. 7+ months later, no refinance, and the rate is now 9%. Chase told her to not pay her loan for December, January and February. I could be wrong, but I would put money on them reporting her as ‘late’ on her credit report. Bottom line for her- no help from her current lender. They have declined to modify her loan. Chase wants her to keep paying her 9% rate, or ruin her credit to get out of it. Great, thanks a ton for that! Why don’t you go hire another MBA that will show you how to ruin the US economy in 4 short years?

Doesn’t it bother people that these banks, who made money hand over fist during the ‘boom’, mismanaged everything and now have the nerve to throw up their hands and say ‘Sorry, can’t help you. You have to miss a payment and ruin your credit first. Oh, and you have to lose your job and find out you have a terminal disease too. It’s in the fine print’.????

Am I crazy, or should we all be shouting ‘GIVE US OUR DAMN MONEY BACK!’. If the banks aren’t going to help US, why in the world should we help them?

The point of this silly ‘bank bailout’ exercise was to CREATE lending opportunities, but every time I open my inbox, there’s another program being cut, or guidelines changed. What this does is make it that much more difficult to either obtain financing for a purchase OR refinance. This helps no one. The banks are NOT lending, and all of the ‘disasters’ that were supposed to be avoided are STILL HAPPENING. Companies are closing down, people are losing their jobs, no one is BUYING anything on credit or otherwise. The plan is not working- period. It’s time to recognize that and MOVE ON. Let the banks fail, and use the rest of the bailout money to create JOBS. We need JOBS. We do not need fake money being tossed around so we can buy HUMMERS. If people are working, they will spend money. Put people to work!

What this scenario shows, too, is the issue we have when banks don’t really LEND their own money, and don’t really SERVICE their own loans. When a lender gives up a loan on the secondary market, they no longer have much of a say in how to keep it going. Investors care about one thing, and one thing only- making money. That’s great and all, but when it comes at the expense of the American taxpayer, restraint might be in order! If anyone is going to take tax-payer money, they should be obligated to illustrate UP FRONT how that money will be used. Covering past losses IS NOT ALLOWABLE. Asking homeowners to sacrifice their credit to be able to obtain a lower rate is NOT ALLOWABLE. Cutting programs at a time when we need people to be able to refinance with ease IS NOT ALLOWABLE. 

This is garbage, and to steal a really good quote from somewhere- ‘If you are not angry, you are not paying attention’. It’s time to get mad, and it’s time to call out these people for what they are. Greedy, classless, brainless money-grubbers. And that is an understatement! Here are some thoughts:

1) Require banks who wrote ARM’s and Stated Income/Stated Asset loans to refi people out of them with the SAME documentation requirements. If SISA was good enough then, it is good enough now. Low, fixed-rate mortgages ONLY.

2) Require banks who are receiving bailout funds to document WHAT THEY WILL USE THE MONEY FOR before they get it. Make sure they do what they say!!! Seems like common sense, but for some strange reason no one gets it.

3) Allow banks that have made bad choices to FAIL. They are not irreplaceable. 

4) FORCE lenders who take bailout money to restructure loans based on TODAY’S market value. Investors will lose money, but remember that investments are RISKS and they knew they could lose money going into it. If someone kept bailing out your bad investments, would you learn anything???

5) Regulate the ’secondary market’. The good old days of lending meant banks would lend on their own assets, and keep the loans in their portfolios. That meant keeping money IN local communities and not on some Wall Street execs spreadsheet. Real money, real people. Instead, we have had fake money, and no benefit to our local communities at all. Very, very sad.

If you haven’t read Brian’s post below, take a look.  He outlines why 4.5% mortgage rates will happen and also points out that the window for these rates may be quite short.  I’m telling friends and readers to plan on the low rates only lasting a couple of months.  If we do hit the 4.5% mark, you might be bummed if it only holds for 8 weeks and you didn’t get organized because you thought it would last much longer.

What do you need to do from a credit perspective?

1. Don’t run up your credit card expenses in the next few months.
2. Furthermore, cut back your use of credit cards.
3. Don’t cancel credit cards.
4. Don’t open any new credit cards.  
5. Don’t get a new cell phone provider.  Switching carriers usually leads to a new credit inquiry.  It happened to me when I went form T-Mobile to AT&T.  Just wait.
6. Don’t get buy a car on credit.
7. Make sure you handle the credit loan shopping process in a 30 day window.  Why?  Every loan inquiry is added together and treated as 1 inquiry in a 30 day window.  If you shop and then wait 60 days, you should expect an additional inquiry to hit your credit report and score. 
8. If you and your spouse are going to be on the loan, you need to make sure you both have great credit scores.  Thus, follow all the steps above for both of you.  

The card issuers are making it tougher on consumers lately by reducing credit limits and closing down unused cards.  It’s more important than ever to keep tabs on your credit, as interest rates may not be this low again for decades.

That question was the rallying cry for the recent Presidential Election.  In the following article, I examine the “new” lending guidelines and find that they’re similar to the way we funded loans back at the turn of the millennium.  This is one of the reasons I suggest that borrowers look for a loan originator with a little bit of grey hair.

The article starts off with an answer I made to another “old school real estate professional”, Lenn Harley, back in 2006.  That answer led me to write my market predictions.

READ:  Real Estate Market Outlook For 2009

Enjoy this little trip down memory lane:

From time to time, I am asked questions about the FHA program or FHA loans by various people such as:

• “How long does it take to fund an FHA loan?’
• “What is an average FICO score for someone who gets an FHA loan?”
• “Is the Hope for Homeowners program real?”
• “How come I have never heard of the 203k streamline program?”

