Golden Mortgage Retreivers
What is a credit score?
Credit scores have been in use since the 60’s with primarily auto lenders and credit card issuers. The major designer of credit scoring is a company called Fair Isaac and Company (FICO). Engineer Bill Fair and mathematician Earl Isaac founded FICO in the 1950’s, hence the name “Fair Isaac” .The first use of credit scoring in the mortgage industry came about in the early 90’s as the major secondary market players, known as Fannie Mae and Freddie Mac, started to develop automated underwriting
Credit scores range from 300 to 850. There are three major credit reporting agencies (Equifax, Experian and TransUnion) and they each use a slightly different system to arrive at a score. The best known is called the FICO score, based on a model developed by Fair Isaac and Company and used by Experian. Equifax’s model is called BEACON, while TransUnion uses EMPIRICA. Each of the models considers a range of data available in your credit history such as:
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How long have you had credit?
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Payment History - Do you pay your bills on time?
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Credit Card Balances - How much do you owe on how many accounts?
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Credit Inquiries - How many times have you had your credit checked?
Lately one’s credit score has become increasingly more important to the mortgage industry, too low and there is no chance to obtain a mortgage. Presently a score below 620 will not be able to obtain a mortgage from traditional sources. One’s credit score can change daily with the new information that streams into the credit reporting agencies each day.
If you have recently obtained your credit report and you are not happy with what was reported, you can take steps to correct the erroneous information on it. More about improving your present credit score in a later blog. If you are anticipating applying for a mortgage anytime soon, there are also proactive things you can do to improve your scores.
The first is the most obvious. Pay all your payments on time. The second is, don’t apply for any new credit unnecessarily. Every time you sign and return a new credit card offering, or open that second account at a department store because you get a 15% discount, an inquiry will be generated and that will reduce your score. The third is that if you must maintain credit card balances, try to keep them at a level that is 30% or less of the maximum credit limit. In other words, if the credit limit is $1,000, try to keep your running balance below $300. Believe it or not, consolidating all your credit cards onto one can hurt you, if the balance is at the credit limit. The fourth is, if you get into a dispute with the phone company and it isn’t a huge amount, pay it and move on. Having one or more collections, even if they are small amounts, can really hurt your score.
On my website (http://www.mortgagesbymike.com/applynow.html) there is a copy of a recent article that identifies the actual damage done to your score for particular negative credit problems.
Texas Mortgages are available from www.mortgagesbymike.com
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Expert Golden Mortgage Retrievers
In its earliest days, housing finance was a fragmented, inefficient and illiquid market, with mortgage rates varying considerably from region to region, and some locations having practically no funds available at all. Lending institutions would issue a mortgage, collect payments, and file the mortgage away until the principal was paid off. In 1934, during the depths of the Depression, Congress passed the National Housing Act to strengthen a deeply troubled housing market. This act created the Federal Housing Administration (FHA).The FHA made mortgage funds available to more Americans by protecting lenders from the risk of default. Still there was a problem: a lack of available, consistently priced capital put a ceiling on the number of new mortgages that could be issued
· Then the government revolutionized the American housing industry in 1970 by pioneering the issuance of mortgage-backed securities (MBS) via Freddie Mac (Federal Home Loan Mortgage Corporation) and creating the secondary market.
·This process is called securitization which means lenders sell pools of mortgage loans to investors, to shift risk away from themselves and to raise more money to make more loans. The MBS is sold to investors like banks, insurance companies, pension funds, hedge funds, mutual funds or any other very large investors.
·In the late 70’s private issue mortgage-backed securities came into being. These securities were issued by banks directly with no government agency involvement. The first private MBS issues faced complex tax, accounting and regulatory obstacles. Much of those legal issues were resolved with the passage of the Tax Reform Act of 1986 and then these securities grew in popularity. This tax law also permitted these MBS to be sliced and diced into Collateralized Mortgage Obligations (CMO) and other instruments that grew in complexity. This was the seed of the recent mortgage crisis.
Into the 90’s and especially the 2000’s these private mortgage-backed security products grew in popularity. Wall Street bankers pushed demand for these MBS and CMO’s because the fees earned by the bankers were lucrative. Along with the private bankers, Fannie Mae and Freddie Mac joined in, everyone lowered credit standards in an effort to create even more lucrative products to sell to investors. And the rest, as they say, is history. All those loose credit decisions lead to a great increase in defaults, and to the present situation of a very high inventory of foreclosures. It’s anyone’s guess as to how long it will take to flush out all the mistakes of the past 10 years.
Where can mortgages can be obtained?
Mortgages can be arranged by three different types of companies. They are called a portfolio lender, a mortgage broker and a mortgage banker. Sometimes a company may be any combination of the three types of mortgage originators.
·Portfolio lenders loan their own money, and service the mortgage themselves. This is the way the mortgage industry used to be prior to the 1980’s. A Savings and Loan organizations is an example of an old style portfolio lender. There are still portfolio lenders remaining in the national market that provide some well needed niche products, like jumbo loans, and 2nd mortgages. Portfolio lenders generally have a very well defined credit profile that they are looking to fill.
·Mortgage brokers lend money from other sources such as mortgage banks, pension funds, insurance companies, and portfolio lenders. Rather than lending their own funds, they attempt to find competitive mortgage pricing from various mortgage companies and earn a profit. The theory is that a mortgage broker has access to multiple lenders, therfore they have the ability to shop for the best rates for each credit profile.
Expert mortgage retreivers
·Mortgage bankers originate, sell and/or services mortgages. A mortgage banker will fund a mortgage with it’s own money, and either sell the mortgage like a broker, or keep it in house like a portfolio lender. Mortgage bankers also service mortgages that they do not own. Generally speaking, a mortgage banker will offer a limited variety of options to those who fall outside of their desired credit profile.
So, okay, I know the question you want to ask: Is it better to get a loan from a mortgage broker, a mortgage banker, or a portfolio lender?
My answer is: that there is no real difference.
If you can obtain the same mortgage loan at the same rate with the same fees, it really doesn’t matter where your mortgage loan comes from. It’s not important that someone uses their own money to fund your mortgage or if they get it elsewhere. In todays’ world almost all mortgage providers get their money to lend from the same sources.
Texas Mortgages are available from www.mortgagesbymike.com
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