Posted on 05/11/2014 9:27:41 AM PDT by jeannineinsd
Are lenders' credit score requirements for home buyers this spring too high — out of sync with the actual risks of default presented by today's borrowers? The experts say yes.
What experts? The developers of the credit scores used by virtually all mortgage lenders. Executives at both FICO, creator of the dominant credit score used in the mortgage industry, and up-and-coming competitor VantageScore Solutions confirmed that mortgage lenders could reduce today's historically high score requirements without raising their risks of loss. In the process, many prospective buyers who currently can't qualify might get a shot at a loan approval.
. . . Burns notes that although auto lenders and credit card banks have adjusted their underwriting standards to these important changes in borrower risk, "the mortgage industry has been hesitant." In an interview, Burns emphasized that mortgage lenders could expand home purchase possibilities for large numbers of consumers simply by lowering score cutoffs. They wouldn't have to loosen up on their standards on down payments or debt ratios — just their scores. . .
(Excerpt) Read more at latimes.com ...
It seems that a foreclosure on a house can take at least a year, or longer. Besides the risk to the lender, (which is guaranteed by the federal govt.) there is risk to local and state government. If a property is in foreclosure and no payments are being made, there are no taxes being paid, and the local government loses that income. If a borrower can't make the mortgage payments, the risk is not only to the lender, but all of society.
The FICO numbers quoted in the article don't mean a lot to me. What does a 620 FICO score mean? Is it someone who was once 30 days late on a credit card a few years ago? Or is it someone who is young, just starting out, and hasn't had a chance to build up a good credit history? Or is it someone who chronically late on payments, and generally unable to meet their financial obligations?
Are their any freepers who are familiar with mortgage lending, and can weigh in with their opinion with the current credit score requirements are too high?
Because one subprime mortgage collapse is never enough.
A FICO credit score of 620 means the person so rated pays bills on a hit-or-miss basis; not a good solid credit score.
More bad journalistic reporting. No credit agency would argue that banks could lower their cutoff without increasing risk.
They might argue that banks could lower the cutoff without increasingly risk unacceptably on a business level.
And, if that is true, a bank, such as Wells Fargo, will benefit by lending where the others don’t want to go.
(The trouble, of course, is that WF is considered one of those banks that is “too big to fail” (without government bailout.)
You’d generally need to be above 700 and likely in the mid-700 range to be regarded as a good credit risk on a mortgage application. That doesn’t mean you couldn’t get one below that but you’d likely pay a higher interest rate.
If I were in a position to lend, I would be more cautious now. The introduction of moral hazard has Changed the culture. More people now would be willing to ‘walk away’ than in the past.
I do believe that some ‘progressives’ orchestrated the effort to cause this financial crisis by encouraging bad behavior (charging up credit cards to the max with no intention to pay) after the Re-election of GW.
That’s my only conspiracy theory to date. I followed the DU posts on the topic after 2005, but can’t gage the total numbers.
Here we go again. The marxist MO-if it doesn’t work the first time, keep doing it over and over. Also the definition of insanity.
Hells bells, the government (taxpayer) is already assuming the risk for most of the mortgage loans in this country, so what difference does it make? Why have any credit standards at all?
A realtor in Central Florida told my BIL that (2 years ago) 70% of the loans there were 3% down FHA. That tells me the government is eventually going to be the largest landlord in the country.
All this piece tells me is that the veneer of confidence RE the housing market is wearing very thin and desperation is growing to keep the current housing [semi] bubble going at any cost.
When housing takes the big dip this time, it's going to be much worse than the last time around.
“More people now would be willing to ‘walk away’ than in the past.”
Thus the reason for significant down payments. Make it hurt to walk away. Bring down the loan-to-value ratio so the lender left holding the property (thru foreclosure) has a little leeway to resell the home without risk of loss...or as much loss if it had been a 3-5% (or ZERO%!!!) down payment.
“... 70% of the loans there were 3% down FHA.”
FHA is the new sub-prime.
And, look where that got us...
If the FICO score requirements are too high, someone will take advantage of this situation by seeking out those borrowers and offering better terms for the loans. As there’s not a rush right now out there to do that, it would seem that there’s little financial benefit to seeking out those with lower FICO scores to give them better deals.
Free markets are always self correcting. That it hasn’t self corrected means that a) it isn’t a fully free market, as we already know, and b) the rates being offered already are likely slightly artificially low for the actual risk and benefits.
But hey, those who believe that this is wrong are more than able to pool their money together and go risk it giving out loans to people with lower FICO scores.
Then complaining about loan and housing affordability.
‘A FICO credit score of 620 means the person so rated pays bills on a hit-or-miss basis; not a good solid credit score.’
No, actually it doesn’t. It means you don’t have enough revolving credit. For a good FICO score, you have to open several credit cards or credit lines, keep the credit limits as high as possible, keep the card balances below 15%, keep the cards forever, and various other tricks.
FICO scores should not be used to evaluate a borrower’s probability of paying back a mortgage. FICO scores don’t necessarily have any tie to previous mortgage payment history. You can faithfully pay your mortgage payments for the past 30 years on 10 different properties, and your FICO score could be 620 due to credit cards. You can put up a 50% down payment, have 30 year work history, have paid off assets, and still not get a loan if your FICO score is 699.
Yes, that just happened to me last year.
If I were lending money I would not talk to anyone under 700.
If LAT was completely correct in this analysis, the free market would quickly correct the error. The fact that it isn’t happening is evidence that lower scores are (not necessarily in all cases, but often enough) indications of sufficient risk to deny the loans.
Fortunately, journalists and politicians are not constrained by the real world. Mr. Kenneth R. Harney can wail about a problem he doesn’t understand, and a coven of politicians will take up the call until these bad, selfish, greedy bankers are required to take advantage of the market opportunity that they were too indifferent to the working class to recognize. Then we get to play the whole TARP game again and hand out lots of our children’s and grandchildren’s money to politically connected bankers.
Mine was 850 8 years ago when I bought this condo.
This mystifies me because in YEARS of paying all sorts of bills,including a mortgage,I was never late on a payment.
I wonder why they knocked off points?. (I also don’t really care-—just curious.)
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I’m over 800. Got my loan for a new house yesterday. Woo hoo!
“...mortgage lenders could reduce today’s historically high score requirements without raising their risks of loss.”
And if bullsh*t were bullion we’d all be billionaires.
My score was lowered when I bought a car. I had not bought a new on since 1999. I have several credit cards and my score is up around 770 but to the car dealership I was a non entity because I did not buy several cars. They lowered it quite a bit.
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