Posts Tagged ‘REO truth’

YOU AND YOUR CREDIT (FICO) SCORE

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 FICO scores measure the risk that an individual will default by evaluating their history of credit management. The exact formulas used are top secret but FICO has given the following components and the approximate importance of each:

35%- Payment History. Late payments of bills such as Mortgage, Credit Cards, Car loans etc will lower a person’s FICO score . Paying bills as agreed over time will improve the score.

30% – Credit Utilization. The ratio of current revolving debt (Credit Card and Charge Account balances) to the total available credit (Credit Limits). Consumers can improve their FICO scores by paying off debt and reducing balances to less than 50% of the available credit. Closing existing revolving charge accounts can have a negative effect on this ratio, and lower your score. Before closing accounts be sure to do some more research, or get qualified advice.

15% – Length of Credit History. Time improves FICO scores without any action other than paying all bills on time.

10% – Types of Credit Used. FICO scores are improved by having a good history of managing multiple types of credit (Installment, Revolving, Consumer finance etc).

10% – Recent Credit Applications. Multiple requests to obtain new credit over a short period of time can hurt an individual’s FICO score. However, individuals shopping for the best rate for a Mortgage or Auto Loan over a short period will not see any negative impact on a FICO score.

For more detail on this and other Credit Related questions the following link is a Gold Mine of factual information.

http://www.myfico.com/CreditEducation/

The REO Urban Legend

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I’m seeing more and more qualified home buyers holding back from actually buying based on the continueing folk legend that Banks are restricting the release of REO properties to avoid a glut of inventory which would drive prices down. The story is that a huge surge of new REO’s are coming to market in the fall and that will be the time to be a Buyer.

I believe this is total nonsense as the Banks have no sensible reason tho do this, and a very strong financial reason to do the exact opposite.

It has always been my understanding that once an NOD (Step 1 in the actual foreclosure process) is recorded the Bank has an official “Non Performing Asset” which must be excluded from their FDIC required reserves, and must be replaced immediately from other assets. This inevitably reduces the amount available for new lending.

If this is so then the Banks are strongly motivated to get whatever they can, as quickly as they can, for any REO properties they hold. The money recieved can then go back into the “Funds Available for Lending Pool” from where it can be loaned out to create new mortgages i.e. “Performing Assetts”. This is how banks make profits.

Can anyone comment on my understanding of this and offer suggestions on how we can counter this market distorting perception.