This Could Boost Millions of Credit Scores

Equifax, Experian, and TransUnion announced they will soon remove tax lien and civil judgment data from some consumer credit records. The reason for this change is that many liens and most judgments fail to include vital pieces of information. Beginning on July 1, the public records data the firms use must include these data points: the consumer’s name, address, and either a social security number or a date of birth. Existing reports that fail to comply will be struck from the consumer’s credit record and new data that does not have that information will not be added.

Credit scores are weighed carefully by lenders in making decisions about loan terms and how much consumers can borrow, and can be very important in securing a sustainable mortgage. FICO estimates the changes will cause an improvement to about 12 million consumer scores; however the boost will be modest, likely less than 20 points.

In recent months, several lawsuits brought by states have been pushing credit reporting companies to remove some categories of negative data from credit score reports, such as information related to library fines or gym memberships. But some experts fear removing negative public record information could pose a greater risk to lenders.

Source: “Reporting Change Could Raise Credit Scores, Risk,” Mortgage News Daily (March 14, 2017)

Home Buyers: ‘Do Not Fear’

Home shoppers no longer need to tremble all the way to the lenders’ office or have nightmares over being denied  a home loan – all the troubles that have been prominently spotlighted by many news reports in recent years. A new report confirms: It’s getting easier to get a mortgage – and as a bonus, borrowing costs are still low.

Over the past year and a half, the federal government and enterprises have taken several steps to open up the credit box, and the efforts may finally be showing signs of paying off.

Credit scores on closed loans in September dropped to the lowest level since Ellie Mae began collecting the data in August 2011, according to Ellie Mae’s latest Origination Insight Report. The average FICO score for closed loans has fallen throughout the year – from 731 in January to 723 in September.

Source: “Is the Credit Box Finally Showing Signs of Opening Up?” HousingWire (Oct. 21, 2015) andFreddie Mac

A Cost-Saving Move for 7.1M Home Owners

As of February 2015, there were about 7.1 million potential refinance candidates. In February 2014, about 4.1 million borrowers were found to be able to benefit from refinancing their mortgage, according to Black Knight Financial Services’ research.

“Through a combination of declining interest rates and increased equity among borrowers driven by home price increases, an additional three million borrowers now meet the same broad-based eligibility criteria as compared to one year prior,” says Trey Barnes, Black Knight’s senior vice president of Loan Data Products. “Of course, this population is rate-sensitive; in fact, it was largely the decline of 60 basis points in the prevailing 30-year interest rate that resulted in the year-over-year increase in potential refinance candidates.

Researchers also found that lower credit score borrowers – those with credit scores below 620 – are refinancing at the lowest level on record. “As a result, the average loan age for this group is 98 months, as compared to just 38 months and less for borrowers with credit scores of 750 and above,” the report notes.

Source: Black Knight Financial Services

Why Buyers May Find Mortgages Easier to Get

Good news for potential home shoppers: A Mortgage Bankers Association index shows lender requirements regarding credit scores, down payments, and other key terms are finally loosening up. Some lenders are even expanding the types of mortgages they offer. These moves come after years of lenders tightening loan requirements.

The newly-released MBA index shows recent improvements in lending are mostly tied to the government’s efforts to ease regulations and improve affordability in the housing market. For example, mortgage financing giant Fannie Mae is now allowing purchases of conventional mortgages that have down payments as low as 3 percent; Freddie Mac is planning to do the same for mortgages closed on or after March 23.

Also, the Federal Housing Administration, which insures loans with down payments as low as 3.5 percent, reduced its upfront mortgage insurance premiums last month, which is expanding eligibility for home purchases to thousands of potential home shoppers.

Source: “Lenders Begin Easing Requirements to get a Mortgage,” The Los Angeles Times (Feb. 22, 2015)

Smaller Down Payments Lure More Buyers

Some home buyers are stepping off the sidelines as more lenders require less money up-front on a home purchase.

Recently, more borrowers are able to pay 3 percent or even less of a home’s purchase price to get a mortgage – a big change from when at least 20 percent down payments were practically the norm post-recession.

Additionally, some lenders are luring more home buyers back by waiving mortgage-related fees and even showing more acceptance of allowing down payments to be made by others, such as the borrower’s family members, The Wall Street Journal reports.

Still, borrowers must have good credit scores and a steady income to often qualify for these smaller down payment loans.

In two big moves in recent weeks, the Federal Housing Administration, which insures mortgages with down payments as low as 3.5 percent, announced it is lowering its annual mortgage-insurance premiums on new mortgages beginning Monday. The move is expected to save a typical first-time home buyer about $900 a year. What’s more, Freddie Mac and Fannie Mae recently lowered the minimum down payments they will accept on loans they back from 5 percent to 3 percent.

Source: “Down Payments Get Smaller,” The Wall Street Journal (Jan. 23, 2015) and “Loan Demand Posts Biggest Leap in 6 Years,” REALTOR® Magazine Daily News (Jan. 14, 2015)

Rental Payment Histories May Count in Credit Scores

Renters who have never been late with a rent payment will find that their stellar record won’t do anything to lift their credit scores when they shop for a mortgage. But that may soon change: Two of the main credit reporting agencies, Experian and TransUnion, reportedly are starting to incorporate verified rental payment data into credit files and using it to compute the consumers’ credit scores when they apply for a mortgage.

