How does market confidence affect availability of credit?
The current lack of confidence in Banks and Financial Institutions as our folly has come into the public eye has led to a concern over the commitment of banks to lend money to consumers. HUH. Banks make the mistakes and consumers pay? Ah but the the BIG question is...just who is lending and for how long?
For starters, a new FICO-08 Credit Scoring model is in the works at Fair Issac. This model, due for release in a few months, is designed to 'drill down' and more effectively split borrowers into more accurate risk categories. While we are hearing different reports about this model, the overall effect on lending could mean banks will feel 'more informed' and confident about to whom they are lending. New tighter rules for appraisals, national licensing of loan originators, and higher lending guidelines are helping validate higher standards all around. All good.
Of course, nothing beats good old underwriting guidelines applied by trustworthy human beings who know WHAT they are looking at. Here's a very revealing news item showing how some banks circumvented their own guidelines via 'stated income' or 'liar loans'. Check out this MSNBC video clip on the biggest financial abusers, and how they broke the rules.
Some staff inside banks were offered incentives to lie! MSNBC Clip2
Having seen that news story and the results of these practices over the last two years, it's no wonder we have tighter lending guidelines today. Laws are created when we have lawlessness...so this is the banking world's way of making the lending arena safer for borrowers and bankers alike. Surprisingly some of the very banks who committed these loans are still in business. Some of these very banks are, inexplicably, receiving bailout funds. Not everyone 'gets it' how incredibly greed based our systems had become.
So, the question lingers for folks considering their home loan options today: should you borrow now or wait? If you can qualify now, can document sufficient income and can afford the loan, you have done your homework and the investment is within your means-- then now is a very good time to buy or refinance. It's not going to get easier to borrow...in fact we expect even tighter guidelines for quite a while in a correcting swing of the pendulum toward conservative standards.
Happy Spring! Loannetter
Tuesday, March 24, 2009
Wednesday, February 18, 2009
Calling All Credit Card Holders!
Creditors have been calling all their cardholders to inform them that their credit cards are either being closed or their credit limits are being lowered. This has broad reaching implications on your 'available credit' and thus your FICO score.
Happy Recovery!Loannetter
Why Worry?
The fact is, your almighty FICO credit score is comprised of many factors, not the least of which is how 'fat' your balance is against your available credit limit. So in the case of having your limit lowered, usually to your existing balance (i.e., what is owed now) means the system sees that card as maxed out. If you previously had 50% or more available and unused, the system saw you as managing your credit within reason. 30% or less is the ideal limit for optimal credit scoring. 100% of your balance being used indicates higher risk therefore your FICO Score will be lowered. Since the system analyzes your behavior every month for such things as late payments or limits being reached, the effect of losing your available credit will be four fold:
1. You now have a maxed out balance and
2. You have no available credit on that card.
3. Your FICO score will go lower and affect your ability to get a mortgage or other credit.
4. Because of these 3 factors, your interest rates will be raised on your cards. Hardly fair!
The situation is compounded when every bank does this with every card you hold so suddenly your available credit plummets and so does your credit score. The only small consolation here is that everyone you know is probably having the same experience, so eventually the entire credit system will lower it's settings to the new risk factors. (Credit scores are averaged against other credit users.)
What Can You Do About It?
Well, you can try calling back and pleading your case to restore your balances and re-open your cards if they were closed. The chances of your success are limited if you have ever in your life missed a payment or have a habit of going over your limit. I know of one client who called their bank to request reinstatement and he succeeded...but this is quite rare! Needless to say this person had a long and perfect record with the company. He was polite and convincing. He was also lucky to get someone on the phone who spoke English and who agreed with him!
Others have found less success. The fact is, many folks are relying on their available credit as a backstop these days. You may be hanging out until your customer pays you or your unemployment kicks in. Please remember you are not alone.
Speak Up, Out and Often!
I would urge citizens write their congress persons and speak or write about this particular injustice being meted out by the big banks. The more your representatives hear from their constituents, the more likely they can have an effect on the behavior of our Federal Trade Commission. After all, the Consumer Protection Act is supposed to protect you, and advocate for consumers, not creditors.
Because your credit information is deposited with the three government sanctioned Credit Bureaus, once this system gets wind of changes in your credit patterns, whether caused by you or your credit card companies, it dumbly starts penalizing you for this perceived new 'risk' and lowers your FICO score. High debt to credit balances are top risk factors right up there with late payments. This is not something you can dispute, unlike an inaccurate charge or other record.
Housing Rescue Plan to the Rescue?
I am hopeful that as part of the 2009 Housing Rescue, the powers that be will revisit the arcane and increasingly irrelevant FICO Scoring system to help get more folks into home-ownership. Yes we can!
