Posts Tagged ‘mortgage industry’

Today’s Mortgage Process Requires More Patience

December 12, 2011

by Peter Boutell, Santa Cruz Sentinel

A few weeks ago I wrote that today’s mortgage guidelines were more lenient and loan approvals were easier to come by than they were 25 years ago. However, today’s loan approvals are much more complicated. They are taking more time, requiring more documents, and require more explanations to borrowers.

Our government has taken over Fannie Mae and Freddie Mac and in an attempt to prevent another meltdown in the mortgage industry, has instituted a wave [as in tsunami] of regulations that we all must adhere to in order to remain in the mortgage business. These regulations have added an enormous amount of paperwork that must be provided by and produced by lenders and borrowers alike. The regulations were supposed to make it harder for unscrupulous lenders to take advantage of unsuspecting borrowers while at the same time make it harder for fraudulent borrowers to take advantage of lenders. These new rules were also designed to make comparison shopping easier so that borrowers could save money. Needless to say, the consequences of these strict guidelines have not produced the intended results.

Not surprisingly, one of the results of these guidelines is that mortgages are taking much longer to process than in the past because mortgage lenders are overwhelmed with meeting these requirements. The amount of paperwork now required to close a purchase or refinance loan is triple what we used to have to produce. The quality-control systems that we must have in place require  verifying and re-verifying information received, which takes countless employee hours.

While there are always exceptions, the paperwork that must go into a borrower’s file has grown exponentially over the years. With tax returns, bank statements, appraisal, preliminary title report, etc. it is not uncommon to have a file that is 375 pages thick. We recently had a file that grew to 784 pages! These files take time to put together, time to review and time to approve. Once we have all the pages that will be required for a file, the file goes in line to be underwritten [we have heard that some banks are taking 15 or more days just in the underwriting queue]. Once approved by the underwriter, the file goes in line to have the loan documents prepared. The documents are then sent to the title company, where the borrowers sign everything [some 50-60 signatures required just on the loan documents] and then the documents are returned to the lender’s funding department where they are reviewed again and the last minute quality-control checks for employment, credit and bank accounts are conducted.

It is a small miracle if the mortgage process can be completed within a 30-45 day period. Some banks are taking 60 or more days to close. In the days of old we were able to complete this process in as few as 5-10 business days. If we lenders, Realtors, title and escrow people, etc. can all stay calm and support each other by setting appropriate expectations, we will have smoother and more timely escrows.

 

 

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HARP Mortgage Refinancing Up 20% in September

December 6, 2011

Jon Prior via Housing Wire

Lenders and servicers refinanced nearly 35,000 Fannie Mae and Freddie Mac mortgages through the Home Affordable Refinance Program in September, a 20% monthly increase just before major guideline changes were announced.

The Federal Housing Finance Agency launched HARP in March 2009 to allow borrowers with mortgages that have loan-to-value ratios between 80% and 125% to refinance their loans if they are held by the government-sponsored enterprises.

Participating lenders and servicers have refinanced 928,600 GSE loans through HARP as of the end of the third quarter, the FHFA said Tuesday. It is an 11% increase from the previous quarter. Nearly 11 million borrowers owe more on their mortgage than their home is worth, trapping them out of refinancing at interest rates hovering around 4%.

"Monthly HARP volume grew in the third quarter as interest rates decreased to new historic lows," the FHFA said.

In October, the FHFA eliminated the LTV cap, upfront fees charged to borrowers and representation and warranty risk in order to provide more assistance to underwater borrowers.

Fannie and Freddie released specific guidelines in November.

Before the changes, borrowers who owed more on their mortgage than their home was worth made up a sliver of HARP totals. In September, 83% of HARP re-financings — nearly 29,000 loans — went to borrowers between 80% and 105% LTV, compared to 5,700 between 105% and 125% LTV, according to FHFA data.

The majority of Fannie and Freddie ‘refis’ go through other programs outside of HARP. In all, lenders refinanced 263,780 GSE loans.

Servicers completed more than 140,000 foreclosure prevention actions for the GSEs, including 83,500 mortgage modifications, in the third quarter. Short sales and deeds-in-lieu of foreclosure added another 30,800 for a total of more than 171,000 foreclosures prevented during the period.

