Tough Standards By Banks For Mortgage Approval Requires Credit Education

Several years ago, the mortgage underwriting standards of banks were so liberal that nearly anyone could get an approval, regardless of income levels or credit scores. The subsequent real estate crash and huge number of mortgage defaults since those easy lending days has resulted in much tougher underwriting standards.

Many borrowers with adequate income and home equity are still unable to refinance or purchase a home due to credit scores that are below the minimum requirements established by the banking industry.

It is estimated that one third of all Americans are now unqualified for mortgage approval based on credit score.

According to research from Deutsche Bank, the number of Americans with credit scores below 600 has increased to 26% from only 15% prior to the start of the recession. Further examination of credit data reveals that 9% of all Americans have a credit score in the 600-649 range.

Based on current credit score requirements for a mortgage approval, any applicant with a score below 600 is almost certain to be turned down by a banking institution. Borrowers in the 600-649 range are also considered “weak” candidates with a high turn down rate, especially if the credit score is below 620.

Based on the total number of Americans with a credit score of 649 or lower, up to 35% of all Americans are effectively locked out of the refinance or purchase mortgage market for the foreseeable future.

If a low credit score is the primary reason for not being able to refinance and benefit from the lowest mortgage rates in history, there are steps that a consumer can take to raise the credit score. For example, a low credit score may be due to inaccurate information on the credit report which can be relatively simple to correct.

Credit scoring is done using complex models employed by the major credit reporting bureaus that assess factors such as how much credit is currently being used, open collections, amount of debts outstanding, payment history, number and type of accounts and the age of open accounts.

Learning how the credit scoring system works, what can cause a credit score to change and what steps are necessary to improve a credit score can result in a significantly higher credit score and lower consumer borrowing costs. A great way to get started is to take advantage of information offered by government agencies.

The Federal Reserve has published a comprehensive consumer’s guide on Credit Reports and Credit Scores which provides answers to the most common and important questions about credit. In addition, the Fed has a separate section of in depth information on Improving Your Credit Score. The time invested in learning about credit and how to improve a credit score is time well spent since it can result in saving thousands of dollars a year through lower rates on revolving, installment and mortgage debts.

Is your bank manager is spying on you

Ever wondered why you can still be turned down for credit even though you have a spotless credit report? Well it turns out your bank may know a lot more about you than you think.

What does your bank know about you?

This article is about those 6 little letters that can conjure fear even within the most financially hardened individual - C R E D I T. Can I get a credit card? Will I be able to get a mortgage? What does my credit report look like?

The backbone to any credit check will always be the traditional credit report. But did you know lenders are now often looking at between 60 to 80 different factors when deciding whether to accept your application for credit?

Here are some factors they consider that you may not know of...

Liquid assets

Traditionally, lenders have looked at your history of paying off debt as indicator of how reliable you will be as future customer. But, as the financial downturn has thrown many people’s finances into disarray, lenders are now keen to get a fuller idea of your current balance sheet before issuing you with credit.

Referencing agency Callcredit uses SHARE – a collection of customer credit data provided by banks, building societies, credit card companies and finance houses. Data held could include credit limits, outstanding balance, monthly payments, start date and settlement date.

Callcredit and Experian also use a modelling technique known as the ‘affordability index’ to predict the amount of disposable income you possess. This will usually involve balancing any unsecured debt you have (e.g. credit card debt) against your income (obtained from your application or current account details) to give an overall ratio of your indebtedness.

If income details are not available, the model will be based on your current credit facilities and how much credit you have access to – this is why you should always cancel any credit cards you are no longer using. Behavioural data such as the amount of cash you withdraw on your credit card and whether you only pay off the minimum each month may also affect your credit rating, as it suggests a lack of disposable income.

Home value

Lenders are also keen to be totally clued up on your living arrangements. Whether you rent or are a homeowner may have an impact on your ability to get credit. For example,a freelance journalist Karen Houser was recently turned down for a credit card because she was a self-employed renter.

The next few years could also see your reliability in paying rent factor into your credit score. Several agencies have expressed an interest in using data obtained from landlords and letting agents when issuing credit ratings. It’s already in full swing over in the States - credit referencing giant Experian’s US arm has even bought RentBureau, a rental credit agency.

But even if you are a homeowner, the value of your property can still be considered when you apply for credit. Callcredit are now using an Automated Valuation Model (provided by online valuation company Hometrack) which can accurately assess the value of your property. This again allows Callcredit to warn lenders about any big fluctuations to the value of your property, so they can 'intervene' before missed mortgage payments or refuse you further credit on this basis.

Utility payments

Credit scoring agency Experian already uses customer payment data from Gas Companies and is keen for more utility providers to begin sharing information with them. The scoring agencies argue that gas, water and electricity are another form of credit because they are consumed first and paid for after. Thus, the agencies want to factor this payment information into your credit report.

