Credit Scores
Personal Debt Issues

New credit scores for mortgages coming for better and for worse

by Broderick Perkins

(11/16/2011) - Your mortgage lender is about to really get all up in your creditworthiness grill - a whole lot more than before.

It's a for-better-or-for-worse proposition, depending upon how the new approach makes you look on paper.

Fair Isaac Corp, or FICO, which provides the industry standard for calculating credit scores, is joining forces with CoreLogic a consumer, financial and property information data bank, to create a new credit score that allows mortgage lenders to get in your business more than you may want.

FICO offers the industry leading FICO score used by Fannie Mae, Freddie Mac and Federal Housing Administration (FHA), which guarantee or own about 90 percent of mortgages written today.

The FICO score, ranging from a low of 350 to a high of 800, has largely been based on data in your Equifax, Experian or TransUnion credit report - credit and retail card payments, personal and car loan payments, mortgages and other standard forms of credit.

CoreLogic's CoreScore is derived from a databases of nearly 1 billion consumer transaction records covering 99.9 percent of the U.S. population and includes county, municipal and special tax jurisdictions, residential properties and liens and courthouse records, along with extensive landlord and tenant experience as well as non-traditional lending activity records - payday loans, rent payments, evictions, child support payments, even energy utility bills and cellphone payments.

The new score is being developed specifically for mortgage lenders who've already put the squeeze on home loans. The new credit scoring deal could be a boon or a bane if you are applying for a home loan.

If you have an empty or light traditional credit history, say, because you are young, unbanked or wealthy and not on the credit map, you could get a boost from additional credit scoring data - if it's positive.

If you would otherwise barely qualify for a mortgage, the additional credit scoring information that comes in negative could turn your American Dream into a pipe dream if the information is negative.

"A preliminary analysis of over a quarter-million traditional credit reports for mortgage applicants demonstrated that one out of every 13 applicants lacked unique consumer credit data that the CoreScore Credit Report provides- information that could significantly impact a borrower's debt-to-income ratio and credit risk score," says CoreLogic.

The statement goes on, "Of these, 22.6 percent contained open mortgage obligations which were nearly twice as likely to appear for a borrower with no open mortgage trade lines on his or her traditional credit report. Twenty percent of the loans represented by these trade lines were found to be derogatory or delinquent."

Designed not to replace traditional credit scores, but to be used as an adjunct, the CoreLogic's CoreScore is the latest fallout from economic malaise that has spawned a continuing trend to scrutinize consumers' creditworthiness.

Credit reporting agencies, Experian, Equifax and TransUnion, recently began examining estimates of consumers' income as an additional credit report item. Experian already includes data on rental payments in its reports.

While the new scoring models can and likely will squeeze some consumers out of the mortgage market, the scoring operations say the new scores are designed to find new ways to reduce lenders' risks and thereby be more inclusionary.

"Lenders today need as much actionable consumer information as possible so they can safely grow origination volumes and avoid future losses," said Greg Pelling, vice president of Scoring and Analytics for FICO.

If that doesn't work, lenders can always find new ways to raise the cost of mortgages, even in a low interest rate environment.

And consumers can expect to be further confused by the ever-evolving world of credit scores.

 

 

 

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