I am sure there are many places to get the answers to the above questions, but one quick place to find these answers is on HUD’s website under the FHA Outlook section - the answers below came from their most recent, early-November FHA Outlook report:

How long does it take to fund an FHA loan?

For the first 2 weeks in November, it took an average of about 5.5 weeks from application to closing.

What is an average FICO score for someone who gets an FHA loan?

For people who were buying a home with an FHA loan, the average FICO score for the first 2 weeks in November was 693.

For people who were refinancing a home with an FHA loan, the average FICO score for the first 2 weeks in November was 662.

Is the Hope for Homeowners program real?

In the first 2 weeks of November, for the 40k or so refinance transactions that were done, 69 were Hope-for-Homeowners cases.  40,000 FHA refinances… 69 Hope for Homeowners.  Does that answer your question?

How come I have never heard of the 203k streamline program?

Probably because it is not an extremely popular option for people.  There were 628 of them done in the first 2 weeks of November.

With all this chatter about the 4.5% interest rate range, you’d think we were in for some major life-altering, world-saving changes. Well, that’s just NOT going to happen.

Why?

Because the lowest rates in the world won’t do a thing to curb the underlying reason our housing market collapsed.- The unsustainable and over-inflated housing PRICES.

Because you can’t buy a house if you have NO JOB. http://money.cnn.com/2008/12/05/news/economy/jobs_november/index.htm

Because you can’t sell a house when you owe more than it’s worth without ruining your credit. That’s right- lenders will not consider a short sale unless the owner can prove hardship- and that means they have to stop paying their mortgage! With late mortgage payments on a credit report, kiss owning a NEW home goodbye.

Because when 10% of homes are IN (or nearing) foreclosure, that means that housing inventory will soon GROW. http://www.foxbusiness.com/story/markets/economy/home-loan-problems-break-records/

Rates are already fantastic- 5% on a 30 year fixed, with a point or two, of course. But still, very attractive. What will happen if they fall to 4.5%, on OUR dime??? In reality, very little, to nothing. People WILL clamor to refi to 4.5%, but they won’t be able to because the new government subsidized rates will be for PURCHASES only.

Will the people who CAN buy now benefit? Sure. They’ll save some money in INTEREST. But will their purchase price still be over-inflated? Probably. Will they have a job next year???? I hope so, but the way things are going, I wouldn’t exactly count on it.

Lock when you are comfortable, and don’t bet on some miracle plan that might not ever happen.

Jennifer Monastero

Look out.  To be expected delinquencies are on the rise, almost double historical rates. What does this mean?  Change and Opportunity.   Lenders are going to respond to these delinquencies with trying to balance their portfolios with a heavier weight of on time performers i.e. higher credit score people.  Meanwhile, a recession should push the delinquency rate even higher.    In contrast, the average amount of an outstanding mortgage fell 3.5% to $192,287 in the third quarter.  I’d like to think new home purchases at reduced prices are driving this figure down.  I’m wondering how many quarters it will take to see the delinquency number start to decline.  If you have sat on the sidelines and not purchased a home yet, the timing is really starting look good, especially if you have good credit.

NEW YORK (AP) — The percentage of people who are two months behind on their mortgages shot up in the third quarter from the same period last year, according to credit reporting agency TransUnion LLC.

For the quarter ended Sept. 30, 3.96 percent of people holding a mortgage were at least 60 days behind in payments, compared with 2.56 percent in the 2007 third quarter.

“It’s nothing short of staggering,” said Ezra Becker, principal consultant in TransUnion’s financial services group. Becker noted the rate had hovered at about 2 percent for years, until the second quarter 2007, when it started climbing.

Moreover, the climb is not likely going to slow, he said. “Our projections are that it’s not only going to be increasing but it’s increasing at a faster pace,” he said. The fourth quarter of 2008 could see the percentage of mortgages past due jump as high as 4.6 to 4.7 percent, he said, an estimate that reflects the recession and rising unemployment rates. “This is more pessimistic than what we would have forecast a quarter ago,” he acknowledged.

The highest delinquency rates continue to be in Florida, at 7.8 percent, Nevada, at 7.7 percent, California, at 5.8 percent and Arizona at 5.5 percent, TransUnion data showed. Mississippi is fifth, at 4.6 percent.

The states with the lowest delinquency rates were North Dakota, at 1.4 percent, followed by South Dakota, at 1.6 percent, Montana at 1.7 percent, Vermont at 1.8 percent and Wyoming at 2 percent.

The figures are culled from TransUnion Trend Data, which consists of 27 million consumer records randomly sampled each month from the credit reporting agency’s national consumer credit database. TransUnion uses actual reported data on past-due payments. The widely-followed measure of deliquency rates from the Mortgage Bankers Association, a voluntary survey of over 120 mortgage lenders, is due out Friday.

Becker said it is unlikely that mortgage delinquency will level off before 2010.

Meanwhile, while the number of delinquencies rose, the average amount of an outstanding mortgage fell 3.5 percent to $192,287 in the third quarter.

The highest average outstanding mortgage balance is found in the District of Columbia, at $364,015, with California following at $358,899. Hawaii, Nevada and Maryland round out the top five. The lowest average mortgage balances are found in West Virginia, at $94,910, with Mississippi second to last at $103,680. Oklahoma, North Dakota and Arkansas round out the bottom five.

While someone who is 60 days past due on their mortgage is not yet threatened with foreclosure, Becker said it is a strong indicator that someone might not be able to catch up. “Serious delinquency is the point where it’s pretty unlikely that you’re going to be able to come up with the money to bring yourself into good standing,” he said.