Payday loans are another form of finance that scoring agencies are eager to see included on reports in an attempt to provide a fuller picture of your credit worthiness. As if you needed any more reasons to avoid them like the plague!

Emma Roberts unveils the 5 biggest credit rating myths that could destroy your finances and how to beat them.

Mobile Phones

We all know that your credit record can impact on applications for mobile phone contracts, but did you know that your phone payment information can also affect your credit record?

Mobile telephone providers have now started sharing payment data with referencing agencies in an attempt to identify unreliable customers. So make sure you pay that phone bill on time!

Risk triggers

Credit scoring agencies are very interested in what they call 'risk triggers'. These are vaguely described as 'financial events' such as missed repayments, but basically it's anything that you do that credit agencies can monitor - and lenders want to know about.
These 'triggers' are observed by credit scoring agencies and reported to lenders as an indication of a possible change in your financial situation. Callcredit monitors over 250 different types of triggers, whilst Experian has a tailor-made collection tool called Tallyman to alert lenders of any immediate or forecasted changes on your balance sheet.

Triggers will alert lenders to any missed mortgage, telephone or utility payments allowing them to act quickly to minimise any financial risk they think you may suddenly pose to them. This could involve reducing a credit or overdraft limit or sending out further requests for re-payments.

But as well as ‘risk triggers’, credit agencies are now also monitoring ‘collection triggers’ designed to alert lenders to any improvements in your financial situation – such as an increased income or decrease in credit card spending. This will allow the lender to put further requests in for re-payment, or even send you marketing for further products tailored to your new financial status.

The agencies say the trigger system is designed to help lenders to lend responsibly and so protects both you and your creditor – but you might feel considerably less positive about it... Either way, it pays to remember that big banker is watching!

Postcodes

Credit scoring agencies have also begun profiling you depending on the levels of fraud and indebtedness within your postcode. To find out more read How your postcode costs you money.

I'm sure many of you will perceive these new credit scoring measures as a creepy invasion of our privacy. But after the recent financial downturn – a crisis caused in part by a lack of regulation over credit distribution – perhaps this is short-sighted. Perhaps instead we should be welcoming any improvement in the methods used by lenders to ensure that a borrower can repay debt.

What do you think

Should banks be snooping around in your utility bills? Is it right that lenders can keep tabs on your financial situation 24/7?

Let us know your views in the comment box below.

What you need to know about refinancing costs

When you refinance, you face several different choices that will directly affect how much you pay. There are also several factors over which you have no (or almost no) control that will play directly into the refinancing cost. Here are some facts about refinancing (and financing) mortgages that account for the differences in what people pay:

-Lowering the interest rate means higher closing costs. If you choose to have a lower interest rate, you can pay "points" (a point is 1 percent of the loan amount) to buy down the interest rate. Points count as part of your closing costs, and, while they're deductible, you have to amortize the cost over the life of the loan when you refinance. If you're buying a home, you can deduct points in the year of purchase.

-"No Cost" refinancing costs you very little. But you'll get a slightly higher interest rate than what is otherwise being offered to the best customers.

-Credit history and scores are reflected in price. Today, the best interest rate and lowest closing costs are being offered to those with the highest credit scores (and best credit histories). Lenders will pull credit histories and scores from each of the three credit reporting bureaus, Experian, Equifax, and TransUnion. The middle score is the one that's used to qualify you, and if that middle score isn't above 760 (780 in some cases), you might have higher closing costs.

-Title insurance costs vary. Title insurance can be the single most expensive line item on the HUD-1 (the government mandated closing statement form used in most residential loan closings), and the cost varies from state to state and even from county to county within some states. Some states have very good title insurance lobbyists, and the costs are higher than in others.

-Lender costs are a big component of total cost. Sometimes tthe biggest closing costs are processing and underwriting fees, along with those fees charged by the escrow company (title insurance and escrow).

-Prepaid costs can vary. Depending on the day you close, you'll have to prepay the interest you owe from that day (and including that day) through the end of the month. This gets tacked on to your closing costs. So, if you close on the first of the month, you'll have 30 days of prepaid interest. If you are getting a $420,000 loan, that could be a tidy sum of money. You may also have to prefund your tax and insurance escrow (you'll eventually get a check from your old mortgage company with whatever is left in that escrow account), and that can add to the total closing costs as well.

Understanding Your Credit Score

A great mystery for many U.S. consumers is the credit report/credit score system. These scores are available to, and affect dealings with mortgage lenders, banks, utility companies and prospective employers among others. Unfortunately those pirates you see singing about free credit reports on TV are not much help.

A credit score is a numerical value based on the information found in your credit report. This score gives lenders an idea of what type of credit consumer you will be based on your credit history. Loan approval, loan rates and terms are all determined by how the creditor views your credit. The higher your score, the more likely you are to get credit, at better rates.

