What makes up a credit score?

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The Inside Workings of Credit Scores

Consumers are encouraged to check their credit reports once per year. The primary reason for doing so is to make sure there aren't any mistakes. Unfortunately, credit reports are prone to contain mistakes. It's not really the fault of the three main credit repositories, Equifax, Experian and TransUnion because all three are just a database. Whatever is reported to them is what you see. Further, someone with a similar name can show up on someone else's report. If you're not the only Bob Smith in town, this is certainly possible.
 Someone else's poor credit might very well be showing up on your report which can directly damage your credit scores. When you find an error work with your loan officer to get it fixed. Your loan officer has working relationships with credit agencies and can help get mistakes fixed and provide a method to get your scores back to where they should be.

Continue to the full article where more of the mystery behind credit scores will be revealed.

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if you have questions about what you see here, contact

Stephen M. Flatow, Esq.

Vested Land Services LLC

165 Passaic Avenue, Suite 101

Fairfield, NJ 07004

Tel 973-808-6130 - Fax 973-227-0645

E-mail sflatow@vested.com

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Why’s my FICO score dropping? Here’s an answer

The New York Times’ Lynnley Browning writes,

“IF you’re looking to refinance or buy a home, potential lenders and mortgage brokers will be checking your credit scores. And if those scores are being verified, chances are they are going down.

“Yes, you read that correctly. Each time a credit score is pulled from one of the three credit bureaus as part of a loan application, it can decline by as much as 20 points, or more. Call it the Great Credit-Score Ding.”

While information about credit scores and their use is becoming more widespread, “few buyers know this goes on — or what to do about it.”

“Most consumers are unaware that this happens,” said Paul Stephens, the director of policy and advocacy for Privacy Rights Clearinghouse, a consumer advocacy group in San Diego.

The so-called FICO score is sold to the three credit bureaus — Equifax, Experian and TransUnion — “which each then use different formulas to compute a consumer’s creditworthiness.”

The higher your credit score, the lower your interest rate.  So why does your score get affected by credit report inquiries?

“It is the “hard pull” inquiry — in which lenders and brokers learn that you are in need of money, and check your credit in order to process your application — that can most damage your score.”

This can result in a 20 point or more drop in your score each time you authorize a lender to check your credit.

“So how can borrowers minimize the blow, especially those shopping for the best mortgage rates and working with more than one lender or broker?”

“If all the requests are made within a short time, they usually will count as only one check.”

There is some good news, “borrowers who check their own credit scores through a less invasive “soft pull,” to get an estimate of creditworthiness and of loan rates, do not see their scores go down.” So, ask your lender to do “a soft pull before deciding which loan to go with, at which point a formal inquiry is made.”

Read the full column, Preventing Credit Score Dings

For your next title order or

if you have questions about what you see here, contact

Stephen M. Flatow, Esq.

Vested Title Inc.

165 Passaic Avenue, Suite 101

Fairfield, NJ 07004

Tel 973-808-6130 - Fax 201-656-4506

E-mail vti@vested.com - www.vested.com

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From Bankrate.com - 3 ways to mess up a home mortgage closing

Here's some practical advice from Holden Lewis writing on Bankrate.com on how to botch your mortgage closing.

"Want a lender to delay or even cancel your mortgage closing? Then change your "borrower circumstances" between the day you apply for and the day you close a home loan."

"Lenders have gotten stricter in response to the mortgage meltdown. The latest tightening of the screws comes from Fannie Mae. The mortgage titan's Loan Quality Initiative, which went into effect June 1, requires lenders to track "changes in borrower circumstances" between application and closing."

It seems kind of silly to have to point this out to buyers, but there are certain no-no's when it comes to getting that mortgage loan closed on time.

Here are the 3 ways:

No. 1 -- Get a new credit card or auto loan

"Lenders have long admonished mortgage applicants to avoid getting new credit cards and auto loans while home loans are in underwriting. Fannie's Loan Quality Initiative adds urgency to this request."

"So at the eleventh hour, most lenders check credit for new accounts."

No. 2 -- Charge up credit cards

"Charging up credit cards with thousands of dollars' worth of appliances, tools and yard equipment is another surefire way to muck up a closing."

"Mortgage approval is based partly on debt-to-income ratio. The lender looks at the borrower's minimum monthly debt payments and compares them to income. If the ratio of debt payments to income is too high, the borrower could be turned down for a mortgage. Fannie encourages mortgage lenders to recalculate debt-to-income ratios just before closing."

No. 3 --  Change jobs

"Changing jobs is another good way to derail a mortgage before closing. Other potential deal-breakers include staying with a current employer, but switching from a salaried position to one where primary income comes from commissions or bonuses."

Not scared?  Then, read the full article.  Being forewarned is being forearmed!

For your next title order or 

if you have questions about what you see here, contact 

Stephen M. Flatow 

Vested Title Inc. 

648 Newark Avenue, P.O. Box 6453, 

Jersey City, NJ 07306 

Tel 201-656-9220 - Fax 201-656-4506 

E-mail vti@vested.com - www.vested.com

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Getting credit after bankruptcy? A 2-step process

Justin Harelik, a L.A. attorney writes about bankruptcy for Bankrate.com. A reader posed this question about life after bankruptcy-

Dear Bankruptcy Adviser,
I have had really good credit for the past 20 years and recently went through a bankruptcy and am wondering how to "start over." I did keep my two cars and my house, but they still show up as discharged in a bankruptcy on my credit report and, according to my lender, that will continue for three to six months after the bankruptcy is discharged. How do I explain that to potential creditors?
-- Terri

The answer-

Dear Terri,

"As you begin the credit repair process, you will need to explain yourself to potential lenders over and over and over again. Yes, it will get to a point where you just might give up. But you cannot!"

