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YoungFT

Beach Lover
Aug 1, 2006
66
22
Isn't it considered a bad thing to have multiple entities pulling your credit when you are getting ready to make a major purchase? I wonder why Countrywide requires that...plus, it sort of hinders your negotiating power a little, doesn't it, if they know how high you can go?

FICO is one of 3 scores used by lenders. I think the general approach is the same. Here's how FICO explains it...

Looking for a mortgage or an auto loan may cause multiple lenders to request your credit report, even though you're only looking for one loan. To compensate for this, the score ignores all mortgage and auto inquiries made in the 30 days prior to scoring. So if you find a loan within 30 days, the inquiries won't affect your score while you're rate shopping. In addition, the score looks on your credit report for auto or mortgage inquiries older than 30 days. If it finds some, it counts all those inquiries that fall in a typical shopping period as just one inquiry when determining your score. For FICO scores calculated from older versions of the scoring formula, this shopping period is any 14 day span. For FICO scores calculated from the newest versions of the scoring formula, this shopping period is any 45 day span. Each lender chooses which version of the FICO scoring formula it wants the credit reporting agency to use to calculate your FICO score.

As for the lender requiring pre-qualification and then knowing your "limit" so as to be in a better position to negotiate, something I would consider is the following: if they had two borrowers, one with unlimited borrowing capacity and a second who was stretched thin, I'm not convinced they would be more willing to negotiate or come off the price with the borrower who was stretched thin.

I think they are just trying to make sure they are dealing with a buyer who can close. And if they can keep the loan with a highly qualified borrower it might not be a bad business decision.

Hope this is helpful.
 

pgurney

Beach Fanatic
Jul 11, 2005
587
66
ATL & Seacrest
Isn't it considered a bad thing to have multiple entities pulling your credit when you are getting ready to make a major purchase? I wonder why Countrywide requires that...plus, it sort of hinders your negotiating power a little, doesn't it, if they know how high you can go?

As I understand it, credit scores get knocked down when a potential creditor checks your credit. But when several checks are done within a short time frame (Ithink it's 30 days) then I think it only knocks your score down as if it's one check. The system seems to understand that people shop their loans.
 

rapunzel

Beach Fanatic
Nov 30, 2005
2,514
980
Point Washington
I've been reading a book about FICO scores, and how things are calculated. I've found it to be very counter-intuitive. The thing that jumps out at me is that the shopping window -- it seems designed for the pre-bubble market, where you made a decision to purchase and pulled the trigger quickly. Now, you may find that you need to take your time with that decision. Also, approval amounts are very fluid from what I've seen. The amounts aren't based on income and credit scores, but also the loan products available in this market from week to week. If the pre-approval must come from a particular entity each time you find a house that interests you, I just don't see how that's a fair business practice.
 

SHELLY

SoWal Insider
Jun 13, 2005
5,775
802
There is an entire book about FICO scores? :blink:

51hpEbNFWpL._SL500_BO2,204,203,200_PIsitb-dp-500-arrow,TopRight,45,-64_OU01_AA240_SH20_.jpg


Read this one a couple months ago--it's very good.

.
 

Mango

SoWal Insider
Apr 7, 2006
9,712
1,360
New York/ Santa Rosa Beach
You must have a pre qual letter or proof of funds presented with all short sale and foreclosure offers. Countrywide wants one from their local branch, but you are in no way obligated to use them.

I am not a lawyer, but have been in the business long enough to know that that could be a violation of anti-trust laws and several other real estate laws as well. I'm sure Countrywide broached the topic with their lawyers, but I have seen Banks fined over issues like this in the past regardless of the Banks attorneys interpretation of law.

Isn't it considered a bad thing to have multiple entities pulling your credit when you are getting ready to make a major purchase? I wonder why Countrywide requires that...plus, it sort of hinders your negotiating power a little, doesn't it, if they know how high you can go?