Most scores range from 300 to 900, with the majority of people in the 600 to 800 range. To get the most favorable interest rates, you’ll need a score of 720 or higher. In terms of interest rates, a person with a credit score of 520 will get interest rates on loans that are three to four percentage points higher than rates given to a person with a credit score of 720. (source creditreport.com)

Since your credit score is a reflection of your credit report, a number of items in your credit report could negatively affect your credit score. Creditors may look unfavorably on late payments, a short credit history, multiple new accounts, multiple credit card accounts and bankruptcies.

To improve your credit score under most systems, focus on paying your bills on time, paying down any outstanding balances, keep your balances at or below 25% of your card limit, don’t transfer balances, and pay off your debt. Improving your score significantly is likely to take some time, but it can be done.

It is also very important to review your credit reports annually to find any mistakes that could negatively affect your score. If you find errors in your credit report, you may dispute the information and request that the information be deleted or corrected. To do so, you should contact either the credit bureau that provided the report or the company or person that provided the incorrect information to the credit bureau.

In some cases, a lender may tell you your credit score for free when you apply for credit. For example, if you apply for a mortgage, you will receive the credit score or scores that were used to determine whether the lender would extend credit to you and on what terms. You may also receive a free credit score or scores when you apply for other types of credit, such as an automobile loan or a credit card.

You can get one free credit report every twelve months from each of the nationwide credit bureaus–Equifax, Experian, and TransUnion–by

visiting www.annualcreditreport.com

Home Loans: Refinancing Isn't So Easy

Mortgage rates are at all-time lows. Rates range from 4 percent to 4.5 percent for some borrowers.
It's a great time to refinance — if you can.
Many homeowners who would love to lower their mortgage payment don't qualify. And many who do are discovering that getting a new loan isn't as easy as it used to be.

Pennsylvania resident Jeff Marsico has been with the same lender for 15 years. He's had two houses and has never missed a payment. With equity in his house, a solid income and credit score, he figured refinancing with his existing lender would be fairly simple. It wasn't.

It took 90 days to get the loan — and along the way the lender inundated him with requests for documents: every page — even the blank ones — of his brokerage statements, and every page and schedule of his two most recent tax returns.

Tips For Refinancing

Research your credit Score. The credit score cutoff to get any home loan is substantially higher today than it used to be. People are often surprised by their actual score. Check out your score ahead of time.

Shop around. Rates can be lower at regional lenders and independent mortgage brokers than at the top three lenders — Bank of America, Chase and Wells Fargo.

Safeguard personal information. If you're researching a mortgage refinance, be sure you're dealing with a legitimate enterprise. Don't disclose any personal information until you've confirmed that you're dealing with a bona fide lender.

Lock in a great rate. Rates can change quickly. If you're quoted a great rate, then lock it in that day. This requires filling out an application, which can be done online. Your lender can help you calculate how much you'll save by refinancing. HSH.com and Bankrate.com have lists of lenders nationwide and online calculators for determining how much money refinancing could save you.

Don't delay. Rhonda Porter, a blogger and mortgage originator in Kent, Wash., says not to postpone refinancing — especially if it requires an appraisal (most mortgages do require one). If a neighbor's home goes into foreclosure, it has an impact on surrounding property values. As a result, your home could be appraised for "less than originally expected," and have a negative impact on your refinancing application, Porter says.

Expect fees, strict documentation requirements. Consumer Reports says to expect to pay for an appraisal. What's more, because of stricter lending standards, it's likely that you'll have to provide more documentation then you might have thought necessary.

"Many of you who use accountants probably know that accountants staple the top of the tax return," Marsico explains. "So, in order for me to scan those documents I was pressing the paper up against the scanner and it left a black mark at the top."

But it wasn't pristine enough for the lender who wanted blotch-free pages. Marsico undid the staples and rescanned the pages.

There were lots of other frustrations too. But in the end, he got a 4.375 percent loan that will save him about $1,000 a year on his mortgage payment.

But not everyone will be so fortunate. The days of easy-to-get mortgages are over, says Greg McBride, a senior financial analyst at Bankrate.com.

"Prior to the credit crunch, if you had a pulse you got a loan," he says.

But today, he says, many homeowners can't refinance because they don't have enough equity, their incomes are too low, their debt is too high or their credit scores aren't good enough.

The Role Of Credit Scores

FICO scores — the ones used by nearly all the big lenders, range between 300 and 850. These days, a score of 740 or even higher is required to get the best rate. Three years ago a score in the 700 range might have sufficed.

Similarly, McBride says, the cutoff to get any loan is substantially higher than it used to be. Today, if a borrower's score is below about 660, it may be tough to get an attractive rate. And, McBride says, if the score is below 620, the borrower may not find any loan at all.