Lenders started foreclosures on more than 224,000 properties, down nearly 11% from the previous quarter, according to the FHFA.

 

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Fed Uses ‘Dollar Rolls’ in Mortgage-Bond Program Shift

December 6, 2011

Jody Shenn and Caroline Salas Gage, San Francisco Chronicle

The Federal Reserve Bank of New York entered into paired contracts to buy and sell mortgage securities for the first time since it began reinvesting in the debt in October, in a move that may reduce funding costs.

The so-called dollar roll transactions will "facilitate the settlement of our outstanding MBS purchases," Jonathan Freed, a New York Fed spokesman, said in an e-mailed statement.

The central bank is purchasing bonds for December settlement and agreeing to sell the same amount of similar debt in January, said two people familiar with the matter, who declined to be identified because details haven’t been disclosed. Funding costs for mortgage-bond investors, which had risen in anticipation of banks trimming their balance sheets before year-end, fell after the Fed transactions.

"I applaud the Fed," Scott Simon, mortgage-bond head at Newport Beach, California-based Pacific Investment Management Co., which runs the world’s largest debt fund, said in an e- mail. "This both makes them money and helps the MBS market. There wasn’t enough year-end balance sheet."

The central bank began reinvesting proceeds from its holdings of $1.4 trillion in housing debt into government-backed mortgage bonds to help support the real-estate market and homeowner refinancing, shifting from additional purchases of Treasuries. On Nov. 30, the Fed joined with global central banks to cut emergency dollar funding costs for European lenders as the region’s sovereign debt crisis roils markets.

‘Funding Pressure’

The New York Fed says on its website that it "may use dollar roll transactions if needed to facilitate settlement" of its purchases. The Fed posts details on its mortgage bond buying each Thursday.

With dollar rolls, an investor seeking to borrow money enters into contracts to sell mortgage securities in any month and then buy similar bonds the following month; a lender would undertake the opposite trades. Investors entering into transactions for other reasons may be on either side of the contracts.

The transactions are similar to so-called repurchase agreement, or repo, loans.

The Fed’s latest move in the mortgage bonds may help "alleviate some mild funding pressure" in the market, said Bryan Whalen, co-head of mortgage bonds at Los Angeles-based firm TCW Group Inc., which oversees $120 billion in assets.

The implied cost of dollar-roll financing for some of Fannie Mae’s securities rose earlier yesterday to more than 40 basis points, depending on prepayment-speed estimates, according to Whalen. That compared with 27 basis points for similar repo loans, he said. A basis point is 0.01 percentage point.

Backstop Role

That disconnect "implied a little bit of stress" in money markets, he said. "It’s typical to see this type of mispricing of liquidity" around year-end, and Europe’s crisis is exacerbating the situation, Whalen said.

The implied cost of dollar-roll funding for Fannie Mae’s 3.5 percent 30-year securities fell to between 10 basis points and 20 basis points, depending on prepayment assumptions, early today, according to Credit Suisse Group AG analyst Mahesh Swaminathan. It had increased about 25 basis points since the end of October, he said in an e-mail.

The "Fed’s move to buy dollar rolls underscores their backstop role to support liquidity in the market," Swaminathan said. "I don’t think they are going to do these regularly. It is something intended to be done only when liquidity is perceived to be low."

Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2011/12/06/bloomberg_articlesLVSMVH07SXKX.DTL#ixzz1fnJO8H85

 

 

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Zillow: 30-Year Mortgage Rate Rises To 3.86%

November 29, 2011

by Natalie Tadena, WSJ

Real-estate website Zillow Inc. (Z) said Tuesday its real-time rate on 30-year fixed mortgages rose slightly in the last week.

Zillow said the 30-year fixed mortgage rate on its Mortgage Marketplace is at 3.86%, up from 3.8% a week earlier. The company said the 30-year fixed mortgage rate hovered between 3.82% and 3.85% for most of the week and peaked at 3.93% on Monday before dropping to the current rate.

