Archive for the ‘Credit’ Category

FICO TRUTHS

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FICO logo

FICO logo (Photo credit: Wikipedia)

Whenever you apply for Credit for any of the 5 standard purposes the Lender will require a FICO report. This will be different for each category:

1. Mortgage – Most complete.

2. Auto – Next most complete.

3. Credit Card – Next most complete.

4.Personal loans – Next most complete.

5. Installment loans – Least complete.

Each will give a different FICO Score, Lowest for a mortgage, and highest for the Installment loan.

DO NOT CONFUSE ANY OF THESE WITH THE “FREE” Credit Reports you can get from all 3 of the major Credit Bureaus (EQUIFAX, EXPERIAN and TRANS UNION).

THESE ARE NOT FICO REPORTS and are of no practical use to anyone but you.

Factors contributing to someone's credit score...

Factors contributing to someone’s credit score, for Credit score (United States). (Photo credit: Wikipedia)

FICO IS BROKEN.

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FICO logo

FICO logo (Photo credit: Wikipedia)

 

FICO FIXING

 

It’s time to tame the FICO god to which the Dinosaurs of FANNIE MAE and FREDDY MAC  bow down, and at whose bidding the American mortgage industry has been tied up by silver ropes.

While I still hold the mortgage lenders greatly to blame for the financial misery of the last 7 years, I also accept their strong desire to make more and better loans now. However they are prevented from doing so by the restrictions required by the industry Overlords (FANNIE and FREDDY).

No matter your politics, our current mortgage system requires a Secondary Market Maker such as we already have with FANNIE and FREDDY. For the vast majority of cases If Bank “A” gives you a mortgage it is planning to sell it to one of these 2 entities.  They in turn will package it along with thousands loans more loans and sell them on to an Institutional investor (i.e. a Pension management Company) to become part of their long term portfolio.

The money they gave to Bank “A” is now available to make another mortgage for another QUALIFIED buyer NOTE the term QUALIFIED because this is where FICO comes into the story.

FANNIE and FREDDY will only buy the BANK “A” mortgage if it meets their qualifying guidelines. One of the most important is a sufficiently high FICO score.  Effectively this means they cannot make a mortgage loan to someone whose credit is excellent but is not reflected as such due to the out of date structures of the FICO score Providers, EQUIFAX, EPERIAN, and TRANSUNION.

These procedures go back to the 1980’s and simply do not reflect today’s society. Their inability to allow for alternate ways to measure financial stability (income self employed and Individual Contractors), Behavioral history, and other liquid assets means that approximately 25% of all qualified potential buyer are unable to get a mortgage. The Banks would love to be able to serve them but without an acceptable FICO score cannot do so.

We desperately need to bring FICO up to date and incorporate it in a Mark 2 version to include some of the other accredited Fair Credit Reporting tools freely available. A primary example is the VantageScore system designed for exactly this situation.

There’s no need to lower credit qualifying standards.

Just bring them into the 21st Century and give the locked out 25% the same home ownership opportunities as the rest of us.

NEW 3% DOWN PROGRAMS

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NEW 3% DOWN PROGRAMS

Great news for a large number of the potential 1st time home buyers who have been locked out of the market for the past few years by over cautious Lenders.

The new programs just announced are aimed at borrowers who have higher than required Income but less than the minimum down payment.

Both FANNIE MAE & FREDDIE MAC are going to accept 3% Down Payment on

FICO logo

FICO logo (Photo credit: Wikipedia)

new fixed rate loans to 1st time buyers.

FICO Scores in the 640 range may be able to qualify if there are compensating circumstances i.e. recently graduated, earning large income, but major debts from Student Loans etc.

Details are still coming in but this is major good news for this underserved segment of the market.

MORTGAGE CREDIT CLARITY

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Factors contributing to someone's credit score...

There are many different credit score providers out there. The best known of these are Experian, TransUnion, and Equifax, due to their being the most important when applying for a mortgage.

As they all use slightly different scoring algorithms, each will provide a different FICO (Credit Score) for any given person.

 

All regular Mortgage lenders have minimum acceptable FICO score requirements for anyone wishing to get a mortgage approval.

 

The most important thing to be aware of is that the credit report you get directly from any of these bureaus is not the same as the one the Mortgage Company obtains. (Theirs has much stricter requirements).

