Tag Archive: credit scores

Nov 25

Rate Calculator

Rate Calculator vs Payment Calculator

I recently searched for an online rate calculator for mortgage interest rates. All of the top results pointed to payment calculators instead of a rate calculator. This seems strange because I use a rate calculator every day.

In order to accurately compute a mortgage payment we need an accurate interest rate. This is particularly important when trying to estimate a payment on a conventional loan because the interest rates are tiered.  The tiers are so complicated one needs a calculator.  Here is a link will shed light on mortgage interest rate tiers.

For the most part the public believes mortgage lenders have only one interest rate, and I base this statement on my last thousand rate calls. Every single person asked for my best interest rate not for the rate they would receive.  There is no way to tell if every one of them thought they should receive the best rate or just assumed there was only one rate. 

My interest rate calculator is proprietary software that I use daily.  It is the only method I know to quickly calculate an exact interest rate. 

There is a sequence that should be followed to reach an accurate estimate. It begins with the individual’s credit score from a tri-merged credit report.  When I receive an initial call from a home buyer one of my standard questions is if they know their credit score.  Nine times out of ten their true credit score is 20 to 40 points below their answer. The free credit scores available online are not from a tri-merged credit report.

Using an online mortgage payment calculator without access to an interest rate calculator is dangerous.  The results could easily be off 30% to 40%. The only safe way is to have an experienced loan officer guide you through the process.

Nov 19

Revised the Legal Credit Repair Guide

Very tricky undertaking tonight, worked all weekend trying to figure out how to shrink the size of the Legal Credit Repair Guide and get the hyperlinks to work in a pdf file format.  For some reason the PowerPoint software made the file grow instead of shrinking it like it was supposed to do and all of the links were dead.

Had a brainstorm while in the gym this morning, looks like it worked! 

Deleted all of the links and printed all of the slides in a PNG format, then pasted all of them back into a blank PowerPoint.  Next, added the URL versions of the links, and then saved the file as a pdf.  It worked, the size cut down to nothing, the quality is high, well high enough. And all of the links worked on my computer at least.  Shot off a copy to my technical guru to see if he approves. 

 

Nov 17

Conventional Mortgage Credit Standards Page Added

Conventional Mortgage Underwriting

Explaining in plain English how the mortgage industry works continues to be an endless project.  The larger the resource becomes the more there is to explain. 

The newest page, Credit Standards for a Conventional Mortgage, made me realize just how big the project has become.  But it is a good exercise, the more I try to explain the easy way for a home buyer to arrange financing the more I see opportunities to streamline the process. 

A little bit of preliminary team work between the home buyer and the loan officer can really speed up the process.

Nov 13

Legal Credit Repair

Credit Repair or Mortgage Fraud?

New page added to the Resource Center that outlines the difference between building a strong credit report and committing mortgage fraud.

Here is the link to the page Credit Repair or Mortgage Fraud?

A link to the Legal Credit Repair Guide

Oct 04

Mortgage Helpful Hint #3

No New Debt!

This mistake can cost $50,000 or get the loan declined!!! Read Carefully!

Be very careful during the mortgage processing period.  Do not take on any new debt without first chatting with your loan officer.  And DO NOT CLOSE ANY ACCOUNTS, doing this can drop your credit score below the threshold or make the interest rate on the mortgage increase!!!

The mortgage underwriter is REQUIRED to do a soft pull of your credit report on midnight the night before you close on the loan.  Any new debts may cause the deal to crash and burn!!!

 We often see people buying new furniture for their new home, do this AFTER you close the mortgage on the house, not before.  Even if it is something advertised as no payment for 6 months, etc.  It is still a debt!!  

The same is true for a new car, boat or airplane.  Yes, I have seen that one too.   Do not buy anything that requires debt without chatting about it with the loan officer BEFORE doing it! 

I have seen many home buyers make this mistake.  Any new debt during the processing period might change the status from approved to decline, no one wants to see that happen.

Just slightly increasing the balance on a credit card can have a negative impact on your credit score and or debt ratio.  That could easily cost $50,000 in EXTRA interest because if your credit scores go down the interest rate will go up!  Don’t let a $50 impulse purchase cost a year’s pay.

The mortgage lender is taking a snap shot of the entire process, if you change something the picture changes.

Maxing out a credit card is a common mistake people make while applying for a mortgage.

 

KEEP THE BALANCES WHERE THEY ARE NOW OR LOWER! 

If you have a credit card with a $400 limit and you let the balance go above $300 your scores will come crashing down.  75% is the magic number, if you get any closer than that to the limit, you are getting close to lower credit scores.  The best move is to keep the balances at or below where they were when the loan officer pulled your credit report. 

If you pay off a debt – keep copies of the transaction.  Don’t forget the lender must show where the money came from to pay it off.  See Helpful Hint #2 about moving money around.