Many mortgage trackers have reported low rates lately, as worries about European debt pressure yields on U.S. Treasury bonds. Mortgage rates tend to follow the yields. Zillow said this is the fifth-consecutive week the 30-year fixed mortgage rate has stayed below 4%.

"Talk of a possible third round of economic stimulus and some optimism around progress in European Union debt purchase plans spiked interest rates on Monday," said Erin Lantz, director of Zillow Mortgage Marketplace. "However, that spike has already been offset as of Tuesday morning, and we expect continued volatility as we await news from Europe and the Federal Reserve in the coming weeks."

Tuesday, Zillow also said the rate for a 15-year fixed home loans is 3.21%, up from 3.16% a week earlier. The rate for a 5-1 adjustable-rate mortgage is 2.68%, up from 2.57%; a 5-1 ARM has an initial rate that applies for the first five years of the loan and then adjusts annually.

 

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Obama Says Solving Euro Crisis of ‘Huge Importance’ to U.S.

November 29, 2011

via Margaret Talev & Roger Runningen, Bloomberg Businessweek

President Barack Obama said resolving the European debt crisis is of “huge importance” to the U.S. and his administration is “ready to do our part” in stabilizing the global economy.

Obama said a “large part” of the annual U.S.-European Union summit was spent on the impact of the crisis in the euro- zone. He spoke at the White House after meeting with European Council President Herman Van Rompuy and European Commission President José Manuel Barroso.

Van Rompuy said the U.S. and EU “both need to take strong action” to maintain the economic recovery. Barroso said he has “full confidence” that Europe will deal with the sovereign debt issue.

Iran’s nuclear program, strengthening exports and investments, Middle East peace prospects, terrorism and cyber crime also were on the agenda for annual meeting.

The summit comes as European finance chiefs are set to meet this week to discuss a rescue plan, and days ahead of a Dec. 2 report by the U.S. Labor Department on the nation’s unemployment rate for November. The rate for October was 9.0 percent.

About $4.6 trillion was wiped from the value of global equities this month on mounting concern that Europe’s debt crisis is spreading.

Wider Threat

Moody’s Investors Service said today the “rapid escalation” of the crisis threatens all of the region’s sovereign ratings, and the Organization for Economic Cooperation and Development said doubts about the survival of Europe’s monetary union has caused global growth to stall.

“The euro-area crisis represents the key risk to the world economy,” the Paris-based OECD said. Government bond yields for both Germany and France, Europe’s two largest economies, climbed last week as a German bond auction failed to get bids for 35 percent of the 10-year debt on offer.

News of a possible framework for a rescue plan helped push global stocks higher for the first time in 11 days. The MSCI All-Country World Index added 3 percent at 1:20 p.m. in New York, snapping its longest slump since 2008, and the Standard & Poor’s 500 Index rallied 2.9 percent.

The euro strengthened 0.6 percent to $1.3322. The yield on the 10-year German bund advanced four basis points, with the similar-maturity Treasury yield increasing two points after jumping as much as 11 points.

Push to Act

Obama has been calling on European governments to act decisively on a plan to address the crisis. Leaders must summon the “political will” among the 17 nations that use the euro to take steps to ensure fiscal discipline while stabilizing markets, Obama said Nov. 4 in France as the leaders of the G-20 ended a summit.

Van Rompuy and Barroso are top leaders of European institutions having influence over a final resolution, though France and Germany, the largest European economies, are critical to any success.

Obama has spoken frequently with German Chancellor Angela Merkel and French President Nicolas Sarkozy, and today’s White House meetings gave him a chance to further increase his lobbying. Neither head of state is attending today’s summit.

White House press secretary Jay Carney wouldn’t say whether Obama was making any new, explicit requests of the European leaders at the summit.

In a separate fact sheet, the U.S. and European leaders said they directed the Transatlantic Economic Council to create a Working Group on Jobs and Growth.

The panel, to be led by U.S. Trade Representative Ron Kirk and EU Trade Commissioner Karel De Gucht, is ordered to “identify policies and measures” to boost U.S.-EU trade and investment to increase job creation, economic growth and international competitiveness.