 

You might personally be given a 660 score, but when the Lender runs your credit they get a 640 which may not qualify for their loan on the terms you were hoping for.

 

I know of at least 12 other Credit Bureaus used by different businesses with industry specific standards, but these are not relevant to Real Estate Mortgage issues.

 

If you need help improving your Credit Score be very aware that there are more scam artists than reputable professionals in the Credit Repair business.

I can personally recommend Ken Strey who can be reached at:

 

Scorewell Inc. | 925-478-4732 | kenstrey@scorewellinc.com | http://www.scorewellinc.com 1371 Oakland Blvd Suite 201 Walnut Creek, CA 94596

CREDIT SCORES and MORTGAGES

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As most of us know our Credit Score (FICO) has a major influence on whether we can get a Mortgage at all. What’s not always understood is that it also has a huge impact on the interest rate we can get. Here’s a simple way of figuring out how big that impact can be for different scoring ranges: 

*    CREDIT SCORE BELOW 620:

A credit score of 620 or lower places you in the “sub-primeborrower category. If you are considered a sub-prime borrower, you will likely pay 3 percent more on a mortgage loan than someone with excellent credit and will likely pay double-digit interest rates on a home equity loan or a line of credit.

*    CREDIT SCORE OF 620 TO 674:

This credit score range is still considered below optimal. If your credit score falls in this range, you will likely pay 2 percent more than borrowers who boast excellent credit ratings.

*    CREDIT SCORE OF 675 TO 719:

If you find yourself in this credit score range, you should find it relatively easy to procure a good loan. You will typically pay up to half a percentage point more than a borrower who has excellent credit in regards to a loan.

*    CREDIT SCORE OF 720 AND ABOVE:

If you possess a credit score at or above 720, you have an excellent credit score. This means you will be able to acquire a lender’s most favorable rates and you are in the position to shop around thus finding the best loan for you in regards to term, interest rates and other factors.”

by the way….

Factors contributing to someone's credit score...

Factors contributing to someone’s credit score, for Credit score (United States). (Photo credit: Wikipedia)

 

If you are considering getting help with Credit Repair be aware that the vast majority of organizations claiming to do this are scammers and/or crooks.

I can personally recommend Ken Strey for a professional service. His contact info is below. 

Scorewell Inc. | 925-478-4732 | kenstrey@scorewellinc.com | http://www.scorewellinc.com

 

 

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MORTGAGE DELINQUENCY RATE DROPS NEARLY 25% IN LAST YEAR

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Things really are getting better. English: Mortgage debt

The mortgage delinquency rate (the rate of borrowers 60 days or more delinquent on their mortgage) dropped 23.3 percent in the past year, ending the third quarter at 4.09 percent, down from a year earlier when the rate stood at 5.33 percent, according to data gathered from TransUnion’s proprietary Industry Insights Report. The mortgage delinquency rate also dropped on a quarterly basis, down 5.3 percent from 4.32 percent in the second quarter, the seventh straight quarterly decline.

All 50 states and the District of Columbia experienced a decline in their mortgage delinquency rate between third quarter 2012 and third quarter 2013. Five states – California, Arizona, Nevada, Colorado, and Utah – experienced declines of 30 percent or more in their mortgage delinquency rate. Three states – California, Florida, and Nevada – had double-digit percentage drops in the last quarter.

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SMART FHA CHANGE

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A great deal has been writen in the past few weeks about the MAJOR good news from FHA. It’s all useful to the professionals but let me try to take out the fluff and show just the bones.

As of August 8th, 2013, people who recently lost their homes due to temorary hardship in any of the following ways have a good chance of qualifying for a new FHA loan:

0. Foreclosure.

o. Deed in Lieu of Foreclosure.

o. Short Sale.

o. Bankruptcy (ch 7 and 13).

If you think you might qualify under the new guidelines talk to a Loan Agent who has strong FHA background. Understand that not all of them have strong FHA experience.

Logo of the Federal Housing Administration.

Logo of the Federal Housing Administration. (Photo credit: Wikipedia)

 

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VANTAGESCORE

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FICO logo

Factors contributing to someone's credit score...