“At a time when record numbers of first-time buyers are missing in action in the home-purchase market — many of them in part because their credit scores don’t make the grade — the non-reporting of key credit records is costly to them and the economy as a whole,” The Columbus Dispatch reports.

Some companies also are stepping in to ensure renters get their on-time payment histories included when applying for a mortgage. ECredable, an alternative credit data company, says it will verify renters’ payment histories that haven’t been reported to the major credit bureaus, and then generate a credit report and score. Potential home buyers are then urged to present the report to mortgage loan officers and ask that the information be considered in their application for a mortgage (which the lender is required to do under federal credit regulations).

Source: “Credit Scores Might Soon Reflect Rental Payments,” The Columbus Dispatch (June 29, 2014)

It’s Taking Less to Get an FHA Home Loan

First-time and low-income mortgage borrowers may have an easier time qualifying for a Federal Housing Administration loan. Ginnie Mae, a government agency that issues bonds backed by FHA loans, reports that the average credit score on FHA-backed loans fell to 680 in 2013, and the average debt-to-income ratio rose to 40.3 percent — both indicators that credit may be easing.

In comparison, Ginnie Mae reported in January 2013 that the average credit score was 701 and the debt-to-income ratio was 38 percent.

“The FHA theoretically allows credit scores as low as 580,” the L.A. Times reports. “But lenders, buffeted by defaulted loans and demands that they buy back troubled mortgages that they sold, generally have set standards higher since the mortgage meltdown.”

Source: “Average Credit Score Falls on FHA Loans,” Los Angeles Times (Feb. 27, 2014)

Many Borrowers Facing Higher Loan Costs in 2014

Borrowers will likely see an increase in mortgage costs next spring, particularly those who lack a sizable down payment or have less-than-perfect credit scores. Mortgage giants Fannie Mae and Freddie Mac are raising the fees they charge lenders, which is expected to get passed on to borrowers.

According to Fannie Mae’s web site, some of the increases that borrowers can expect:

  • A borrower with a 30-year fixed-rate mortgage, a credit score of 735, and a 10 percent down payment will see fees rise from the current rate of 0.75 percent to 2 percent of the loan amount.
  • For those borrowers making a 10 percent down payment and who have a 750 credit score, fees are to increase from 0.5 percent to 1.5 percent of the loan amount.
  • Borrowers with credit scores of 775 and a 10 percent down payment will see fees rise from 0.5 percent to 1 percent.

Borrowers with higher down payments aren’t likely to escape some rises in mortgage costs either. For example, borrowers who have a down payment of 25 percent but a credit score of 690 will see fees rise from 1.5 percent to 2.25 percent.

Analysts predict that higher fees combined with rising interest rates and new mortgage rates could further tighten mortgage credit in the new year.

Source: “Why Mortgage Costs Could Rise in 2014,” The Wall Street Journal (Dec. 17, 2013) andFannie Mae

New “Sweeping Changes” to Home Mortgage Rules!

The Consumer Financial Protection Bureau unveiled new mortgage rules Thursday that are expected to change how home buyers go about getting approved for a home loan. 

Loans that meet the agency’s new lending criteria now will be called a “qualified mortgage.” Every company that issues mortgages will be required to follow the new guidelines in order to receive protection from lawsuits for mortgage-backed bonds. Some types of loans will be excluded from these rules, such as interest-only mortgages and loans on which the principal balance rises over time.

A “qualified mortgage” will consist of the following:

Lenders must prove that income and assets are sufficient to repay the loan (this applies to jumbo loans as well).

  • Borrowers must be able to document their jobs.
  • Credit scores will have to meet a minimum standard.
  • Borrowers will have to be able to show that they can also still afford other debts associated with the home, such as home equity loans as well as property taxes.
  • Lenders will consider borrower’s other debts before issuing a mortgage too, such as student loans, car loans, and credit card debt.
  • Monthly payments must be affordable to the borrower.

The new rules will take effect Jan. 21. Lenders have a year to fully implement them. 

Source: “New Rules Aim to Make Mortgages Safer,” CNNMoney (Jan. 10. 2013)

“Credit Scores” can differ from What Lenders Use!

Interesting news to share! “Many consumers incorrectly believe that the scores they purchase are the same ones used by lenders,” according to a CFPB report. As such, a “substantial minority” of consumers are at risk of overpaying for credit or in applying for loans that they’re ineligible for?

Even the slightest variation in credit scores can make a big difference and has the potential for qualifying for certain kinds of loans, according to the CFPB.

The CFPB sites FICO scores, which are widely used by lenders, as having different credit scoring models for lenders and consumers that can vary. VantageScore also has different types of credit scores, CFPB says.

CFPB is evaluating the accuracy that credit reporting firms provide to consumers. It encourages consumers that when they review their credit reports to focus not on credit scores but to check the accuracy of the payment history on the reports because the firms use that to calculate scores. Consumers should take steps to correct any errors they find on the payment history of their reportsto help improve their scores, CFPB notes.

Source: “Regulator Sees Flaws in Credit-Score Information,” The Wall Street Journal (Sept. 25, 2012)