The panel is to provide an interim report in June 2012 and a package of final conclusions and recommendations by the end of 2012.

 

 

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Government Housing Strategy: The Industry Reacts

November 22, 2011

via Mortgage Solutions

The government has today published its strategy on “unblocking” the housing market, stimulating buying, lending, construction and job creation.

The Prime Minister David Cameron has promised the plan "will break the current cycle in which lenders won’t lend, builders can’t build and buyers can’t buy."

A key announcement was the widely touted government and house builder backed mortgage indemnity guarantee for new build properties, aiming to get 100,000 first-time buyers access to 95% LTV loans.

In addition, there were announcements around supporting the private rented sector, self build, tackling empty homes and overhauling social housing.

The property industry has largely welcomed the plans, but with notes of caution:

CML director general Paul Smee

This [new build MIG] scheme is good news for home buyers, developers and indeed the UK economy. Lenders will be able to reduce the level of deposit needed by home buyers in the new build sector, enabling more buyers to buy and so supporting the flow of new housing development, with all its positive consequences for jobs and the economy as a whole.

UK lenders will not be compromising the quality of their lending or increasing their risk of loss through this scheme.

It is also anticipated that lending within the scheme will attract relief on the regulatory capital that would otherwise be required on high loan-to-value lending, because of the significant mitigation of the lending risk.

Paul Broadhead, head of mortgage policy at the BSA

We welcome the government’s support for a new build indemnity scheme initiative aimed at helping those with a modest deposit buy their own home. This joined up thinking from mortgage lenders, builders and the government is good for borrowers, the housing industry and in turn jobs.

For the scheme to deliver its full benefits to consumers, it is important that lenders of all sizes can participate. We look forward to working with the government to help ensure this is the case.

Grenville Turner, chief executive of Countrywide

The measures announced today are a step in the right direction and address the key fundamental issues that have restricted the housing market in recent years.

The government needs to ensure that its promise of increasing house building is followed through and not restricted by planning red tape.

Whilst the proposed new build indemnity scheme is a welcomed boost to homebuilders and prospective buyers, it is disappointing to see a lack of measures to assist the vast majority of home movers.

A Stamp Duty holiday for all homebuyers up to £250,000 by would have been a welcomed boost to the resale market and should still be considered.

We also welcome the consideration of tax break measures for buy-to-let investors. Any government support to encourage investment in the buy-to-let sector will help to relieve the supply and demand imbalance.

Charles Haresnape, managing director of Aldermore Residential Mortgages

Any initiative designed to help the housing market and first-time buyers in particular, has to be welcomed.

However, it will be interesting to hear precisely how the government backed mortgage indemnity scheme will work and how the proposed £400m house building fund translates into new homes.

At the moment there are approximately 100,000 new homes being built every year, but that figure needs to increase to 240,000 if demand for new housing is to be satisfied. It is suggested that the government proposed new initiative will result in just 16,000 new properties, which still leaves the government woefully short of its target.

Graham Beale, chief executive of Nationwide

This scheme seeks to boost the supply of properties available with modest deposits and, as such, we are pleased to be part of it, helping to shape its design and development.

We would really like to see people who are saving for a deposit given more help through higher ISA limits and the flexibility to move their funds between cash and equity ISA products, without the restrictions that are in place now.

Paragon Group chief executive Nigel Terrington

It is pleasing that the government has recognized the important role the private rented sector plays in providing a home to millions of renters.

It is important that the private rented sector has a committed base of investor landlords to enable it to grow, and fostering a fiscal and regulatory environment that encourages that is vital.

Institutional investment will only play a complementary role to the mainstay of the private rented sector, the private landlord, and so whilst there is a focus on attracting greater levels of institutional investment into the sector, policies must not favor institutions over individuals.

Stewart Baseley, executive chairman of the HBF

This scheme will allow people to buy their new home on realistic terms and help in particular hard pressed first time buyers.

It will also be a huge boost to house building. Since 2007, the biggest constraint on homes being built has been mortgage availability. This scheme will see more desperately needed homes being built, create jobs and give the economy the boost it needs.

