Credit will likely be the driving factor for mortgage qualifying if banks have anything to say about it. Credit agencies continue to play an important role in the home loan process as lenders look for assistance in assessing risk from consumers looking to borrow a large sum of money. In a recent article, CoreLogic discuses a new credit scoring system based around the mortgage industry.
Credit Score System Emerges for Home Mortgages
It can't come as too much of a surprise that credit bureaus would come up with a mortgage credit score for banks and lenders to evaluate applicants more precisely. It was only a matter of time for a new credit score centered on the criteria of mortgage qualification. MLQ believed this would have happened a while back. The auto industry has their own credit report so why wouldn't mortgage companies want their own. In most cases, financing a home is the biggest purchase a consumer will make in their lifetime. Qualifying for the lowest 30-year mortgage rates could potentially save you thousands of dollars, so having a high credit score has value.
A new FICO mortgage credit score unveiled Tuesday casts a wider net to capture consumer behavior not previously considered in whether to grant a home loan. The agency says it will make more people eligible for a mortgage, but critics say that wider net may pull in new inaccuracies and create additional privacy concerns.
A few days ago, the consumer credit score giant FICO joined with data firm CoreLogic in announcing the new score designed specifically for mortgage lenders called the FICO Mortgage Score Powered by CoreLogic.
The report includes information that other credit reporting agencies, such as Experian, TransUnion and Equifax, don't factor into your traditional reports. If you were late on child support payments, applied for a payday loan or had trouble paying your rent on time, it could show up on your CoreScore Credit Report and be factored into your new FICO mortgage score. But on-time payments on a second mortgage will also be factored into your score, as well as all those months you paid your rent like clockwork. It's not intended as a replacement for traditional FICO scores, but as another tool for mortgage lenders to use early on, at the prequalifying stage for borrowers. "It's simply bringing in additional data," says Joanne Gaskin, a director of product development at FICO.
Critics say the extra information in the CoreScore credit report unfairly hurts consumers who have already been knocked down by the economy, especially those with lower incomes. "When you're including things like evictions and child support, that's going to affect those who are at the lower end of the economic spectrum," says Emil Fleysher, an attorney in South Florida. "Those who are going through divorce, anyone with an underwater [mortgage], anyone who bought or refinanced property between 2004 or 2007, is going to be at risk."
"The past three or four years, economically, have been a challenge," adds GreenPath Debt Solution's Munzenburger. "So when you've got folks who have struggled with on-time payments or because of unemployment or disability, when you really kind of boil it down, this report will magnify those problems. It will probably make it a little bit harder for people to rebuild that credit quicker."
Advocates counter that the CoreScore report helps consumers more than it hurts them. That's especially true, they say, for consumers who have thin files and would have otherwise been turned down by lenders because they didn't have enough experience with traditional loans, such as credit cards and auto loans.
Nontraditional data "could help that consumer who has positive alternative credit get the credit they deserve," says FICO's Joanne Gaskin. For example, a consumer who doesn't have any credit cards, but has repaid a payday loan on time could benefit by the extra information in the report. (The presence of payday loans in the CoreScore report are not viewed negatively, she says.)
A consumer who has a mortgage with a credit union that does not report to the credit bureaus would also benefit from the new report, says Jason Schneider, a spokesman for CoreLogic. In addition, "short-term installment loans may help a borrower show good behavior that would not be visible on his traditional credit report," he says.
Young borrowers may also get a boost, says GreenPath Debt Solution's Munzenburger. "If somebody had a thin file, somebody younger, maybe 18 to 22, just getting their first credit card, there's not much for the lender to go on," he says. However, nontraditional information could make an important difference. "That could definitely help, no doubt about it," he adds.
That won't be true for everyone, however. "A lot of the folks who don't have files may be low or moderate income, and they are going to go from no file or thin file to bad file and that doesn't necessarily help them," says Chi Chi Wu, staff attorney with the National Consumer Law Center.
Under the Fair Credit Reporting Act, consumers can get any credit report free, once a year, including CoreLogic's. You have to do so by contacting the agency issuing the report. Currently, consumers can obtain one free report per year from each of the three major credit bureaus -- Experian, Equifax and TransUnion -- at AnnualCreditReport.com. FICO/CoreLogic hope to join AnnualCreditReport.com's offerings in the near future, but currently that report is not being offered there. Read the Entire Fox Business Article.