Tight Credit Standards Halt Some Buyers

Lenders continue to reject borrowers with otherwise good credit when they diverge from the standard approval checklist.

Would-be borrowers facing the most problems include the self-employed.

One reason bankers are so nervous are the standards held out by Fannie Mae and Freddie Mac. Not only are Fannie and Freddie demanding credit scores above 720, they are refusing to buy back defaults when the original mortgage application had small discrepancies from the norm. To avoid losses, lenders are being extra careful.

The result is that some borrowers are being rejected for problems that seem completely inconsequential.

Source: The Wall Street Journal, James R. Hagerty and Nick Timiraos (07/10/10)

How Will Foreclosure Effect Credit Scores?

The amount of damage to a credit score caused by foreclosure, deed in lieu or a short sale during 2008 and 2009 may be mitigated by the slower economic times, say some credit and legal experts.

FICO may have to adjust its credit scores to lessen the impact of a foreclosure in the last two years, says Todd J. Zywicki, a professor of law at George Mason University.

”It just seems obvious that a foreclosure in 2008 or 2009 doesn’t have as much information value as a foreclosure five years ago,” he says. ”To the extent that foreclosure doesn’t predict future behavior as much as it did in the past, you’d expect that the FICO algorithm would change to adjust for that.”

One of the country’s largest credit unions Golden 1 has already figured out a way to lend to people with a foreclosure on their record by offering a mortgage repair loan specifically for those who have lost a home to foreclosure and who want to buy a new one.

BECU, another large credit union based in Washington State, is about to present a program to fellow lenders, ”How to Lend to the Newly Credit Impaired.”

Source: The New York Times, Ron Lieber (03/14/2009)

What You Can Do to Improve Your Credit

Credit scores, along with your overall income and debt, are big factors in determining whether you’ll qualify for a loan and what your loan terms will be. So, keep your credit score high by doing the following:

1. Check for and correct any errors in your credit report. Mistakes happen, and you could be paying for someone else’s poor financial management.

2. Pay down credit card bills. If possible, pay off the entire balance every month. Transferring credit card debt from one card to another could lower your score.

3. Don’t charge your credit cards to the maximum limit.

4. Wait 12 months after credit difficulties to apply for a mortgage. You’re penalized less for problems after a year.

5. Don’t order items for your new home on credit — such as appliances and furniture — until after the loan is approved. The amounts will add to your debt.

6. Don’t open new credit card accounts before applying for a mortgage. Too much available credit can lower your score.

7. Shop for mortgage rates all at once. Too many credit applications can lower your score, but multiple inquiries from the same type of lender are counted as one inquiry if submitted over a short period of time.

8. Avoid finance companies. Even if you pay the loan on time, the interest is high and it will probably be considered a sign of poor credit management.

This information is copyrighted by the Fannie Mae Foundation and is used with permission of the Fannie Mae Foundation. To obtain a complete copy of the publication, Knowing and Understanding Your Credit, visit www.homebuyingguide.org.

Fannie Mae Raises Credit Standards

Fannie Mae has tightened standards for the home mortgages it guarantees or buys.

The government-sponsored provider of home loan funding told lenders Monday it will require a minimum credit score of 580 for most loans it buys on an individual basis. Credit scores range from 300 to 850. In the past, Fannie had no minimum score.

Fannie also told lenders it will increase the period needed for borrowers to re-establish credit history after a foreclosure from four years to five. Fannie said it would allow shorter recovery periods for borrowers with “documented extenuating circumstances” that caused the foreclosure.

In a separate memorandum, Fannie, told loan services last week that it could extend forbearance periods on delinquent borrowers to as long as six months to allow borrowers time to find an alternative to foreclosure.

Source: The Wall Street Journal, James R. Hagerty (04/02/2008)

Opteum Mortgage: Mortgage News

Ringing in the new year will be a present from Fannie Mae and Freddie Mac to borrowers with credit scores under 680. Here is what these borrowers on conventional loans with Loan-to-values over 70% will receive on either purchases or refinances:

Credit score less than 620: Either a 2 discount point sur-charge or a higher rate of approximately ¾%

620-639: 1.75 discount point charge or higher rate of approximately 5/8%

640-659: 1.25 discount point charge or higher rate of approx. ½%

660-679: .75 discount point charge or higher rate of approx. ¼%

These changes will typically become effective in January. What it means to you is that lenders will not be able to determine the interest rate until they receive the borrower’s credit report if they are anywhere close to 680. If there are joint applicants, the lower of the two applicant’s middle scores will be the one that determines the interest rate….. So, theoretically, a borrower could be quoted a rate of 6.0% prior to loan app and end up with a 6.75% rate because their middle credit score was 619.

Rate swings: This week has been a pendulum for mortgage rates. Monday rates were virtually touching 5.5% on the 30 year fixed, the lowest we have seen in a few years. Things started reversing on Wednesday, turning back up about an 1/8%. We had further movement up today as they are back up to the 5.875-6.0% level. So the window of opportunity has closed for now, but perhaps the market overreacted again and will settle back down. Congratulations to those of you who made the decision to lock your rate in on Monday!

A Minus Loans: These loans are available at Opteum to borrowers with scores as low as 575 on purchases up to 95-100% LTV. Cash assets are needed to offset the low credit scores and can help someone with low scores, few trade lines and without even a rent history purchase a new home. I like to call this type of program “the New Sub-Prime”.

I will be working this weekend if you need me.

Best regards,

Sam Thompson

Loan Officer

Opteum Mortgage

678-742-6631 (office)

1-866-226-2066 (toll free)

770-301-0527 (cell)

678-585-8345 (e-fax)

222 Chastain Meadows Court, Suite 300

Kennesaw, GA 30144

email: Sthompson@opteum.com

web: http://www.opteum.com/sthompson