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CREDIT
The role of the mortgage broker

When someone contacts us by phone, e-mail, the web site, or in person, we want to know the following:

1. How’s your credit? If you don’t know, let’s find out, and our loan officers can help you solve the problems, if any.

2. What is your income?

3. How much do you have at your disposal for down payment and costs? Please don’t be deterred if you no savings at this point. Call us anyway. There may be a program for you.

The starting point is always the borrower's credit history. This is true whether you are purchasing or refinancing. If your credit is impeccable, lenders are less concerned that you will be late with a payment or default on the loan. If you have great credit you may be able to get a loan for 95% to 100% of the purchase price. You may even be able to do this with a debt ratio in the mid-40's. You may be able to get a loan with 20% down and a 50+ % debt ratio.

Credit scores…..what are they?

One thing that is becoming increasingly important is your credit report and the objective scoring systems associated with them. Every borrower must do everything possible to protect his/her credit. A leader in this is Fair, Isaac Co. (FICO) which developed a scoring system for credit reports. Each credit company now has its own credit score model. Credit scores range from “none” (insufficient credit or no “good” credit) or from the low 300's to a high of 850. A FICO score of 680 is considered good enough to not require any further review by an underwriter. An "A paper" loan may still be made with a lower FICO score if reviewed by an underwriter. Many times there are extenuating circumstances, if explained properly, that will be accepted by an underwriter.

Why do lenders pay so much attention to these scores?

A borrower with a FICO score below 600 indicates to the lender that there will be a seriously delinquent or default problem. They give a borrower with 700-850 scores a high degree of respect, and expect little delinquency or default. The costs to them are less, so therefore, your interest rate will be less than if you have credit scores that are low. A low credit score will hinder your ability to get a good first mortgage. Getting a second mortgage may prove just as difficult for the low FICO borrowers. The lender who carries the 2nd will have less security than the lender carrying the 1st. It would be to your advantage to understand and learn how it works and how to use it to your advantage. There are certainly cases in which people's credit has inaccurately been reported to be adverse. This can be remedied, but it is a lot of work on your part. Our loan officers can offer advice on how to do it, but they cannot do it for you.

How to Keep a Good Credit Score

• Never have a mortgage late. Pay the mortgage first, ALWAYS!

• Never have any late payments.

• Don't have a sudden surge of credit activity (“Inquiries” reduce your credit score, so applying for every credit card offer that comes along reduces your credit score.)

• Do not use your entire credit limit. Using more than 80% of your credit line will impact your score.

There have been credit scores below 640 that have never had a late pay on it. It usually means that the amount of credit out and the balances are too high, meaning the borrower could be “tapped out.” The borrower will argue that they have never had a late payment, but to the lender it looks like the borrower is living on their credit cards. It usually means that they will be a high risk. Closing some of the credit lines will help, but not for a few months. There is almost no reason that anyone would retain such high credit usage if they had savings. The borrower may be a saver, and just a skillful user of credit. With no savings, the least little problem, the borrower is going to get behind.

There is an interesting case on the Fair Isaac WWW site http://www.fairisaac.com/FI_Home/html/harney.html showing how folks intending to lower their credit score combined several credit cards into one line, canceled some cards and wound up with a Score 20-30 points lower. Unless you pay cash, don't be a young couple with 2 new cars. We have seen over and over again young couples with two new cars and payments to match put themselves out of the home buying market.

Credit Repair
We would highly advise using a service offered in the newspapers or on TV. This is a process you can do yourself. First, get a current copy of your credit report. We can do this for you for twenty dollars. Find the derogatory items. You want to get rid of them permanently. You may find an item that was "taken care of" when you last got a mortgage and you are wondering how it got back here. You must understand what is here, how it got there, and how to prevent it's getting there in the future. There are hundreds of companies that prepare these credit reports. There are a zillion entities that report items but (and here's what you can do something about) there are only 3 credit repositories. What you might want to do is dispute the inaccurate derogatory information. As far as we know, there is only one way to do this. You must mail a registered letter to each of the repositories and dispute the items that you feel should not be on your credit report.If you are not going to send registered mail, don't bother. Your disputing the derogatories places the onus of keeping them there on the repositories. They must go back to the entity that provided the information and ask them to prove that it should be there. If they cannot establish within 30 days that it is valid, it must come off. Please understand something very clearly. I am not suggesting that anyone abuse this. I am saying that you have rights and should use them if you want inaccurate information taken off your credit report.

The Drill
When a credit reporting agency receives a dispute, it must reinvestigate the disputed items within a "reasonable period of time," unless it believes the dispute is "frivolous or irrelevant." Here's how to do this:

1. Get your mortgage broker to get a credit report with the data separated into the 3 credit repositories. Around a 20$ cost.

2. Send a registered letter to each credit repository (addresses below) disputing the information which is inaccurate. You must make a clear statement that the accuracy or completeness of specific information is "disputed" or "challenged". Challenge each item individually. (See a sample at: http://www.creditinfocenter.com/repair/
   fix2crdt.htm#sample_letter_1)

    

3. If they do not reply within 30 days send them another certified letter stating that you have given them a reasonable amount of time and insist that the disputed items be permanently removed. (See a sample letter at: http://www.creditinfocenter.com/repair/
   fix2crdt.htm#sample_letter_2)

The law, which protects you, may be found at: http://www.law.cornell.edu/uscode/15/1681i.html In the US we have three credit reporting bureaus:

Experian (TRW), CBI (Equifax) and Trans Union.

If you want to dispute the contents of your credit report send them Certified mail at these addresses:

CBI/Equifax
P.O. Box 740256
Atlanta, GA 30374
(800) 685-1111

Experian (TRW)
P.O. Box 2105
Allen, TX 75013-9505
(800) 422-4879

Trans Union
1561 E. Orangethorpe Avenue
Fullerton, CA 92631-5207
(800) 858-8336
(316) 636-6100

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