Jul 23

Sub-Prime Mortgages

Sub-Prime Will Return

The overall condition of the economy is creating an environment that will hasten the return of the sub-prime mortgage.  I was never an advocate of the sub-prime industry but it served a need.  That need is stronger today than ever before.  I predict sub-prime mortgages will return soon.  They may be called something different, may be touted as new and improved, but a rose is a rose.

There are many factors that will push my prediction forward.  Unemployment is very high with disposable income being the lowest it has been in modern time.   This is causing many homeowners to defer maintenance on their home opting instead to put food on the table.

Home inspectors are being super critical as their industry matures, causing many pending transactions to implode.  Not long ago the National Association of Realtors reported the highest fall out ratio since they have been keeping stats.   The number of real estate listings reported as a pending sale then changed back to an active listing is where that bit of information comes from.

Buyers and sellers are both more difficult than I have ever witnessed prior to the last couple of years.  Prior to last year I never had a buyer and seller disagree on a day and time for closing the deal.  This year it has been difficult to get both sides on the same page on any subject, let alone a closing date.  I mentioned in an earlier post that people searching for information on Power of Attorney or POA is the number one subject people are looking for when they visit this site.  They  just don’t want to attend the closing!

Another factor is the middle ground on credit scores seem to be disappearing.   I see either very high or very low credit scores, not much in the middle.  This is a personal observation; I haven’t read anything that supports this.  You would expect a general distribution, a third low, a third in the middle and finally a third on the top.  Not what I see these days, either very high above the top credit tier or very low below the minimum threshold.  Last week I saw several above 800 or in the high 700’s and an equal number in the low 500’s dipping into the high 400’s with none in the mid 600’s.

Finally, the wreckage caused by foreclosures and loan modifications will linger for at least a decade.   The buzz topic has been short sales, but in reality they are a very tiny slice of the pie.  They are a symptom of the times but I don’t think they are as serious to the overall market as the other factors mentioned above.

All of the dynamics mentioned here have one result, stress.   Sellers want to sell and buyers really want to buy but never has it been as stressful even back in the days of very high interest rates.

As the gap widens the mortgage industry will figure out a way to serve the demand that is having trouble moving above the minimum credit score threshold.   That segment of the buyer pool is the only one that is expanding.  The market conditions are not pushing people upwards, only down.   Individuals that have never been late on credit obligations are suddenly finding themselves below the credit thresholds.

The Solution

I don’t have an answer to the overall problem, but I see lots of opportunity.  A few people are doing very well, but most are not.  What I know for sure is the market has changed.  People have changed.  Those that are moving forward have a chance to improve greatly, interest rates are low and prices are good.  It has never been a better time to buy in the last 50 years.

Part of the solution to get things moving is going to be the return of some of the aspects of the sub-prime industry.  I am not calling for a movement, just predicting this is going to happen.

Jul 09

Searches Leading to The Hub

From POA to Me

Behind the scenes this web site tracks where my traffic originates and creates a list that shows what search terms brought them here.  Thousands of terms and phrases are on the list but a few dominate the top.  A few of the leaders are amusing, some are flattering (specifically looking for me) and a couple are disturbing.

Number one on the list and a winner by a long shot is Power of Attorney or POA.  It shows up more than twice as often as any other search, strange because I advise people not to use a POA if it is avoidable. 

The other words and phrases that head the list remain fairly constant over time with the top three staying the same month after month.  Searches for me personally slip back and forth between the fourth and fifth slots, rotating with the one that I find disturbing, Mortgage Fraud.  People actually search for “How to commit mortgage fraud.”  Good grief!

Here is the top five for the previous 12 months:

1.  Power of Attorney or POA

2.  Creditxpert

3.  Down Payment Assistance Kentucky

4.  Jim Simms

5.  Mortgage Fraud or How to commit mortgage fraud

Some of the phrases about fraud were alarming; many were questions beginning with “how to” while others were obviously worried about crimes they already committed.  

Jun 22

FHA Reverses Recent Changes

June 15th 2012, FHA issued Mortgagee Letter 2012-10 that rescinds two changes outlined back in February in Mortgagee Letter 2012-3.  Both of the sections covered in this month’s letter refer to issues on the borrower’s credit report.  The first item covers how to address disputed accounts and the other one covers collections and judgments.

A disputed account is when an individual submits a formal complaint with one or more of the credit repositories claiming information on their credit report is inaccurate.  In other words they dispute the information.  This tactic is most commonly used in an attempt to remove negative information, such as late payments or collections.  Any third grader would know it is wrong to tell a lie and their parents should know that doing so in order to get a mortgage loan approved is a felony offence.   

An open disputed account is a red flag for any DE underwriter.  In February FHA removed the flexibility underwriters had when they came across a dispute on a credit report.  Basically, any dispute on an account over $1,000 or combination of accounts that totaled over that amount would cause the loan application to be denied. 