"Lenders are still pretty skittish because of the high level of mortgage default[s] and borrowers have to bring more to the table than a smiling face," he says.

Seattle area mortgage originator Rhonda Porter says people are often surprised by their credit score.

"They might think they have a 740 score, but when I see the report it's 720," Porter says.

Score Analysis, Low Rates On The Horizon

Part of the reason may be that credit scores provided to mortgage lenders are tweaked slightly differently from those provided to auto dealers or credit card companies.

Lenders typically look at scores from all three of the major credit reporting agencies and use the middle score in assessing the borrower's credit history.

Something as seemingly insignificant as a $550 balance rather than a $500 balance on a credit card could hurt your score, Porter says.

"Credit scoring is not an exact science and yet people are judged heavily by it," she adds.

The Mortgage Bankers Association expects that higher credit scores, more equity and higher income-to-debt ratios will remain extremely important to lenders.

And will the low rates continue? The association believes rates will rise to just over 5 percent next year and up to 5.5 percent in 2012.

Three Debt Collectors Settle With West Virginia

Companies were attempting to collect old, charged off debts

Three debt collection agencies have agreed to cancel $1,277,337 in debts for 161 West Virginia consumers. In addition, some consumers will get cash refunds.

West Virginia Attorney General Darrell McGraw had opened an investigation against the companies - Trailhead Capital, LLC, a debt buyer based in Chicago, IL; Hollis Cobb Assoc., Inc., Trailhead's affiliated collection agency in Norcross, GA; and Troy Capital, LLC, a debt buyer based in Las Vegas, NV - after receiving complaints that revealed the three businesses were collecting debts in West Virginia without a license and surety bond as required by state law.

Records also showed that the debts the companies were attempting to collect were primarily charged-off credit card accounts originally owed to Chase, Wells Fargo Bank, and GE Capital. In other words, the banks were no longer attempting to collect the debts.

In West Virginia, businesses that purchase defaulted debts for collection, as Trailhead and Troy Capital did, cannot avoid being licensed and bonded by hiring other agencies to assist them in collecting the debts.

"Our nation suffers from an explosion of credit card debt resulting largely from companies that extended credit without due regard to consumers' ability to repay and without clearly disclosing the terms of financing," McGraw said. "Rather than working with consumers to develop plans that might enable them to pay their debt over time, banks increasingly sell defaulted credit card debt for pennies on the dollar to collection agencies called debt buyers."

McGraw said companies that buy bad debt often take overly aggressive collection actions that include the filing of lawsuits - even when they have little proof of the debts they seek to collect from consumers.

"My office will continue its vigilance in ensuring that all debt buyers are licensed and bonded as well as follow the letter of our state's consumer protection laws," he said.

NCR Credit Plus Affiliate Program

Do you have a list of clients that are Credit Challenged or have Poor Credit Scores?
Do you have new clients that you cannot get them a loan because of their low scores?
Do you have clients that you have to say “sorry we can’t help you”?

NCR Credit Plus will take your potential client’s enroll them into our program. Educated, counsel and get their scores loan worthy for you and your company. Our education information will
help your clients get past the fears and doubts he or she has about
Credit Restoration.

Every client asks the same kind of questions: “Will this work, how long does it take?”

Credit Restoration is hard work, time consuming, and an ongoing affair. It is against the law to guarantee a time frame it will take to improve or restore anyone’s credit. However, it’s also against the law
to not state an “average” time frame that it will take. Our “Average”
time frame is 6 months.

How much will my score increase?

Your credit score is compiled directly from both positive and negative entries in your credit report.
* If you have open accounts that you are currently paying on, you should not record a late payment.
* If you do not have accounts you are paying on, then we will help you get some credit established.
* Use of 35% or less of your credit line will boost your score’s.
* Avoid a “hard inquiry’s” which can bring about a potential score reduction of five points or more.

* Your credit history accounts for 35% of your score.

Here’s what we think you’ll particularly appreciate about our program, and what it offers you:
NCR Credit Plus’s allows you to incorporate our services with your existing and new clients.
If you have a web site (Your Web-Master must add link) you can add a link offering our services.
In-depth updates about all account activity and progress made: We provide specific day/dates.
Identifying all accounts that are being worked on Ex; To Do / In Progress / Deleted / No Change.
Client score’s can be monitor without creating an inquiry.
Our services not only helped your client’s get approved, but also helps them get “lower interest rates.”
NCR Credit Plus success is illustrated by a client retention and track record that speaks for itself.

Please explore our site (www.ncrcreditplus.com), and contact us to receive full details regarding the services offered by NCR Credit Plus, or to answer any questions or concerns you may have. E-mail us for a Affiliate Welcome Packet.(info@ncrcreditplus.com)