They do it in hopes that you'll use them I'm sure. If it hinders you enough that you wouldn't be able to purchase the property after a couple of credit checks then you really shouldn't be purchasing at that price IMO.
I haven't found that it has made a difference in the negotiating, but that's a good thought.

FICO is one of 3 scores used by lenders. I think the general approach is the same. Here's how FICO explains it...
Looking for a mortgage or an auto loan may cause multiple lenders to request your credit report, even though you're only looking for one loan. To compensate for this, the score ignores all mortgage and auto inquiries made in the 30 days prior to scoring. So if you find a loan within 30 days, the inquiries won't affect your score while you're rate shopping. In addition, the score looks on your credit report for auto or mortgage inquiries older than 30 days. If it finds some, it counts all those inquiries that fall in a typical shopping period as just one inquiry when determining your score. For FICO scores calculated from older versions of the scoring formula, this shopping period is any 14 day span. For FICO scores calculated from the newest versions of the scoring formula, this shopping period is any 45 day span. Each lender chooses which version of the FICO scoring formula it wants the credit reporting agency to use to calculate your FICO score.

As for the lender requiring pre-qualification and then knowing your "limit" so as to be in a better position to negotiate, something I would consider is the following: if they had two borrowers, one with unlimited borrowing capacity and a second who was stretched thin, I'm not convinced they would be more willing to negotiate or come off the price with the borrower who was stretched thin.

I think they are just trying to make sure they are dealing with a buyer who can close. And if they can keep the loan with a highly qualified borrower it might not be a bad business decision.

Hope this is helpful.
Excellent point, however, if a buyer walks in with a full blown mortgage commitment from a Bank with no contingencies other than appraisal and contract of sale, Countrywide should accept it without requiring the buyer to be pre-qualified by them as well when they are also the seller. If I was a buyer, I would refuse to disclose my financial information to the seller while negotiating a price on a home. In the past, I have obtained commitments and offered pre-qualifed letters to my clients who could well afford more home, but did not want their realtor to know this or the seller. The commitment was strictly for the purchase price and loan amount requested.

As I understand it, credit scores get knocked down when a potential creditor checks your credit. But when several checks are done within a short time frame (Ithink it's 30 days) then I think it only knocks your score down as if it's one check. The system seems to understand that people shop their loans.

This is supposed to be the case, however I have seen credit scores drop even during the 30 day period. There is no reason why a Lender needs to pull credit on someone just so you can get a rate quote. The lender is not bound to that rate unless you sign a rate lock agreement and at that point you are committing to go with that bank and thus have to legally make application. Then your credit is pulled, before locking a rate of course.
If you know your credit is good and have an idea what your scores are, do not let anyone pull your credit until you're ready to pull the trigger with a Lender.


I've been reading a book about FICO scores, and how things are calculated. I've found it to be very counter-intuitive. The thing that jumps out at me is that the shopping window -- it seems designed for the pre-bubble market, where you made a decision to purchase and pulled the trigger quickly. Now, you may find that you need to take your time with that decision. Also, approval amounts are very fluid from what I've seen. The amounts aren't based on income and credit scores, but also the loan products available in this market from week to week. If the pre-approval must come from a particular entity each time you find a house that interests you, I just don't see how that's a fair business practice.

Not sure how old your book is, but now that should not be an issue on a traditional mortgage regardless of product. ARM's were underwritten previously on the base rate, not the rate plus margin, so therefore people were able to afford more house. Now we've gone back to underwriting the old fashioned way as far as ARMS are concerned, which is utilizing the base rate plus the margin (max payment) to determine qualifying ratios (the way it should have always been. The way I never stopped using anyway when I qualified my Borrowers who wanted ARMS) There may be a slight variance on FHA loans, but not much. Also, you do not need to get a new pre-approval on every house. Commitments are good for 4 months before they your documents need to be refreshed with the Lender. This mean re-submitting paystubs and asset statements. They will also pull credit again.