Lenders today are quick to say "no" to anything out of the ordinary. Credit dings, especially ones as big as a bankruptcy, give the lender all the incentive needed to reject you for a loan or financing. You must remember that you can get credit again, but it will take some time. Here's a two-step process to follow.

Here are the two steps:

Tell your story. Research shows that the vast majority, more than 80 percent, of individuals who file bankruptcy have dealt with an illness, a divorce or a period of unemployment. You need to prepare a 30- to 40-second sound bite, explaining why you filed for bankruptcy. Even the most sympathetic loan officer or underwriter will not want to hear you tell your life story. Be concise, but thorough.

Interview your lenders. You don't want unnecessary credit inquiries showing up on your credit report after a bankruptcy. You will want to know whether you have the option of a loan after bankruptcy before you even fill out an application.

Bankruptcy does not mean your life has come to an end. It may seem that way, but never, ever, let them get you down.

Read the full article from Bankrate.com.

For your next title order or if you have questions about what you see here,
contact Stephen M. Flatow
Vested Title Inc.
648 Newark Avenue, P.O. Box 6453,
Jersey City, NJ 07306
Tel 201-656-9220 - Fax 201-656-4506
E-mail vti@vested.com - www.vested.com

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Short Sale, Foreclosure, or Deed in Lieu: Which is Best for the Borrower?

Writing in Realty Times, Bob Hunt, a director of the National Association of Realtors, and Realtor in his own right, addresses the "benefit" to the borrower between a short sale, foreclosure, or deed in lieu transaction. It's an important article, here it is in full:

Short Sale, Foreclosure, or Deed in Lieu: Which is Best for the Borrower?

If only the President’s foreclosure-prevention plan worked as well as “cash for clunkers”. But it hasn’t. When the Administration announced the Making Homes Affordable plan in February of 2009, officials said they hoped it would help 4 million distressed homeowners to stay in their homes. As of this writing (8/2/09), the Administration has acknowledged that there are only 200,000 trial loan modifications under way.

Clearly, lenders have been reluctant to modify loans. (Moreover, there are good reasons for their reluctance according to a recent study by the Boston Federal Reserve.) Also, many borrowers have turned out to be ineligible for the programs or – because they are so far ‘under water’ – uninterested. Whatever the cause, the result is the same: a distressed borrower typically needs to choose between (1) a short sale (where the lender agrees to take less than the amount owed) in which, among other things, a commission (paid by the lender) is generated. (2) a foreclosure, or (3) a deed in lieu of foreclosure (where the borrower ‘gives back’ the property to the lender without a foreclosure proceeding). Which is better for the borrower?

Many real estate agents will say and advertise that a short sale is clearly preferable. In support of this view, two claims are usually asserted. (1) A short sale is less damaging to the borrower’s credit than a foreclosure. (2) A short sale provides the borrower with a shorter ‘waiting period’ until the borrower will be able to purchase a home again.

It is important to note that these are two different claims. For example, in a period of time a borrower could become eligible for a purchase loan under Fannie Mae/Freddie Mac guidelines, but he or she might still not have sufficient credit or income to qualify for the loan.

While many say that a short sale is less damaging to one’s credit than is a foreclosure, documenting that claim is another story. This writer has looked hard, but can’t find any verification from Fair Issac (the developer of the FICO scoring system) or any of the major credit providers. That is probably no surprise, because their systems are proprietary. Nonetheless, one wonders what might be the source of the claim.

On the other hand, people who apparently should know deny that there is any difference. Greta Guest of the Free Press (Freep.com) quotes John Ulzheimer, president of consumer education for Atlanta-based Credit.com. Ulzheimer spent seven years at Fair Issac. “The credit bureau sees those all as equal,” Ulzheimer said. “They are all essentially in the eyes of FICO a major delinquency.” Elizabeth Razzi wrote in the Washington Post (July 20, 2008), “A foreclosure and short sale inflict equal damage to your FICO score, according to Fair Issac…” though she provides no specific citation.

Moving on from the credit score issue, there is the question of being again eligible to buy. More precisely, it is a question of when, in the future, the defaulting borrower could get a loan that would be purchased by Fannie Mae or Freddie Mac. The issue is dealt with in Fannie Mae Announcement 08-16, released June 25, 2008.

When it comes to foreclosures and deeds in lieu of foreclosure, the policy distinguishes between events that were precipitated by extenuating circumstances (e.g. job loss, major illness) and those that were not (e.g. financial mismanagement). If you’ve had a foreclosure without extenuating circumstances, you can’t purchase with a Fannie Mae – backed loan for five years. However, if there were extenuating circumstances, it drops to three years. Suppose you chose the deed in lieu of foreclosure option. If there were no extenuating circumstances, the period would be four years, but with such circumstances, it drops to two. Fannie Mae doesn’t draw the distinction when it comes to short sales: the period is two years, the same as doing a deed in lieu with extenuating circumstances.

May 15, 2009, the Treasury Department issued an update to the Making Home Affordable plan. Among other things, it provides for financial incentives (e.g. a $1,500 moving allowance) to distressed borrowers who meet the general eligibility requirements for a loan modification and who will engage in an approved short sale or who will give a deed in lieu of foreclosure. Distressed and underwater borrowers face a minefield of options for resolving their problems. Not the least of their problems is the vast amount of misinformation floating around. They need to step very carefully.

For your next title order,
or if you have questions about what you see here,

contact Stephen M. Flatow
Vested Title Inc.
648 Newark Avenue, P.O. Box 6453, Jersey City, NJ 07306
Tel 201-656-9220 - Fax 201-656-4506
E-mail vti@vested.com - www.vested.com

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