Does Your Mortgage Originators Credit Score Matter to You?

November 1, 2010 by Leave a Comment

Would you work with a mortgage originator who has a 620 credit score?   Would you prefer to work with a mortgage originator who has a 720 or higher credit score?   Does how someone manages their credit history important to you if they are providing you advice about credit scoring and/or helping you with one of the largest debts you may have in your lifetime?

Starting November 1, 2010, the NMLS and Washington State DFI will begin pulling credit reports on LICENSED mortgage originators.  This is one of the final "background" checks being performed as required by the SAFE Act.  If a mortgage originator works for a depository bank (like Chase, Wells Fargo, Bank of America, Washington Federal, etc.) or any credit union, they will not have their credit pulled and reported to DFI.

I'm not aware of what the "magic number" is that DFI will use for weeding out mortgage originators with lower scores.  I believe they're looking more at credit history than the actual score…but I don't know for sure.  

What I do know is that mortgage originators who are licensed are held to higher standards per the SAFE Act than mortgage originators who are merely registered.   If you're curious about whether or not your mortgage professional is registered (bank/union union LO's) or licensed, you can visit www.nmlsconsumeraccess.org.

Filed Under: Credit Scores and Reporting, Legislation

What should I do about my credit score, if anything?

September 2, 2010 by Leave a Comment

I was asked this question via a friend on Facebook:

I had a 785 mid score, with 3 open trade lines (all at less than 30%) until the bank dropped my credit limit to the exact dollar amount of my balances. Now I'm down in the 714 range. I'm now considered a low-mid risk…hmmmmmmmmmpppphhhh! Only way out I can see is paying off Visa.

On the flip side, I don't need my credit score now…don't need a mortgage re-fi, and already have all the insurance I need.

It's pretty stinky when banks reduce your total available credit because the side effect is, your credit is dinged.  What the bank has effectively done is make it appear as though you're a credit user who has maxxed out their credit cards to their limit!  I'd probably contact the bank manager to express you disappointment (to put it mildly) and to see if they will correct this and to learn why they did this.

Credit scoring modules reward borrowers who use 30% or less of their available credit line.  Borrowers who use less 50% or less of their available credit also receive favorable scores.   Borrowers are also being whammo'd by banks when they reduce their home equity lines of credit (HELOCs) if it increases their loan to value over 50%.

If this person was interested in improving their credit score, their goal could be to work on getting each credit card paid down to 50% of the new credit line limit.  I would start with the smallest debt first as the credit scoring system doesn't distinguish between a $5,000 credit card limit or $500 credit card limit.  If this borrower has a $500 limit and they pay it down to $250, it should have the same impact as paying the $5,000 down to $2,500.  Once one card is paid down to 50% of the new limit, continue to make minimum monthly payments and move on to the next lowest credit line limit and repeat until all of your credit cards are under 50% of the available credit line.  The next level of improvement would be to pay your credit cards down to 30% of your credit line limit; so if your lowest credit card line is $500 and you've been maintaining a $250 balance, the next target would be 30% of the credit line or $150 (500 x 30%).

I do not recommend paying off credit cards completely and closing if they're older as the credit scoring modules love established credit with a good history.  You can use your cards to fill your gas tank or buy groceries and paying it off monthly.

Of course, if you don't really care what your credit score is currently because you're not planning on making purchases that will require your credit score, you don't have to do anything.  However, I think it's best to try to have a credit score of 740 or higher as so many things in our lives are priced based on our credit scores. 

Related posts you might find interesting:

New Credit Card Regulations and Games Creditors Play

Overdraft Protection and Your Credit Score

The Fed is Getting Tougher on Credit Card Companies

Filed Under: Credit Scores and Reporting

Is 714 a Good Credit Score for Buying a House?

September 1, 2010 by 2 Comments

This is a term someone entered into a search engine, like Google, who wound up on my blog.  “Is 714 a Good Credit Score for Buying a House?” is a fair question.  Just a couple years ago, having clients with credit scores 700 or higher was considered “excellent”.  In fact, previously credit scores of 680 or higher were considered good. Now with conventional loans, we have several brackets based on credit scores and loan to value.  Many lenders are adopting this with FHA loans too.

[Read more…]

Filed Under: Credit Scores and Reporting, Residential Purchase Tagged With: , ,

LQI: The Potential Kiss of Death for On-Time Closings

August 11, 2010 by 1 Comment

Potterybarn If you're planning on getting a mortgage to purchase a home or for a refinance, please do not obtain ANY credit, increase your credit debts (use your credit accounts) or please don't even THINK of applying for new credit until your new mortgage loan has funded and closed.   Why hold off on shopping for your new fridge or washer and dryer that you're going to need or that new sofa from Pottery Barn?   Because it could delay your funding (i.e. closing) or worse–it could disqualify you for your loan (kill your deal) right when you're expecting your transaction to close!

