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Credit scores become more important as sub-prime loans disappear
A minimum credit score for many home loans used to fall at around 580, lenders said. Now, minimum scores will likely be closer to at least 620.
by Shanna Sissom
Midland Reporter-Telegram
Credit scores become more important as sub-prime loans disappear
By Kathleen Thurber
Staff Writer
As the financial market continues stumbling and tighter regulations for home mortgages set in, locals say consumers looking for loans will have to get back to the basics.
"Subprime loans are a thing of the past now," said Tracy Timlin, senior vice president and Mortgage Division Manager at First National Bank. "Traditional financing is still available."
For those traditional home loans, she said, credit scores will be one of the primary qualifiers meaning anyone interested in taking out a loan should take care of outstanding delinquencies and continually make payments on time.
If that seems like common sense advice, lenders said, it is. But, they said, a surprising amount of people don't see it as such and seek home loans and other lines of credit without realizing the implications of those contracts.
"There were all kinds of loan programs developed to get people into houses that had no more business qualifying for that than the man on the moon," said Vice President of Pioneer Mortgage Tena Waggoner.
Waggoner said they never offered subprime mortgages, but that they were available in Midland as evidenced by the lenders who specialized in such loans who have stopped doing business since the sub-prime crisis started.
With the tighter regulations that have come since the government bailout of Fannie Mae and Freddie Mac many lenders say higher credit scores will be needed to secure a loan.
A minimum credit score for many home loans used to fall at around 580, lenders said. Now, minimum scores will likely be closer to at least 620.
According to the Consumer Federation of America, that shouldn't be a problem for many as the majority of people fall in the 600 to 700 range and for any who are able to qualify at less than that range they'll compensate by paying a much higher interest rate than the about 6.25 percent average most are seeing with home loans now, lenders said.
Amy Rhodes with Trower Realtors said for some, the credit regulations and erosion of creative financing have meant they need to allow more time to qualify for loans and for others it's meant holding off on buying a home.
For those consumers, lenders said, they probably shouldn't have qualified in the first place and if there is an upside to the current financial and home market situation it's that subprime loans will not likely return.
While that should help prevent another stream of foreclosures, in many markets, Rhodes said, it has caused a crunch for real estate agents who were already having trouble selling homes. In Midland, though, the abundance of buyers has simply meant homes wanted by those not qualifying are going to other people or are selling a little slower than in previous months.
Branch manager at Countrywide Home Loans Joshua Hopkins said credit scores are still not the primary thing they look at when granting a home loan as some have scores in the 700s but have too much debt to secure a loan and others have little to no credit because they've never borrowed money, but have plenty of financing to fulfill their loan.
Still, Hopkins and others agreed, having the savings for a down payment and future mortgage payments is important.
Rhodes said people who have recently bought a new car or obtained a new credit card should also hold off.
"It's still a great time to buy," Timlin said, adding that for those that can qualify rates are still relatively low. Waggoner said the current situation should help people gain a respect for credit and will hopefully push some to live within their means to avoid a personal credit crisis.
Had Fannie Mae and Freddie Mac not been backed by the government, Waggoner said, their failure would have trickled down in a disastrous way because it would have meant a portion of taxes not being paid which would in turn affect tax-based salaries and other pertinent programs.
Reverting back to traditional home financing has also meant an increased interest in Federal Housing Administration loans that require a smaller down payment and counsel buyers who have trouble qualifying for homes through other avenues, Timlin said. FHA reports securing more than $10 billion more in mortgages per month than at this time last year.
And while Waggoner said most in the Permian Basin have viewed the booming housing market as a cue that we've been somewhat immune to the housing crisis, if there were a sudden change in our job market we'd be in the same place as everyone else
Plus, some foreclosures have started seeping into the basin, according to First American CoreLogic, an organization that analyzes real estate, property and ownership data. The rate of foreclosures among outstanding mortgages in Midland grew to 0.3 percent this summer up from 0.2 percent last summer. There are currently 65 homes in Midland pre-foreclosure or bankruptcy status, according to the Federal Housing Administration, which is a much lower number than cities in places like California or Florida that were at the forefront of the housing crisis.
Hopkins said most local foreclosures come from subprime loans granted from small lenders and then purchased at banks, but that they are still the exception in Midland. He said anyone selling their home should pre-qualify to buy a home, though, because with the changes in regulations they may not automatically qualify for another home.
"If they'll just think," Waggoner said. "Live within your means."
Kathleen Thurber can be reached at kthurber@mrt.com.
Where does your credit score come from? Payment history (about 35 percent)
How much you owe on existing accounts (about 30 percent) Length of credit history (about 15 percent)
New credit (about 10 percent) applying for new credit over a long period of time can decrease scores
Other factors (about 10 percent) such as having a several credit cards or several lines of credit, especially if you don't have a long credit history
*According to the Consumer Federation of America
-
By Kathleen Thurber
Staff Writer
As the financial market continues stumbling and tighter regulations for home mortgages set in, locals say consumers looking for loans will have to get back to the basics.
"Subprime loans are a thing of the past now," said Tracy Timlin, senior vice president and Mortgage Division Manager at First National Bank. "Traditional financing is still available."