Factors contributing to someone’s credit score, for Credit score (United States). (Photo credit: Wikipedia)

There’s a lot of talk about the new Credit Scoring model called VantageScore. Proponents say that it will boost your score and help people with no credit history build a strong credit score.

Here’s the bottom line: don’t waste a single memory cell on it.

Now… the back-story for those those want it:

Until the majority of lenders are using a new scoring model, the FICO score will remain the main credit scoring system out there.

As of right now, major lenders like Fannie Mae and Freddie Mac are not using VantageScore. In fact, I have never heard of a single lender who does use it.

When deciding whether to extend a loan to you, your potential creditors want to know how risky you are. Currently, the model they use to determine your creditworthiness is FICO, and almost exclusively FICO.

So if you want to qualify for a loan, or if you want to qualify for better terms on your existing loans/credit cards, you must follow the FICO model and do things which will improve your FICO score.

Ignore everything else because it will not make an ounce of difference if your lender is not looking at it. All it will do is paint an unrealistic picture of what loan terms you can expect.

I want you to focus on reality. And the reality is this: Almost every lender out there relies on FICO and only FICO when determining a credit score.

NOTE 1: When referring to FICO I mean the credit scoring model used by the 3 major Credit Bureaus, EQIFAX, TRANSUNION, and EXPERIAN.

NOTE 2: Be very careful of anyone claiming to be able to improve your Credit Score. I am aware of many scams but only 3 legitimate services that will actually get it done.

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SHORT SALES-THE END??

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Silicon Valley

Silicon Valley (Photo credit: Wikipedia)

For about 2 years now my market (Silicon Valley) has seen a steady increase in sales prices. This is finally causing changes in Banks approach to Short Sales.

I just had my 1st experience where a Bank (BofA) cancelled a previously approved short sale when they realized that the current value of the property is now higher than the amount of the loan.

They have now re-started the Foreclosure process where they can expect to get all of their money back and not have to take a loss after all.

This also gives the owner/borrower the opportunity to minimize the Credit hit by selling the property before the foreclosure completes, and maybe even get a little money back themselves.

I firmly believe that the age of the Short Sale Specialist is coming to it’s end and all those useless seminars will disappear with them.

However, there

Bank

Bank (Photo credit: 401(K) 2013)

for the home owner who is falling behind  if the Banks begin to think it might be smarter to foreclose and lose a lot less than previously, rather than expend time and effort trying to keep the afloat.

The next 6 month will be very interesting.

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THE DIGNITY MORTGAGE

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About 6 years ago the greedy incompetent Banks managed to effectively take mortgages back to the Dark Ages. Since then the idea of having mortgages designed in the interest of the Borrower has been totally abolished.

Now at last we are hearing stirrings of intelligent ideas coming from the industry.

BEFORE READING THE REST OF THIS ARTTICLE PLEASE BE AWARE THAT THERE ARE NO SUCH THINGS AS “SUB PRIME MORTGAGES”. THERE ARE ONLY “SUB PRIME BORROWERS”.

Housing advocates are pushing for a new type of loan, called the “Dignity Mortgage,” They are approaching bankers and federal regulators proposing this.

The Dignity Mortgage would be geared to applicants who have rebuilt their finances since losing their homes and or jobs during the past 5-6 years, but who have been able to get steady employment and repaired their credit scores since then.

Despite this it is very difficult to get a regular mortgage from the standard lenders at this time says Faith Bautista, who heads the National Asian American Coalition.

The Dignity Mortgage would target Borrowers who had a good credit history prior to the collapse, and have been able to save at least a 10% down payment since then.

Since it would be a higher risk loan, it would come with a higher rate for a higher risk. For example, borrowers would pay 1.25 percentage points above more creditworthy borrowers (e.g. 4.75 percent if more A+ borrowers were paying 3.5 percent), the Los Angeles Times reports.

However, if borrowers made timely payments for five years, the deal could greatly improve.

“At that point, the extra money they had paid in interest would be used to reduce the mortgage balance, and their rate would be cut to whatever borrowers with sterling credit and 20 percent down payments were charged at the time the loan was made,” the Los Angeles Times reports in explaining the proposal.

Source: “New Type of Subprime Loan Pushed,” Los Angeles Times (Jan. 29, 2013)

Loan

Loan (Photo credit: Philip Taylor PT)

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