Happy Recovery!
© copyright 2009 susan templeton loannetter
Wednesday, September 24, 2008
Loan Modification FACTS
Explore Loan Workout Options:
If you have an Adjustable Rate Mortgage that is adjusting or have missed mortgage payments which has impacted your ability to refinance, you still have options in this market. Your lender may offer several 'loan workout' options including but not limited to: reinstatement, forbearance or a new repayment plan to suit your situation. When you call your lender directly ask for a supervisor for best result!
BUT FIRST If you are not sure how to proceed, the first step is to ask your lender directly about potentially working out a solution.
Before you call, read about your options online at the HUD site.
http://portal.hud.gov/portal/page?_pageid=73,1827467&_dad=portal&_schema=PORTAL
Success to you! Loannetter
If you have an Adjustable Rate Mortgage that is adjusting or have missed mortgage payments which has impacted your ability to refinance, you still have options in this market. Your lender may offer several 'loan workout' options including but not limited to: reinstatement, forbearance or a new repayment plan to suit your situation. When you call your lender directly ask for a supervisor for best result!
FHA Rescue and Secure Plans FHA officially offers a range of options for people needing to get out of ARM loans or who may be in arrears. Not all lenders offer these plans. Even FHA is teetering on risk based pricing hits (translated: higher interest rates) to encourage lenders to fund these loans. Certainly you should speak with an FHA licensed broker or bank about whether you will qualify. Officially the FHA has advised they perfer no FICO score or a minimum of 500. The banks who fund FHA loans have very strict loan limits (by city/county) and very few will fund under 580 FICO scores. Unfortunately, with guidelines tightening on all fronts, alternative credit reports are no longer acceptable in this market.
Mortgage Modification For longer term issues impacting your ability to afford your current mortgage, you are advised to pursue mortgage modification with your current lender. Mortgage modification may help by adding missed payments to your current loan balance while adjusting the adjustable rate to a fixed rate. This may be accomplished by extending the number of years on your loan, thereby lowering the payment within your means.
Mortgage Insurance Loan: If your mortgage is insured (via Mortgage Insurance) you may qualify for a one-time interest-free loan from your MI guarantor to bring your account current and pay it back within a certain time frame. Your lender handles this process since they are essentially the insured party.
Loan Modification Resources: There are many companies out there who will help you work with your lender to modify your loan for a fee. These are legal negotiators whose fees range from $1000 to $4,000 or more. Your success depends on your circumstances and you ability to negotiate effectively with lenders. Modifiers are professionals who have the inside story with lenders.
In Washington State, our DFI has proposed new rulings that only Licensed Loan Officers and Brokers can offer this service to protect consumers. You should not have to pay more than $500-1000 up front. If they don't get an acceptable result, you should get your money back less an application fee of around $300. My sources tell me the lenders are very motivated to keeping people in homes. They do NOT want your house back.
Private Options: I've been speaking with several private lenders about options to refinance out of situations.... but they are very strict on minimum 580 to 600 FICO Scores in this market. Most private lenders want hefty fees up front and interest rates starting at 10% for higher risk loans. Since some ARM loans are already adjusting higher than that, a private lender could be a very decent option if you are in too deep to have your loan modified.
Non Profit Counseling Hotline: For borrowers in arrears or nearing a rate reset they know they cannot afford, call Hope Alliance's hotline. Hope Alliance is a non profit HUD sponsored counseling organization who will help you determine the parameters of your situation. After which , they will petition your existing lender on your behalf. The lender will then respond directly to you, after which you are on your own to negotiate.
Call: Hope Alliance 800 449 9392 www.995hope.org
BUT FIRST If you are not sure how to proceed, the first step is to ask your lender directly about potentially working out a solution.
Before you call, read about your options online at the HUD site.
http://portal.hud.gov/portal/page?_pageid=73,1827467&_dad=portal&_schema=PORTAL
Success to you! Loannetter
Wednesday, September 17, 2008
Housing Bill Promises!
Congress Passes Housing Bill to Assist Homeowners
Takes effect January 1, 2009
The newly passed Housing Bill promises more help for homeowners facing foreclosures. What we don't know yet is how Congress is going to get private banks to actually deliver these programs. Much of the legislation is designed to better inform consumers and this is very welcome news to our industry!
Officially, Congress has set aside more money for FHA guaranteed loans and will pump more money into Fannie Mae and Freddie Mac. Since Freddie and Fannie, both Goverment Sponsored Enterprises, or GSE's were placed in conservatorship shortly after the Housing Bill was passed, the new heads have not yet declared if their recent guideline changes (tighter) will continue as planned. In fact, FHA has areadly delared a moratorium on their own risk guidelines so the whole situaiton is very much up in the air. These risk based guidelines translate into higher interest rates and fees for marginal credit or declining values...affecting many many people across the country.