Another point regarding FICOs- they are not an exact science. I have seen enough credit reports to know this, and books help, but I have seen some low FICOs on even Borrowers with the cleanest credit.

Tips:
Having credit is good, but too much credit, especially obtained quickly in one time period drives scores down.
The highest FICO scores I have seen are people who have 3 or 4 lines of credit, and pay them off frequently or use a small percentage of the line.

Never buy/lease a new car before applying for a mortgage. The reason for this is you get deductions for the amount of loan vs. the value of the asset.
The same for furniture loans.
 

SHELLY

SoWal Insider
Jun 13, 2005
5,775
802
Mango,

I know Fannie is pretty much in the toilet at this point, but what's your take on this story? <see highlighted areas>:

HOUSING: Fannie Mae cracking down on 'walk aways'
New guidelines make it more difficult to purchase a second home.


One of the nation's largest lenders is cracking down on borrowers who let their homes enter foreclosure ---- a phenomenon that has spawned several North County businesses catering to homeowners who want to "walk away."

Fannie Mae, a government-chartered lender, instituted guidelines June 25 that limit the loans a homeonwer can secure when purchasing a second home. As home prices plummet in San Diego County, local real estate agents say more homeowners are looking to purchase similar homes for hundreds of thousands less and then let their original home fall into foreclosure.

"It's the duck and weave," said Christopher Thornberg, an economist with Beacon Economics. "You're looking at (a similar house) down the block listed at half of what you bought (your house) for, so obviously the best move financially is to move from your house to that one."

Purchasing a new home knowing that the primary residence will fall into foreclosure raises legal and ethical questions, real estate agents said.

It is a federal crime to lie on a mortgage application with a federally insured lender, such as Fannie Mae.

Fannie Mae's new guidelines require borrowers looking to purchase a second home to have at least 30 percent equity in the original residence, or plenty of cash reserves.

Some mortgage brokers are concerned that the new policies will further strangle a lagging market where home prices have tumbled 28 percent from a November 2005 peak, according to Standard & Poor's Case-Shiller Home Price Index.

"It's definitely tightening the market because these same people pretty much need to come up with 20 percent down," said Dave Hopkins, a mortgage broker with Rancho Financial, a brokerage firm in Rancho Bernardo. "And then, if they don't have another $20,000 laying around, they're just knocked out of the picture, so it's definitely slowing a lot of really qualified buyers from coming into the market."

Though no definitive statistics are kept on "walk aways," or borrowers who allow their homes to fall into foreclosure, local real estate agents say an increasing number of their clients are asking about buying another home for cheap with no intention of keeping the first home.

Agents said the homeowners typically do not intend for the first home to enter foreclosure, but instead hope to short sell the home, or sell it for less than the balance on the mortgage with the bank's approval.

If the home cannot sell, it will then fall into foreclosure.

Jon Maddux, founder of You Walk Away, a Carlsbad company that advises families facing foreclosure, said that 10 to 15 percent of his clients have asked about buying another property before their home enters foreclosure.

"Is it against the law? I don't know. But is it ethical? It's pretty clear that it's not," Maddux said. "We never advise them to do it. ... What we're telling people is look, if you're considering buying right now, it's not necessarily wise to buy a depreciating asset."

Though real estate agents and mortgage brokers said the new policies are directed at walk aways, Fannie Mae issued a statement Tuesday that the guidelines were not in response to borrowers allowing their homes to fall into foreclosure.

"In our experience, most borrowers are acting in good faith to try to keep their home," the release stated.

Beyond the new requirements for borrowers purchasing second homes, the new guidelines also require homeowners who have received a notice of default ---- the first step of the foreclosure process ---- to wait two years before qualifying for another mortgage. It also extends the time homeowners with a foreclosure must wait before qualifying for a Fannie Mae mortgage.

http://www.nctimes.com/articles/2008/07/09/business/z58e88855c362c47a882574800077e45c.txt


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