I know, if you read the letter it doesn’t say that exactly, but don’t forget I am bilingual, my language of choice is slow southern drawl but am also fluent in mortgage mumbo-jumbo.  Here is how it translates, before February the subject was left up to the underwriter, after that it is only left up to the underwriter if the amount is less than $1,000.     

Actually, I agree with the change that tightened up this loop hole.  Mortgage fraud is serious and it hurts all of us.  Disputing accurate information should not be allowed period unless the borrower has solid evidence like a cancelled check showing the payment was made on time, etc.

Evidently this little change caused quite a ruckus because it has been reverted by the most recent Mortgagee Letter.  I personally believe this is a step in the wrong direction.  I didn’t like removing any discretionary abilities from my underwriters but thought it was the right thing to do for the overall good of the nation.

Here is the gut level truth; people that actually qualify for a mortgage are not in the habit of disputing garbage on their credit report.  Most, not all, but most of the people that have multiple disputes are trying to commit fraud.  The government should not allow it to be easy to do.   So I believe this recent change is a step in the wrong direction.

The second change covered collections and judgments.  In the past the underwriter was able to make a decision on collections, the change in February limited that to collections under $1,000.  Judgments of any size needed to be paid off.  A judgment is simply a collection that has been taken to the next level so I have never understood the logic of ignoring one and not the other.  A large collection could morph into a large judgment and that would always happen when the individual could afford it the least.  I believe that is some kind of financial universal law similar to Murphy ’s Law.

Both of the changes from February have been rescinded which makes it easier to get approved for an FHA mortgage.   

May 09

CreditXpert™ Rides Again

Had a guy call me this morning, said he had been turned down by two loan officers from other mortgage companies because of his credit report.  When I asked why they turned down his loan request he said it was because of a bankruptcy and a low credit score.  The bankruptcy was five years ago, not a reason to decline a mortgage.

He told me his credit score was low, below 580, but when I asked if they gave him a copy of the credit report he said neither had bothered to pull one.  Okay, how do you know the credit score was my next question.  Answer, one of the online free credit reports. Bad, bad, bad, not a true credit score.

We pulled a real credit report and the score was actually 635, only a couple of points below the threshold but the problem had nothing to do with late payments or other negative entries.  In fact, his payment history was absolutely perfect after the BK.  I could see the reason for the low score was two credit cards cranked to the limit, one was $150 above the limit.

We ran CreditXpert and it confirmed my assessment but gave exact numbers to reduce the balance, what a program!  Half an hour later he had an approval letter based on paying down the credit cards.

May 07

Collections on a Credit Report

9am this morning, a lady filled out an application on my web site and I received the notification by email.  Her credit report listed multiple collection accounts and a judgment for nearly $1,000.  Four of the collections were sizable medical bills and a couple of small ones from utility companies.  She acknowledged the judgment and the utilities but said the medical bills should have been covered by insurance.  She was not aware they were in her credit file.

She said her tax refund was due any day and as soon as it arrived she would pay off the judgment and the utilities, in the meantime would contact her insurance company and get to the bottom of the medical bills.  Regardless, she would do whatever is needed to clean up the mess so she could buy a home.  I bet she will follow through on her promise to herself, I was just helping out, she wasn’t promising me.

Contrast, around 11am a gentleman called me saying he was ready to buy a home, asked if I remembered speaking with him last year.  Not really, but I pulled up my notes and it was two and a half years ago, not last year.   Back then he had a total of 14 collections on his credit report and I asked if he had taken care of them.  He acted surprised by my question and asked what they were.

When we last spoke I suggested he begin by paying off the smallest collection first because it was only $25.  So I asked if he had paid it as we discussed. Nope, how about the next one that was only $40? Nope, none, nada, zip, hadn’t paid off a single one.  Combined, all the collections totaled $9,000 but he hasn’t paid a single dollar towards any of them.

He is further away from buying a home today than he was back then; underwriting guidelines have tightened up since then.  If he had followed my suggestions he could be moving in a few weeks.

The wrong way to handle collections is to dispute them.  It is what it is, and disputing accurate information on your credit report just because it is negative in nature is fraud if the purpose is to get a loan.  Besides, having open disputes on a credit report can get a loan application declined.  Underwriters do not like loose ends.  Key point, have you ever tried to remove a dispute from a credit report?  You must dispute the dispute, HAHAHAHA!!  Don’t do this!

Can you offer less than owed on a collection?  Absolutely, but it doesn’t look good if you are trying to borrow money at the same time.  Asking one lender to take less than owed on a $1,000 account doesn’t look good to the lender you are asking $150,000 from.  But one is for a house and the other one was dinner and blue jeans.  It doesn’t matter, it doesn’t look good. 

Pay them off?  Where to start?  Start with the smallest amount that reported or updated their info most recently.  A $25 collection that reported or updated their status last week will cost more points on your credit score than a $2,500 collection that hasn’t been updated in a couple of years.  

Check out the related info on the page, CreditXpert™.

 

 

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