What most people don't understand is that 'government lending' means a percentage of guarantee to the final lender who is going to hold the note. They still have to like you and your property!
This bill does raise current loan limits -- which means an individual borrower can borrow more than the previous FHA limits for their locale. Reading closer, the new First Time Homebuyer tax credit must be repaid over a fifteen year period. It appears these measures are designed for short term relief.
Good or Bad News? The FHA minimum down payment was raised to 3.5% from 3% by the new Housing Bill. The bill has also outlawed 'gift funds' but family gifts are still allowed. Lenders have become much tougher about keeping your debt to income ratio under 43% and verifying your income. If you don't qualify for a full doc FHA loan your next best option is to have greater down payment funds. If you have 20% down for a convetional loan, you won't need mortgage insurance unless, again the property is in a declining area...so plan on an extra 5%.
Investors are also facing lower limits on how many properties they can mortgage (4 total mortgages). It's a good idea to speak with a financial advisor about setting up a savings plan if you are planning to buy a home in the next year or two!
January 1, 2009 is when these new guidelines come into effect. If you can qualify for a refinance or purchase loan before then and need to make a move before your ARM adjusts--don't wait! Rates, while volatile, appear to be rising. 'FHA Secure' interest rates are currently higher by 1.5 - 3% depending on your risk category. 'FHA Rescue' (the new program) is likely to be even higher.
Do You Know Where Your Money IS? Considering all the bank failures, mergers and buyouts, it's a good time check out your bank and see they how stable they are: click this link to look and compare bank ratings:
http://www.bankrate.com/brm/safesound/select.asp?insttype=0 (click or copy and past this link into your browser)I am pretty sure if your bank was doing something risky they have ceased to do so given the new level of FDIC oversight. So while they may be less inclined to lend--this is to protect your deposits!
Buying a Fixer Upper? When buying your own home, it's easy to add up to $35,000 cash for renovations or $6,000 for energy efficiency improvements through FHA streamline renovation "Green Loans". We also have full construction and renovation loans through our specialist construction lenders. It really is a great time to buy, build or renovate if you are in good shape financially. Check out my Buildnet Blog.
Improve Your Fund-Ability! The most important thing you can do these days to improve your chances of getting a loan is to raise your 'middle' FICO score to 720 or higher (850 is the top). Check out other articles in the menu at right.
Having sufficient assets to close is absolutely essential these days.Remember when the rule of thumb was no more than 25% of your income for your house payment? Those days may be returning. While you are riding your bike to work -- take time to appreciate the scenery. You might find a nice little house you can afford along the way!
Happy shopping! Loannetter
Click this credit link to order your lender report our secure site.
© copyright 2008 susan templeton loannetter
Saturday, July 19, 2008
Stop Your FICO From Becoming a Fido!
Online Mortgage Shopping Impacts FICO Scores
If you've considered checking out an online mortgage site: think again. What they don't tell you is that their network may comprise multiple agents. Each may pull your credit report (separately) over a course of hours or days while they review your loan options.
While all this is going on, your FICO score is taking a nosedive. Each mortgage inquiry can negatively impact your score 3 points. Each time. So if 10 brokers pull your credit in one 90 day period you could be 30 points worse off. And here's the scary part: each of those 10 brokers could actually submit your application to another 10 banks who also check your credit and that little exercise just cost you 30 points per broker...so the potential for damage is exponential. Because banks and lenders have strict FICO score requirements, a lower FICO Score can affect your qualifying for the loan you want. So much for convenience...
What is a FICO Score?
Invented by the Fair Isaac Company, FICO scores are based on a scale of 300-850, there are three FICO scores issued to you--one from each of our three National Credit Bureaus: Experian, Transunion and Equifax. These are our government respositories of information collected from creditors, courts and municipalities across the country. Not all creditors report to all three bureaus, so your score numbers will vary somewhat. They also collect information reported by collection agencies, government sources and other brokers who submit information about you to verify your identity when you apply for a mortgage.
FICO scores are one measure that lenders use to evaluate you, by placing you in risk brackets. These brackets (a range of score numbers) supposedly determine your likelihood of defaulting on loans. Every time you apply for credit, be it a cell phone account or credit card, you can bet your credit is being pulled.
Your Credit Report is not the same thing as your FICO Score.
