Mortgage Info for Homes and Small Business Financing

Credit Repair Includes Rescoring to Maximize Middle FICO

I have used credit repair strategies sparingly in the past simply because most of our clients had more than adequate equity and were capable of paying their bills on time.  Slap yourselves on the back as most of you have had no need for credit repair.

But, times have changed, employment and income have been shifting and appraisers are taking the path of least resistance all too often delivering bad news in the form of reduced market values.  In combination with more restrictive pricing structures from the secondary market the demand for evaluating and rescoring credit scores has been on the rise.

We use the capabilities provided by the Fair Credit Reporting Act and our credit vendor to rescore credit reports as needed.  With more emphasis being placed on credit score and loan-to-value combinations for pricing this becomes a very important resource.  And sometimes it’s required to just get the loan approved no matter the pricing adjustments.

As an example, a recent case involved a borrower who needed to improve her low middle score to the required minimum threshold of 620.  Without that score the loan request was dead in the water.

Many lenders said they would accept any score as long as an automated underwriting system (AUS) produces findings which grant the loan approval.  Up until last year lender’s overlays contained within Fannie Mae’s Desktop Underwriter or Freddie Mac’s Loan Prospector were requiring the 620 minimum scores.  As the housing market has improved since 2008, the agencies themselves have imposed minimum credit score requirements, some higher than 620 depending on the equity in the transaction.  HUD’s Federal Housing Authority through its FHA loan program does insure loans with scores as low as 580 but, up until now no lender would approve and fund any loan with a score lower than 620.

With some documentation, several phone calls and the passage of time we were able to produce a credit score above the minimum required.  As soon as the new score was submitted to Desktop Underwriter, we received the long awaited Approve/Eligible finding.  Fortunately for this borrower we are on our way to full approval and closing.

With more than one borrower such as a married couple, the mortgage industry uses the lowest middle credit score of all borrowers involved in the loan.  This can sometimes cause a problem as it did for a married couple that was seeking financing.  The husband’s credit is impeccable with all scores close to or above the 800 level.  The spouse’s credit was also very good except for an isolated run-in with a single creditor.  Because it was recent activity it had dropped her middle score to levels much lower than rest of her credit history would indicate.

Here’s where credit scoring analysis gets tricky.  Certain combinations of credit score and loan-to-value adjustments can have a higher dollar impact on the price and therefor the monthly payment being spent.  What must be determined is whether taking any action will “predictably” result in a middle score that will reduce the ultimate cost of an adjustment.  Our credit vendor has an analyzer model which does just that.  Then it must be determined whether the indicative corrective action is within the means of the borrower.  Almost always the solution is to pay down one or more revolving credit accounts to levels that will result in predictably higher scores.

For this married couple it was determined that some of the balances reported on the credit report were one time purchases.  We gathered documentation showing that they typically pay the account in full and submitted it to the single bureau that was most likely to result in a higher middle score.  The borrowers were ecstatic to find that the middle score rose thereby reducing their overall costs by more than $3,500.

Not sure whether this would work for you?  Call or write us.  And if you have a personal success story please tell us in the comment section.  We always like to her good news.


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