Helen Adams of FirstRungNow.com

Funding which only supports new build is good for the house builders who are being subsidised, but does little to move the whole market as there is no onward chain when a new home is purchased.

Tracy Kellett, managing director of buying agents BDI Home Finders

If the government and house builders are taking on the risk, what will the criteria be for people applying for these loans? The real number of people enjoying the scheme is likely to be far lower than the headline number. The devil, as ever, is in the detail.
The government has become so focused on the first-time buyer that it has forgotten the squeezed middle. Any housing strategy has to cascade upwards through the chain, not focus purely on the first link.
Given the scale of the market crisis, it’s unlikely it can do anything at all. Ultimately, only the market can make the market better.

 

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HUD Leader Touts Home Stabilization Efforts

November 15, 2011

Bob Christie via Bloomberg Businessweek

The Obama administration’s top housing official touted the government’s efforts to stabilize neighborhoods hard hit by foreclosures during a visit to Phoenix neighborhood on Thursday.

U.S. Housing and Urban Development Secretary Shaun Donovan visited two homes bought out of foreclosure, rehabilitated and put back on the market for sale to families by a nonprofit group awarded federal funds.

Efforts of groups such as Chicanos Por La Causa in cities across the U.S. are helping stop blight and home price declines triggered by vacant and foreclosed homes like those that had been prevalent in the South Mountain neighborhood where Thursday’s event was held, he said.

"When a foreclosure sign goes up on this house, it drops in value," Donovan said. "And so does the house next door and across the street."

The Phoenix home where Donovan spoke was bought out of foreclosure for just over $80,000 and Chicanos Por La Causa spent about $21,000 to fix it up.

A buyer has already agreed to pay $94,000 for the home. The group uses some of its $33 million in federal Neighborhood Stabilization Program grant to pay for the difference.

The government has poured nearly $7 billion into the program under both the Obama and Bush administrations.

The federal government is also poised to expand a program that helps homeowners who owe more than their home is worth to refinance at today’s much-lower interest rates. President Barack Obama announced the expansion of the Housing Affordable Refinancing Plan last month, with details due out later this month.

Donovan, in an interview with The Associated Press, said the government will remove the cap for refinancing mortgages held by Fannie Mae and Freddie Mac from the current 125 percent. The goal is to help homeowners free up an average of $2,500 a year they now spend on higher interest rates, thereby allowing people breathing room and an incentive not to walk away from their "underwater" homes.

The government will also ease rules for appraisals and other requirements to make it easier for people with those mortgages to refinance.

Donovan said the hope is that the federal action will set a model that conventional mortgage holders like banks can use to prevent foreclosures.

Donovan also urged Congress to act on Obama’s American Jobs Act proposal, but reiterated that the administration would use executive authority to make the moves it can even without the legislation.

"We need Congress to move," he told those at the event. "We need them to get back to work so we can get back to work."

Rep. Ed Pastor, D-Arizona, said critics who object to the government trying to help solve the foreclosure crisis are off the mark.

"The private sector has not done it, that’s the problem. If you had the financial institutions lending money for these types of projects, I think you would have the private sector getting involved. It’d be great to have the private sector, but they’re not stepping up right now, for various reasons, so now you need the public sector to be able to do it."

 

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MetLife Originates Over $1.6 Billion in Agricultural Mortgages

November 9, 2011

by Emily Phillips via MarketWatch

NEW YORK, Nov 08, 2011 (BUSINESS WIRE) — MetLife, Inc. MET +0.04% announced today that it has originated over $1.6 billion in agricultural mortgages in the first nine months of 2011. MetLife, through its agricultural investments unit, provides mortgage loans on farms, ranches, timberland and agribusiness facilities throughout North America.

"MetLife continues to be very active in the agricultural lending industry," said Robert Merck, senior managing director and head of agricultural investments for MetLife. "Our mortgage production to date demonstrates our expertise in providing borrowers with a reliable and trusted source of financing for the long-term growth and success of their business. At the same time, with the transactions we’ve completed this year, we have continued to further strengthen our high-quality portfolio of agricultural mortgages."