Fannie Mae has created Loan Quality Initiative (LQI).  According to Fannie Mae, LQI is intended to prevent mortgage lenders from having to buy-back mortgages by increasing the quality of the loan that is being sold to Fannie Mae.   LQI addresses more than undisclosed debts on the loan application, including occupancy and borrower identification issues.  However in my opinion, the re-verification of credit prior to funding has the potential to impact a transaction more often.

LQI requires that if new debt is discovered when the credit is reviewed, that it be disclosed on the final application.  New debt is not limited to a new credit card you used to purchase appliances, it could be that you made a charge on an existing credit card that increased your monthly payment.   Maybe you simply filled up your gas tank at $3.00 a gallon…this could possibly trigger a delay in a transaction closing if the borrower has higher debt-to-income ratios or average credit scores.  If new debt or inquires are discovered just prior to funding, the loan may have to be sent to underwriting again to include the new debts payments. 

Most lenders are doing "soft pulls" on the credit (without the credit score) also referred to as a credit "refresh".   However, if new debt is discovered and the loan is sent back to underwriting, a new full credit report may be pulled.   If the borrowers mid-credit scores have dropped, this may impact qualifying and possibly the interest rate since conforming rates are based on credit scores.  Not so refreshing, is it?

So if you are considering buying a home or refinancing, please do not:

  • apply for any credit or loans after you've completed a loan application;
  • use your credit cards during the transaction (increasing your borrowed amount on your credit line);
  • pay off or close any debts during your transaction without first speaking to your mortgage originator (this can actually drop your credit score).

As tempting as it might be to purchase your fridge (or what ever) so it's ready for your new home when you move in–please don't!!  It may cause a delay in your closing or cost your mortgage approval and at this point in the transaction, your financing contingency is most likely waived! 

I understand Fannie Mae wanting higher quality loans and that the loan application should reflect the borrower.   However everyone knows that the day after closing, the new home owner is probably going to purchase some new appliances and maybe make a trip or two to Pottery Barn or Restoration Hardware.  This is a classic example of how the underwriting pendulum is swinging too far.  I can tell you that my typical client today is more qualified than those of the subprime era, our current guidelines alone (pre-LQI) have done this.  NOTE:  Please be responsible whenever using credit…especially after just taking on the largest debts you may have in your lifetime: a mortgage.

PS:  Real Estate Agents:  please be sure to make your buyers aware of this newer policy.

Photo credit: Rob Young via Flickr

Filed Under: Credit Scores and Reporting, Underwriting and Qualifying

Why It Pays to Get Preapproved Early: You May Think You Know Your Credit Score

April 7, 2010 by Leave a Comment

I recently met with a couple who had relocated to the Seattle area and were ready to make an offer on a home.  They’re very qualified with their income stability and enough savings to put a twenty percent down payment on their next home.  What surprised them was the credit report.  [Read more…]

Filed Under: Credit Scores and Reporting, Refinance, Residential Purchase Tagged With: ,

More Changes Coming to FHA Insured Mortgages

March 5, 2010 by Leave a Comment

Federal Housing Commissioner David Stevens has released a letter confirming that the upfront mortgage insurance premiums on FHA insured loans will increase effective on case numbers issued on April 5, 2010 and after.  Most FHA transactions will see an increase of 50 basis points to 2.25%.  Currently the upfront mortgage insurance premium (which is typically financed–added to the loan) is 1.75% of the loan amount.  This was issued in a Mortgagee Letter in late January and is "old news". 

His letter also provides notice that other changes that were discussed by HUD earlier (but not included in that mortgagee letter) will be posted in the Federal Register soon and will go into effect this summer.

What will impact most FHA borrowers this summer is the decrease in allowed seller concessions.   Currently FHA allows sellers to pay up to 6% of the sales price towards allowable closing costs.  In a few months, this will be reduced to 3%.  

Also this summer, FHA will require borrowers with a credit score of less than 580 to have a 10% down payment.  Most lenders, including Mortgage Master, have a minimum credit score of 620 currently for FHA loans.

Commissioner Stevens also addresses a recent announcement:

FHA has waived the regulation that prohibits the use of FHA financing to purchase properties that are being resold within 90 days of previous acquisition.  The waiver of regulation took effect for all sales contracts executed on or after February 1, 2010.

A Mortgagee Letter which will have more details, will follow and there are certain conditions that must be met for a property to be eligible for the property waiver.

As you can see, mortgage guidelines are still very much in a tightening mode.  It's hard to say just how long this trend will continue or how long it will last.

