Bill McCord's Blog

A large increase in Mortgage loan applications for Buyers is another strong sign that the market is getting back to normal in many parts of the Country. Overall the number of applications for mid February to mid March was  22% greater then for the same period last year.

When added to the recent large increase in the number of Pending sales contracts this bodes well for a much stronger market overall.

Not just a Mortgage Issue

 Most people know that your Credit Score (FICO) has a significant effect on whether you can get a Mortgage.

What is not generally known is that FICO is increasingly being used by Employers, Insurance Companies,

Utility Companies, Apartment Complexes and a growing list of other organization which provide services for regular payments.

These and many other groups consider it a good indicator of general reliability and whether bills will be paid on time.

The new FICO® 8 Score is fast becoming the new standard. It has already been adopted by over 3,000 banks and other financial institutions.

But is it good news or bad news for you as a consumer?

Their are multiple small changes but the two I see as the most significant are:

1. Multiple late payments will now carry a heavier penalty than in the past. These are the 30, 60, 90 day lates that show up under “Derogatory” accounts.

2. The penalties for using too much of any credit are increased. If you have any type of credit with a maximum amount available your score will be lowered if you owe  more than 30% of the total maximum allowed. This can be your VISA or Sears card, or a Home Equity Line of Credit. NOTE.

 This applies even if it is a company credit card in your name.

The result of these changes can mean your credit score can be lowered even if you never had a late payment in your life. Too much credit availability is a no-no. This will apply most frequently when applying for a mortgage, when the bank will assume your total debt to be the maximum amount of money you can get at with just your signature.

Here’s one more example of a Bank pretending to do something positive about loans to defaulting Sub-Prime borrowers, while actually increasing their payments.

While 90% of mortgage lenders resist  handing out any type of loan modifications, despite being advised and even pressured by the government to do so, Bank of America claims it is now taking the lead. The initial B of A model seeks to conditionally (read: unlikely) cut up to 30% off the principal of 45,000 home mortgages nationally. Note: This is not the same as a reduced payment.

This program is very limited in breadth and scope. It applies only to those homeowners with negative amortizing ARM’s.  The principal reduction program will not be available to underwater homeowners with fixed rate mortgages or ARMs with amortized payment schedules. B of A claims their goal is to reduce homeowners’ monthly payments to an amount equal to 31% of their household income – the parameter set by the federal government two years ago, in 2008, based on long-standing fundamentals of mortgage lending.

In practise this program will apply only a few of the loans B of A inherited when it took over Countyrywide; specifically (negative amortization loans), where the Borrower is at least 60 days late!!

A more important problem is that the proposed modifications will usually result in a HIGHER MONTHLY PAYMENT for people already unable to make the current minimal payment.

For a delailed analysis of this Public Relations Excercise check http://blog.firsttuesdayjournal.com/2010/04/lenders-attempt-to-lock-homeowners-into-paying-underwater-homes/