Since the early 90’s your Fico score has been a standard component of home lending decisions in the United States. Fico became less significant during the ever increasing property values of the 2000’s as the rise in property values served to get many borrowers out of trouble with their payment obligations. As everyone now knows, that house of cards/or unabashed risk has come crashing down.
Did Fico tell the story?
You need only glance at this attached graph to see the answer. The odds of a borrower becoming delinquent on their mortgage go up over 100 times from a sub 600 score to a 700+ score. That is huge! Now the banks are looking at this data with renewed interest.
Even with FHA which basically doesn’t acknowledge Fico in their qualifying by allowing “delegated” underwriters to decision borrowers manually irrespective of the score are finding little opportunity for borrowers with sub- 600 Fico’s. Why? It is due to the systemic roadblocks (see last weeks post). Major lenders are simply refusing to accept these borrowers which make FHA’s desire to provide financing to those that might otherwise qualify irrelevant.
Curious contradiction.
I find myself puzzled by the telegraphing being done by the industry which suggests that a borrower need be in default before they can receive attention from Loss Mitigation and default prevention opportunities given the fact that by doing so you will destroy your chances for a new loan as your all important Fico will be adversely impaired. Fannie Mae’s own guidance suggests “At least two full monthly payments of principal and interest (P&I), taxes, and insurance (or P&I only if taxes and insurance are not escrowed) are due and unpaid”, before you qualify for help. So here we have a landscape where you will likely need to destroy your credit worthiness in order to receive the interest rate reprieve some most desperately need regardless of your intent.
That is truly a shame!
FICO credit bureau risk scores made available at all three major US credit reporting agencies — BEACONsm at Equifax, EMPIRICA® at Trans Union, and the Experian/Fair Isaac model at Experian. (1991)
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