Effective June 1, 2010 Fannie Mae is mandating a number of additional qualifications for each mortgage application. These additional mandates are intended to ensure that the information collected from buyers when they apply for a mortgage are the same as when they go to close. Fannie Mae is requiring lenders to re-verify a number of pieces of buyer data including their credit scores, employment, and making sure the borrowers are not on the ‘un-approved’ list maintained by the General Services Administration.
As a Cincinnati real estate agent I have a responsibility to guide buyers through the application process, ensuring that they provide accurate information on all of the documents. Because the lenders are re-checking the information if any of it changes it could cause the loan to go through another round of underwriting. To protect my buyers I am advising them to work very closely with their lenders to keep their information current.
Due in large part to the Federal Housing tax credit the pending home sales in April surged to a 110.9 index rating up from 104 in March. How do we know that the tax credit was the cause of the increase? Well we can look at the historical data and see that the last surge of pending home sales occurred in October 2009 just as the prior tax credit was expiring according to RSI media.
Locally in the Midwest the index rose 4.1% to 104.2 and is 17.9% above April 2009 index. The Cincinnati market was certainly impacted by the credit. Scores of buyers looked to take advantage of the program, and in turn helped to stimulate the regional economy as well. Each new home purchase helps to provide work for contractors, inspectors, title companies, and movers just to name a few impacted industries. While the tax credit was positioned to help the real estate market the halo effect is that the increased volume of home transactions really has stimulated commerce in a number of sectors.
The Making Homes Affordable program is designed to help individuals restructure their mortgages with their lenders. In lowering the monthly payments through renegotiating the terms of the loan, more people are able to avoid short sale and foreclosure situations.
One unforeseen consequence is that the homeowners benefiting from the program may also be taking a 50 to 100 hit on their credit score. The challenge is that lending institutions and banks are reporting the loan modification differently to the various credit agencies. It is this variation in credit reporting that is difference how credit scores are being impacted.
What is important to keep in mind is that a loan modification’s impact on a credit score will be substantially less damaging than a foreclosure or a short sale. In all three cases lenders report the change in credit, but a modification is not reported as a ‘charge-off’. Charge-offs are typically associated with short sales and foreclosures and stay on credit reports for 7 years. Modification is much preferable to a foreclosure, just make sure you are aware of the potential impacts on your credit.
For years we have been told to keep an eye on our credit score, commonly called a FICO number. FICO is a score provided by the Fair Isaac Company to the tree credit reporting companies. Fair Isaac charges a premium for this information, and until now has not had a competition. VantageScore is aiming to become the second provided of credit information, and they have a different rating system.
The VantageScore ratings look more like a report card, with scores ranging from 990 – 501. ‘A’ grade scores are 990-901, ‘B’ grade scores are 900-801. The scores continue through ‘F’ grade borrower ratings. The real question is how is this going to impact Cincinnati home buyers.
The reality is that it will depend on the underwriting banks. Switching ratings systems will be expensive for the underwriting banks, and lending officers. If banks begin to switch to VantageScore it may en up costing consumers as they shoulder the price of the change. The only real way to know is when our local Cincinnati mortgage brokers give our buyers their numbers after the changes take place.