Filed Under: Credit Scores and Reporting, FHA, Underwriting and Qualifying

The Fed is Getting Tougher on Credit Card Companies

January 15, 2010 by 2 Comments

In a press release earlier this week, the Fed announced they have approved the final rule amending Reg Z regarding credit cards which will go into effect on February 22, 2010.   The new rules set tougher guidelines on credit cards, especially with regards to protecting consumers against rate changes and how they are billed.  

No interest rate increases for the first twelve months.  There are some exceptions such as if you have a variable rate tied to an index; if your rate is an introductory rate (which in that case, your rate must be fixed for a minimum of 6 months); and if you're more than 60 days late on your bill.

Increases to your interest rate can only be applied to your new balance.  Your old balance will keep the lower rate.

Payments will be applied towards the highest interest rates first when you pay more than the minimum payment.  (Some exceptions may apply).

Statements must be mailed or delivered at least 21 days before your payment is due.  Your due date should always be the same day of the month unless it falls on a weekend, in which case your due date will be the following business day.

Charges you make "over the limit" may be restricted (not allowed) unless you give your credit card company permission.

If you're under 21, you may need a cosigner such as a parent, to obtain a credit card.  Guess those credit card companies will have to stop preying on college students unless Mom or Dad agree to cosign.

No two-cycle (double-cycle) billing.  According to the FOMC's site "credit card companies can only impose interest charges on balances in the current billing cycle.

When your rate or fees are going to change, you must be notified 45 days priorto the change taking place.  You will have the option to refuse the change, however this probably means that your canceling your account.  If you do refuse the change, and your account is canceled, the creditor can impose higher payments by requiring to pay off your account in five years.  NOTE: Canceling your account may be damaging to your credit scores.  Should you get a notice that your rate or terms are changing and you don't agree with it, you are probably better off (as far as your credit score is concerned) paying off the card by applying more principal than canceling it with the creditor.

New monthly statements will show you how long it will take you to pay off your credit card making minimum monthly payments as well as what your monthly payment would need to be if you wanted to pay off your card in three years.

I applaud the new credit card rules.  Since their not going into effect until February 22, 2010 you may want to keep an eye on your interest rates…with just over a month before they take place, sly credit card companies may try to sneak a few changes in before things get tougher. 

Filed Under: Credit Scores and Reporting, Debt Restructuring, The Fed - FOMC

Overdraft Protection and Your Credit Score

November 18, 2009 by Leave a Comment

I have to admit, a lot of my content for the articles I write come from my clients or other home owners who have really good questions.  When I can't find an answer ready to refer them to here at Mortgage Porter, it's time to write a post!   Here's a great example of a question I recently received from one of my refi clients:

"I have a question about a possible impact on our credit score, which you may have some insight into.  We have been meaning for some time to get overdraft coverage on our checking account for "just in case" and today, we got that lined up.   However, I'm reading over the documents from our bank this evening and it looks like they just issued us a credit card.  Is this something that would play poorly on our FICO score?"

Overdraft protection is often a new credit card issued from your bank that is attached to your bank account.  Because this is "new credit" it will impact credit scores.

According to Linda Ferrari's book "The Big Score – Getting It and Keeping It"

"New accounts will lower your overall account age and diminish your length of credit history for a period of 3-6 months, so be sure to have cushion in your score.  Even if you've used credit for a very long time, opening a new account can lower your credit scores."

How much your score is impacted is hard to say–it depends on your overall credit picture.  If you're someone with perfect credit and 800 scores, your credit score may be barely impacted.  However, if you are someone with pretty good credit (around 720) BEFORE the new debt (over-draft protection) and you're considering a refinance or using a mortgage to purchase a home, you might have just dipped your credit low enough to have been impacted by higher mortgage loan rates.

Overdraft fees can add up quick and due to recently regulations by the Fed preventing banks from charging overdraft fees on certain transactions (ATM/debt cards) which will go into effect July 1, 2010, banks are sure to offer overdraft protection to help make up for lost revenue.

The Federal Reserve Board on Thursday [November 12, 2009] announced final rules that prohibit financial institutions from charging consumers fees for paying overdrafts on automated teller machine (ATM) and one-time debit card transactions, unless a consumer consents, or opts in, to the overdraft service for those types of transactions.

If you are considering adding overdraft protection to your bank account, do find out what type of account it is: a line of credit (or credit card) or maybe it's attached to your savings account.   If you are considering a mortgage (or other type of financing where credit scores are considered) you may want to delay obtaining overdraft protection until after your transaction has closed to avoid having your credit score dinged.

Filed Under: Credit Scores and Reporting, The Fed - FOMC
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