For those traditional home loans, she said, credit scores will be one of the primary qualifiers meaning anyone interested in taking out a loan should take care of outstanding delinquencies and continually make payments on time.
If that seems like common sense advice, lenders said, it is. But, they said, a surprising amount of people don't see it as such and seek home loans and other lines of credit without realizing the implications of those contracts.
"There were all kinds of loan programs developed to get people into houses that had no more business qualifying for that than the man on the moon," said Vice President of Pioneer Mortgage Tena Waggoner.
Waggoner said they never offered subprime mortgages, but that they were available in Midland as evidenced by the lenders who specialized in such loans who have stopped doing business since the sub-prime crisis started.
With the tighter regulations that have come since the government bailout of Fannie Mae and Freddie Mac many lenders say higher credit scores will be needed to secure a loan.
A minimum credit score for many home loans used to fall at around 580, lenders said. Now, minimum scores will likely be closer to at least 620.
According to the Consumer Federation of America, that shouldn't be a problem for many as the majority of people fall in the 600 to 700 range and for any who are able to qualify at less than that range they'll compensate by paying a much higher interest rate than the about 6.25 percent average most are seeing with home loans now, lenders said.
Amy Rhodes with Trower Realtors said for some, the credit regulations and erosion of creative financing have meant they need to allow more time to qualify for loans and for others it's meant holding off on buying a home.
For those consumers, lenders said, they probably shouldn't have qualified in the first place and if there is an upside to the current financial and home market situation it's that subprime loans will not likely return.
While that should help prevent another stream of foreclosures, in many markets, Rhodes said, it has caused a crunch for real estate agents who were already having trouble selling homes. In Midland, though, the abundance of buyers has simply meant homes wanted by those not qualifying are going to other people or are selling a little slower than in previous months.
Branch manager at Countrywide Home Loans Joshua Hopkins said credit scores are still not the primary thing they look at when granting a home loan as some have scores in the 700s but have too much debt to secure a loan and others have little to no credit because they've never borrowed money, but have plenty of financing to fulfill their loan.
Still, Hopkins and others agreed, having the savings for a down payment and future mortgage payments is important.
Rhodes said people who have recently bought a new car or obtained a new credit card should also hold off.
"It's still a great time to buy," Timlin said, adding that for those that can qualify rates are still relatively low. Waggoner said the current situation should help people gain a respect for credit and will hopefully push some to live within their means to avoid a personal credit crisis.
Had Fannie Mae and Freddie Mac not been backed by the government, Waggoner said, their failure would have trickled down in a disastrous way because it would have meant a portion of taxes not being paid which would in turn affect tax-based salaries and other pertinent programs.
Reverting back to traditional home financing has also meant an increased interest in Federal Housing Administration loans that require a smaller down payment and counsel buyers who have trouble qualifying for homes through other avenues, Timlin said. FHA reports securing more than $10 billion more in mortgages per month than at this time last year.
And while Waggoner said most in the Permian Basin have viewed the booming housing market as a cue that we've been somewhat immune to the housing crisis, if there were a sudden change in our job market we'd be in the same place as everyone else
Plus, some foreclosures have started seeping into the basin, according to First American CoreLogic, an organization that analyzes real estate, property and ownership data. The rate of foreclosures among outstanding mortgages in Midland grew to 0.3 percent this summer up from 0.2 percent last summer. There are currently 65 homes in Midland pre-foreclosure or bankruptcy status, according to the Federal Housing Administration, which is a much lower number than cities in places like California or Florida that were at the forefront of the housing crisis.
Hopkins said most local foreclosures come from subprime loans granted from small lenders and then purchased at banks, but that they are still the exception in Midland. He said anyone selling their home should pre-qualify to buy a home, though, because with the changes in regulations they may not automatically qualify for another home.
"If they'll just think," Waggoner said. "Live within your means."
Kathleen Thurber can be reached at kthurber@mrt.com.
Where does your credit score come from? Payment history (about 35 percent)
How much you owe on existing accounts (about 30 percent) Length of credit history (about 15 percent)
New credit (about 10 percent) applying for new credit over a long period of time can decrease scores
Other factors (about 10 percent) such as having a several credit cards or several lines of credit, especially if you don't have a long credit history
*According to the Consumer Federation of America
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Dont Pay Twice wrote on Sep 24, 2008 8:23 AM:
" Dont pay twice. On your credit cards write "Take it Out of the $700,000,000." and then stop making payments on your credit cards.
There needs to be some CEO and directors in prison. If the company takes the money then the CEO goes to prison. Should be that simple "
There needs to be some CEO and directors in prison. If the company takes the money then the CEO goes to prison. Should be that simple "
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Midland wrote on Sep 23, 2008 7:40 AM:
The problem is the bank or financial agency that loaned someone money that did not have the credit requirements in the first place.
ACORN is what Obama was a big big part of that required loans be given to people that were credit risks in the first place.
Obama is the last think we need in the WhiteHouse. He is a hugh cause of the financial problems that exist now.
Put the blame where the blame is due. Write your article correct or don't write it at all, MRT "