March 19th, 2009 By MortgageNews

The basis of most mortgage lending is credit scoring.  In general, the higher a person’s credit score, the lower his offered mortgage interest rate.

Despite the many credit scoring models in use today, however, just 3 are relevant to American homeowners:

• The Equifax BEACON^® score
• The Experian Fair Isaac Risk Model
• The TransUnion EMPIRICA^®

Generically, these scoring models generate what are commonly known as “FICO” scores.

FICO scores are measurements of probability.  The higher a person’s credit score, by definition, the less likely a person is to default on his home loan.  This is one reason why credit scoring has added importance lately — mortgage lenders are very careful about what they’re lending and to whom.

Notably, minimum FICO thresholds have been added to all types of mortgage loans.

FICO scoring has 5 main components as listed above.  Payment history and credit capacity are two of the largest pieces, but a myriad of other factors contribute to a credit score, too.  For example, the longer your reported history of managing credit, the more favorably your credit score will respond.

The myFICO.com website does a terrific job with credit education, explaining in plain language the ins-and-out of credit scoring and ways to boost your score.  It also makes a free, 20-page PDF available for download. 

Whether you’re a homeowner or lifetime renter — consider it required reading.

October 14th, 2008 By StaceyFleece

In response to the slowing pace of economic activity and intensified turmoil in financial markets, the Federal Reserve cut the its key rate by 50 basis points, or 0.5%, last week ahead of its regularly scheduled meeting at the end of October. The action was globally orchestrated with banks around the world, including the Bank of England, the European Central Bank and others in Canada, China, Switzerland and Sweden, who also cut rates on the same day. There are multiple ways this cut will have a direct effect on consumers:

• The Prime Rate will follow the Fed Fund rate cut and also drop by 0.5% – currently standing at 4.5%
• Auto loans, equity lines and credit cards with rates tied to prime will now be cheaper

So why didn’t mortgage rates go down? Two main reasons…

• Mortgage rates are set based on where mortgage bonds trade in the open market. They are not directly tied to the Fed Fund Rate although monetary policy does play a big part in mortgage rates. However, the bond market tends to anticipate any monetary policy action the Fed takes so usually by the time the Fed acts, the rate cut has already been fully priced into the bond market.
• Also, amid the current financial chaos, investors are selling assets across the board – equities and bonds included. This sell-off, combined with record volatility in the market, is causing a short-term increase in rates. Don’t get me wrong…rates are still quite good…just a bit higher than we saw the past week.

Along those lines, I keep hearing in the media (as I’m sure you do!) that banks aren’t lending to each other or to consumers and that borrowers are unable to get mortgages, car loans or equity lines due to the credit freeze. This is absolutely not the case so let me once again be clear on this…WE ARE CLOSING MORTGAGE LOANS!! We are processing, underwriting, and closing loans daily and have money to lend!

So…as usual…don’t believe all you hear from the supposed experts on TV!

Stacey Fleece is a Mortgage Loan Consultant with Countrywide Home Loans in Mill Valley.