Some of MetLife’s Agricultural Investments unit’s recent transactions include:

Aurora Cooperative — Aurora, Nebraska

— $75 million of a $90 million senior secured loan

— Secured by fixed assets principally comprised of grain handling and storage facilities

— Aurora Co-Op is a grain merchandiser and specializes in handling and storage, as well as a merchandiser and distributor of crop chemicals, fertilizers and energy products

FIA Timber Partners, L.P. – Continental U.S.

— $80 million senior secured, 5.25 year fixed rate loan

— Secured by timberland located across the southern, southeastern, and northwestern United States

— Stands are primarily well distributed age classifications of Southern Pine and Douglas Fir

— Assets managed by Forest Investment Associates of Atlanta, GA

Central States Enterprises, LLC — Heathrow, FL

— $56 million first mortgage, 10 year fixed rate loan

— Secured by grain storage and handling facilities in Northeast Indiana

— Central States Enterprises provides grain and feed handling, merchandising and transportation logistics services

Woolf Enterprises – Fresno & Madera Counties, CA

— Three senior secured fixed rate loans with a combined total of $43 million

— Secured by irrigated field crop land, almonds, pistachios and wine grapes in the western San Joaquin Valley of California

— Woolf Enterprises is a diversified, vertically integrated, multi-generational family business

"MetLife has a deep understanding and knowledge of our industry and worked seamlessly with our banking group to provide us with an optimal structure of long and medium-term solutions," said Aurora Cooperative CFO Robert Brown. "I have worked with numerous financial institutions in my more than 30-year CFO career, and MetLife’s industry expertise was extremely valuable in supporting our financing needs."

Through its agricultural investments department, MetLife oversees a $13 billion agricultural portfolio, which consists of farm and ranch, food and agribusiness and timberland mortgages. MetLife has provided agricultural financing solutions since 1917 and is one of the largest agriculture mortgage lenders in North America. MetLife has agricultural investments offices in Fresno, Calif., Overland Park, Kan., West Des Moines, Iowa, and Bloomington, Ill., as well as a National Timber Office in Memphis, Tenn. For more information, visit http://www.metlife.com/ag .

 

 

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The Five Star Institute Announces Top Women in the Mortgage and Housing Industry Banquet

November 9, 2011

Mortgage Group Will Honor Industry Trailblazers at the 2011 MPact Conference and Expo

via Five Star Institute

The Five Star Institute, a mortgage industry group, announced today that it plans to honor several distinguished women in mortgage and the housing industry at the 2011 MPact Conference and Expo, held Dec. 4-6, 2011.

MPact will feature the honorees at the 2011 Top Women in the Mortgage and Housing Industry Banquet immediately before former U.S. Secretary of State Condoleezza Rice delivers her keynote address.

The Five Star Institute developed a list of several criteria to assess and determine final candidates for the banquet. The criteria included industry impact, "Big Picture" thinking, name brand equity and reputation, and a record of accomplishment with other companies.

The Five Star Institute is pleased to announce the following final honorees:

  • Caren Jacobs Castle, President, United States Foreclosure Network
  • Francene DePrez, CRP/SGMS, President, Fidelity Residential Solutions
  • Colleen Hernandez, President and CEO, Homeownership Preservation Foundation
  • Margaret M. Kelly, CEO, RE/MAX World Headquarters
  • Christine Larsen, COO of Trust and Securities Processing Division, JPMorgan Chase
  • Rebecca Mairone, National Mortgage Outreach Executive, Bank of America
  • Roseanna McGill, Chairman, PrimeLending
  • Frances Martinez Myers, President, Employee Transfer Corporation/ETCREO Management
  • Deb Still, President and CEO, Pulte Mortgage
  • Ivy Zelman, CEO, Zelman & Associates

"This select group of mortgage and housing industry leaders gives testimony to the strength of our democracy and exemplifies the importance of real leadership, above and beyond gender," says Ed Delgado, CEO of the Five Star Institute. "It is our great esteem and pleasure to recognize these trailblazers for their substantive and continuing contributions to our industry and markets at a time when we need strong leadership the most."

Additionally, the 2011 MPact Conference and Expo is focused on increasing the viability and success of mortgage industry professionals working in originations, servicing, data and analytics, and the secondary market.