The report is prepared by a Credit Reporting Agency that 'pulls' the information on file from the three National Credit Bureaus. Different lenders may prefer the score from a particular bureau, but most use the 'middle score' of the three scores. FICO scores are based on complicated logarithms which indicate how well you manage your debt.
What's a 'Good Score"?
The difference depends upon the lender and their own guidelines, but basically 680-740 is required for the best rates for conventioanal loans. The difference in a 679 and a 680 score (the higher the better) could make quite a difference in the final analysis. Your score also determines whether you qualify for a 'no doc', 'stated', or 'full doc' loan. The higher your score, the greater the trust lenders have in the information you provide. The lower your score, the more verification (paperwork) lenders require. Anything over 740 is gold standard. Lenders have restrictions on funding mortgages below certain scores but some capitalize on this niche by charging higher rates.
In late 2007, Fannie Mae and Freddie Mac progressively raised the 'guidelines' they allowed for credit scores and debt to income ratios. We now have penalty-based interest rate pricing for lower scores. These days if you are self employed you can expect a very hard time if your FICO score is below 700. A FICO score of 580 is the lowest most banks will entertain for government guaranteed programs like FHA, VA, and USRDA Loans. Every bank and lender must adhere to these guidelines unless they hold their own loans in a portfolio (very few do) rather than sell them.
A FIDO Story
A client of mine requested a 'free' online Credit Report she saw advertised on an internet ad. She clicked on the site, and answered a few very personal questions including giving out her Social Security Number, email address, etc. and was asked for a credit card number to 'verify' her identity. Moments later, her screen flashed blank and she could not retrieve the report. Annoyed, she cancelled the transaction, without receiving a report. She checked her emails: no report. A few weeks later, she noticed a charge on her account for a yearly service fee which she did not recognize. Unfortunately she had used a Debit card so her bank would not refund the payment because she had 'authorized' it by giving them her card number.
While many of these so called credit firms are being shut down, it's best to avoid the heartache. Unfortunately, this same client had submitted an online mortgage application to a firm promising three competitive bank quotes. Her FICO score fell about 60 points in one month. In her case, the original broker she contacted did not mention they used several agents and after a few weeks, they simply turned her down after wrecking her score. I was sickened when I saw her report afterward. Her list of lender inquiries was as long as your arm, which also affects your score.
Unfortunately, contesting an inquiry on your credit is not really possible...you can bark all you like!
Regular Check Ups
By now you've probably been drilled about checking your credit yearly. Fortunately, every citizen can a get free report once a year in the USA. It's wise to sit down and look it over carefully to verify that no unauthorized credit cards or collections have been lodged against you. If you happen to have a common name, it is easy for mistakes to occur. I knew a man who had the same name as an uncle who lived rather irresponsibly. He was actually advised after repeated efforts clearing inaccurate reports against him to change his name!
Not all Credit Reports show your FICO score, so you can order your own online from the Fair Isaac consumer site www.myfico.com It costs about $49 for a Tri-Merge (all 3 scores). It does not impact your score when you check it yourself. When you apply for a mortgage, your bank or broker will pull a professional Tri Merge Report. Ours costs about $20 if you want to use the secure link below. We will call you to discuss your report with no obligation. Banks can't use the consumer reports from My FICO as they are apparently sanitized.
Banks and Brokers must have your permission to pull your credit but this practice may not be adequately monotored in some settings. If you already have a banking or credit relationship (cards, revolving accounts) your creditor may check your credit without your permission to see how you are perfomring on your other obligations. This is the really stinky part: if you are behind or missing payments on accounts, your current creditors can raise the rates they charge you!!
Legally, when a bank or lender pulls your report we are required to give you a copy of the report and a form listing any derogatory information used if we turn down you application for a loan. A mortgage lender should be able to explain your report and take the time to go over it with you. Your Credit Report is your first step to getting the desired result: the loan you deserve!
Wishing you every credit sanity! Loannetter
If you've considered checking out an online mortgage site: think again. What they don't tell you is that their network may comprise multiple agents. Each may pull your credit report (separately) over a course of hours or days while they review your loan options.
While all this is going on, your FICO score is taking a nosedive. Each mortgage inquiry can negatively impact your score 3 points. Each time. So if 10 brokers pull your credit in one 90 day period you could be 30 points worse off. And here's the scary part: each of those 10 brokers could actually submit your application to another 10 banks who also check your credit and that little exercise just cost you 30 points per broker...so the potential for damage is exponential. Because banks and lenders have strict FICO score requirements, a lower FICO Score can affect your qualifying for the loan you want. So much for convenience...
What is a FICO Score?
