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Carver Communications - Index

Carver Communications - 4.15.09 - Index

By Erika Naegelin,
CMPS & Sr Lender PrimeLending
Credit and Today’s Borrower
Today’s economy has put added
pressure on our industry. Investors have
pushed credit score requirements up to levels
we are not used to, let alone the consumer.
HUD and the VA has no set credit
score minimum, yet, investors have placed
minimums in order to purchase the loans.
Fannie Mae and Freddie Mac have placed
loan level price adjustments (LLPA) on
conventional loans based on score and
down payment levels. These LLPA’s have
caused the bar to be raised on what we classify
as “good” credit from 660 previously,
to 720 in today’s environment. A credit
score less than a 720, the borrower pays for
the lower scores in a higher rate or discount
points; or a combination of both. Mortgage
insurance companies are no longer willing
to risk high debt to income ratios or lower
credit scores, accepting nothing less than a
660 fico score (and this is with specific
requirements).
The national average for credit
scores is 680; while Texas is sitting at the
lowest average in the country at 651. It is
important for Realtors to understand the
challenges the borrower and lenders face as
well as the costs incurred as a result of the
credit scores. Knowledge is power! A client
can no longer just call up a lender and talk
rate. There are too many variables involved
and too many barriers we have to discuss
and overcome before a rate can be set. A
professional lender has a wide array of
questions they will ask before quoting a
rate to be sure the answer they give is 100%
accurate.
FICO 08 is a new credit scoring
model and is in the process of being rolled
out. Fair Isaac Corp. rolled out FICO 08
after extensive research and analysis to better
predict the risk of a borrowers default.
TransUnion has already begun using the
scoring system as of Januray 2009. Equifax
is rolling it out this fall; while Experian is
in the midst of a lawsuit against FICO and
will not adopt the system until resolved.
FICO predicts that a majority of consumer’s
scores will increase as a result of
FICO 08. Those with higher credit scores
will likely see an increase and lower credit
scores most likely will decrease. The range
April 15, 2009 REAL ESTATE NEWSLINE 29
of scores will remain the same at 350-800.
FICO 08 will have the following
impact on credit scores:
• Ignores debt of less than $100 that
goes into collection (balance at onset)
Doesn’t apply to in-house collection depts.
however.
• Looks at the total picture more,
rather than individual accounts
• Docks you for closing accounts
• Values diversity of debt (ratio of
credit cards, auto loan, home loan, etc.)
• Rewards unused credit ($0 balances
or low balances)
• Allows spouses and kids to piggyback
on credit, also known as Authorized
User Accts
• Minor incidents will impact scores
less
• Docks more for maxing cards out
• Applying for new credit may hurt
less
• Actively using accounts you do
have will become more important (not letting
the account go inactive)
A few credit myths are as follows:
• Pulling credit over 10 times has no
more impact than pulling it 5 times. Pulls 1-
10 count, and once you hit 11 this has no
impact on credit scores. TRUTH.
• Mortgage & Auto Loan inquiries
within 45 days count as one hard inquiry
only. TRUTH.
• Running your own credit on
www.annualcreditreport.com does not
count as an inquiry and does not hurt your
credit. BUT does not provide you with the
REAL credit scores. Only creditors can pull
credit with scores. This does however provide
you a picture of the actual credit history,
errors, etc. TRUTH.
• Paying off a collection helps my
credit. Not TRUE, only if the collection is
less than approximately 2 years old will this
help your credit. Old ones, will actually
hurt your credit if paid. This activity restarts
the DATE OF LAST ACTIVITY
(dla) on the report, and will drop scores.
• I can just hire someone to fix my
credit even though the items are valid.
MYTH. Valid items will stay on your
report. It might drop off for a month or so,
but trust me, it does come back to haunt you
later.
Preparedness is the key to a borrower
purchasing a home or even a car. Fair
Isaac Co. (FICO) recommends a buyer prepare
up to 6 months in advance to further
enhance their credit and maximize scores
when it is in fact time to buy. A client can
be properly prepared by following a strict
credit plan that a mortgage professional can
prepare by reviewing and analyzing a credit
report in advance. Some plans can take
less than 30 days, others as long as a year or
more depending on the clients credit severity.
Before you spend windshield time and
money be sure your client is in the position
to buy now, and has minimal risk of changing
scores once you are contracted. Stay on
top of your business and it will head in the
right direction; properly advise your clients
to work with a seasoned professional who
can help guide them alongside you.