 

 

 

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Credit Scores to Factor in More Consumer Data

November 9, 2011

Mary Ellen Podmolik via Los Angeles Times

Many consumers applying for a mortgage are going to start sharing more personal information with lenders next year, like it or not.

FICO scores, the industry standard for determining credit risk in mortgages backed by Fannie Mae, Freddie Mac and the Federal Housing Administration, largely have been based on a person’s credit history. But in an attempt to develop a more well-rounded picture of a person’s finances beyond credit, tools are being developed to help the lending industry dig deeper.

Fair Isaac Corp., or FICO, the company behind the widely used scoring formula, and data provider CoreLogic recently announced a collaboration that will result in a separate score that will be available to mortgage lenders and incorporates information that will include payday loans, evictions and child support payments. In the future, information on the status of utility, rent and cellphone payments may also be included.

Separately, the big three credit reporting companies — Experian, Equifax and TransUnion — recently began providing estimates of consumer income as a credit report option. And Experian this year began including data on on-time rental payments in its reports.

The new information could prove to be a double-edged sword for consumers: It may open the door to homeownership to some consumers who have, according to industry speak, a "thin file" or worse, a "no file," meaning that they lack sufficient credit histories.

On the other hand, the extra information may make a borderline borrower look even worse on paper. Also, it’s unlikely to quiet critics who complain that too much emphasis is put on a single number.

Still, there is thought among researchers that consumer transparency, if it demonstrates both good and bad behavior, has its place.

"You’re trying to convince someone to loan you an awful lot of money at a low interest rate," said Michael Turner, president of the Policy and Economic Research Council. "Only you know whether you’re going to pay it back. There is a harmony in this data exchange."

The FICO-CoreLogic partnership won’t result in a credit score that will rule out a borrower for a mortgage backed by Fannie Mae, Freddie Mac or the FHA, which together own or guarantee at least 90% of the mortgages being written. That’s because the report required for such a loan does not rely on CoreLogic data. However, it could affect mortgage fees or interest rates charged by lenders that in today’s lending environment have heartily adopted risk-based pricing.

"We’re fascinated to see, as we get into the data, whether that may expand the universe of people who can get a mortgage," said Joanne Gaskin, director of product management global scoring for FICO. "Banks are saying, ‘How do I find ways to safely increase loan volume, to find the gems out there?’"

As a result, there’s a rush by credit reporting firms to provide financial companies, including mortgage banks and credit card providers, with a wealth of information on individual customers.

"Before the [housing] bubble burst, there was a huge amount of interest in targeting the unbanked," said Brannan Johnston, an Experian vice president. "It was a desperate dash to try and grow and go after more and more consumers. When the bubble burst, that certainly dialed back some. They want to grow their business responsibly by taking good credit risks."

FICO scores have been around since the 1950s, but they didn’t become a major factor in mortgage lending until 1995, when Fannie Mae and Freddie Mac began recommending their use to help determine a mortgage borrower’s creditworthiness. The score, which ranges from 300 to 850, factors in how long borrowers have had credit, how they’re using it and repaying it, and whether they have any judgments or delinquencies logged against them.

The change comes as mortgage lenders reward the most creditworthy borrowers with low rates and tack extra fees onto loans for those with lower credit scores.

There are concerns about whether inquiries and charge-offs from payday and online lenders should be included in determining credit scores.

"Payday loans are extremely onerous," said Chi Chi Wu, a staff attorney at the National Consumer Law Center. "They trap people in a cycle of debt. To report on them is to cite that person as financially distressed. We certainly don’t think that’s going to help people with a credit score."

The extra information may also help more affluent homeowners who aren’t on the credit grid.

Two years ago, David Pendley, president of Avenue Mortgage Corp., worked with a college professor who didn’t believe in using credit. "He was putting down 40% and he had the hardest time getting a loan, even though he had $120,000 in the bank and he was 22 years on the job."

Eventually, Pendley secured a loan for the customer through a private bank, but he paid for it. "He didn’t get the lowest rate possible," Pendley recalled.

 

 

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