Invented by the Fair Isaac Company, FICO scores are based on a scale of 300-850, there are three FICO scores issued to you--one from each of our three National Credit Bureaus: Experian, Transunion and Equifax. These are our government respositories of information collected from creditors, courts and municipalities across the country. Not all creditors report to all three bureaus, so your score numbers will vary somewhat. They also collect information reported by collection agencies, government sources and other brokers who submit information about you to verify your identity when you apply for a mortgage.
FICO scores are one measure that lenders use to evaluate you, by placing you in risk brackets. These brackets (a range of score numbers) supposedly determine your likelihood of defaulting on loans. Every time you apply for credit, be it a cell phone account or credit card, you can bet your credit is being pulled.
Your Credit Report is not the same thing as your FICO Score.
The report is prepared by a Credit Reporting Agency that 'pulls' the information on file from the three National Credit Bureaus. Different lenders may prefer the score from a particular bureau, but most use the 'middle score' of the three scores. FICO scores are based on complicated logarithms which indicate how well you manage your debt.
What's a 'Good Score"?
The difference depends upon the lender and their own guidelines, but basically 680-740 is required for the best rates for conventioanal loans. The difference in a 679 and a 680 score (the higher the better) could make quite a difference in the final analysis. Your score also determines whether you qualify for a 'no doc', 'stated', or 'full doc' loan. The higher your score, the greater the trust lenders have in the information you provide. The lower your score, the more verification (paperwork) lenders require. Anything over 740 is gold standard. Lenders have restrictions on funding mortgages below certain scores but some capitalize on this niche by charging higher rates.
In late 2007, Fannie Mae and Freddie Mac progressively raised the 'guidelines' they allowed for credit scores and debt to income ratios. We now have penalty-based interest rate pricing for lower scores. These days if you are self employed you can expect a very hard time if your FICO score is below 700. A FICO score of 580 is the lowest most banks will entertain for government guaranteed programs like FHA, VA, and USRDA Loans. Every bank and lender must adhere to these guidelines unless they hold their own loans in a portfolio (very few do) rather than sell them.
A FIDO Story
A client of mine requested a 'free' online Credit Report she saw advertised on an internet ad. She clicked on the site, and answered a few very personal questions including giving out her Social Security Number, email address, etc. and was asked for a credit card number to 'verify' her identity. Moments later, her screen flashed blank and she could not retrieve the report. Annoyed, she cancelled the transaction, without receiving a report. She checked her emails: no report. A few weeks later, she noticed a charge on her account for a yearly service fee which she did not recognize. Unfortunately she had used a Debit card so her bank would not refund the payment because she had 'authorized' it by giving them her card number.
While many of these so called credit firms are being shut down, it's best to avoid the heartache. Unfortunately, this same client had submitted an online mortgage application to a firm promising three competitive bank quotes. Her FICO score fell about 60 points in one month. In her case, the original broker she contacted did not mention they used several agents and after a few weeks, they simply turned her down after wrecking her score. I was sickened when I saw her report afterward. Her list of lender inquiries was as long as your arm, which also affects your score.
Unfortunately, contesting an inquiry on your credit is not really possible...you can bark all you like!
Regular Check Ups
By now you've probably been drilled about checking your credit yearly. Fortunately, every citizen can a get free report once a year in the USA. It's wise to sit down and look it over carefully to verify that no unauthorized credit cards or collections have been lodged against you. If you happen to have a common name, it is easy for mistakes to occur. I knew a man who had the same name as an uncle who lived rather irresponsibly. He was actually advised after repeated efforts clearing inaccurate reports against him to change his name!
Not all Credit Reports show your FICO score, so you can order your own online from the Fair Isaac consumer site www.myfico.com It costs about $49 for a Tri-Merge (all 3 scores). It does not impact your score when you check it yourself. When you apply for a mortgage, your bank or broker will pull a professional Tri Merge Report. Ours costs about $20 if you want to use the secure link below. We will call you to discuss your report with no obligation. Banks can't use the consumer reports from My FICO as they are apparently sanitized.
Banks and Brokers must have your permission to pull your credit but this practice may not be adequately monotored in some settings. If you already have a banking or credit relationship (cards, revolving accounts) your creditor may check your credit without your permission to see how you are perfomring on your other obligations. This is the really stinky part: if you are behind or missing payments on accounts, your current creditors can raise the rates they charge you!!
Legally, when a bank or lender pulls your report we are required to give you a copy of the report and a form listing any derogatory information used if we turn down you application for a loan. A mortgage lender should be able to explain your report and take the time to go over it with you. Your Credit Report is your first step to getting the desired result: the loan you deserve!
Wishing you every credit sanity! Loannetter
Click this link to order your personal credit report from our secure site
© copyright 2008 susan templeton loannetter
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