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Credit Its A Brand New Day


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Credit Its A Brand New Day

  1. 1. Credit – It’s a Brand New Day How to Protect Your Clients & Pay Check Post Mortgage Market Meltdown PHILP GLOVER PROSPERITY MORTGAGE CO. 410-499-3456
  2. 2. <619 – What Can It Cost You? <ul><li>Borrower </li></ul><ul><ul><li>$300K to $400K or More in Interest Costs </li></ul></ul><ul><li>Buyer </li></ul><ul><ul><li>12-28% Less Purchasing Power </li></ul></ul><ul><li>Realtor </li></ul><ul><ul><li>$3,360 to $28,000 in Commissions Per Sale </li></ul></ul><ul><ul><li>Result of Lower Sales Price or Walking Buyer </li></ul></ul><ul><li>*Assumes $400,000 sales price, financing 90% </li></ul>
  3. 3. What is a Credit Score? <ul><li>A 3-digit number used by lenders to evaluate the risk associated with lending money. </li></ul><ul><li>Generated by a mathematical model created by Fair Isaac Corporation in the 1960s. </li></ul><ul><li>There are 3 major credit bureaus: Equifax, Experian® and TransUnion® - 3 Scores. </li></ul><ul><li>Scores range from 350-850. </li></ul>
  4. 4. Why It’s Important Now <ul><li>2007 Mortgage Meltdown </li></ul><ul><ul><li>ARM Resets to Higher Payments </li></ul></ul><ul><ul><li>Declining Property Values </li></ul></ul><ul><ul><li>Homeowners Walk </li></ul></ul><ul><li>Subprime Contagion </li></ul><ul><ul><li>First Subprime Companies Fold </li></ul></ul><ul><ul><li>Hedge Funds </li></ul></ul><ul><ul><li>A and Alt-A Paper Follow </li></ul></ul>
  5. 5. Score Talk <ul><li>Above 720 = Excellent </li></ul><ul><li>680 = Good </li></ul><ul><li>620 = Fair </li></ul><ul><li>Below 620 = Poor </li></ul>
  6. 6. Why Are Higher Scores Good? It’s All About the Likelihood of Default
  7. 7. Bad Credit – What’s the Cost? <ul><li>What’s The Damage of Lower Credit Scores? </li></ul>Home Financing: A 30-year fixed with a loan principal amount of $360,000 <ul><li>If your score improves to 720-850, you could save an additional $318,329 </li></ul><ul><li>If your score improves to 700-719, you could save an additional $308,047 </li></ul><ul><li>If your score improves to 675-699, you could save an additional $263,094 </li></ul><ul><li>If your score improves to 620-674, you could save an additional $163,422 </li></ul>A borrower who increases his or her credit score from 620 to 720+ can potentially save $884 per month on mortgage payments, $10,608 per year , and approximately $318,329 over the life of the 30-year loan. $903,960-$983,160 $2,511-$2,739 8.531-9.289% Below 620 $649,080-$726,840 $1,803-$2,019 6.020-7.120% 620-719 $633,600 $1,760 5.800% Above 760 Total Payments Paid Monthly Payment APR FICO Score
  8. 8. Loan Level Price Adjustments
  9. 9. Credit Score Factors <ul><li>Payment History </li></ul><ul><li>Late Pays </li></ul><ul><li>Collections </li></ul><ul><li>Charge-Offs </li></ul><ul><li>Repossessions </li></ul><ul><li>Foreclosures </li></ul><ul><li>Tax Liens </li></ul><ul><li>Bankruptcies </li></ul><ul><li>Judgments </li></ul>Amounts Owed Credit Cards Mortgage Loans Auto Loans HELOCs Installment Loans Length of History New Credit Soft Inquiries Hard Inquiries Types of Credit Used A Mortgage Loan An Auto Loan 2-3 Major Credit Cards
  10. 10. Payment History: 35% How do your borrowers pay their bills? <ul><li>A recent 30-day late can cost 50+ points. </li></ul><ul><li>Paying a collection that is more than 2 years old can hurt a score. </li></ul><ul><li>Being past due on an account can cost 50+ points. </li></ul><ul><li>Derogatory accounts do NOT always fall off of a credit report automatically after 7 years. They must be disputed. </li></ul><ul><li>A divorce decree does NOT take precedence over the creditor agreement. </li></ul>
  11. 11. Amounts Owed: 30% Managing Debt <ul><li>New debt temporarily decreases a score. </li></ul><ul><li>Balances should be kept below 50% at all times to maintain a score. </li></ul><ul><li>Balances should be kept below 30% of the limit for 3-6 months prior to applying for a home loan. </li></ul><ul><li>Debt should NOT be consolidated, it should be distributed evenly over all credit card accounts. </li></ul><ul><li>Going over the limit on a credit card, even by $1, will cause a serious penalty. </li></ul><ul><li>HELOCs can be considered revolving debt, not mortgages. </li></ul><ul><li>Credit card accounts should NOT be closed except in special circumstances. </li></ul><ul><li>Unused credit card accounts will become unrated in 3 months. </li></ul>
  12. 12. Length of History: 15% Mix of Credit: 10% <ul><li>Borrowers should hold onto old credit cards, even if the rate is not great. </li></ul><ul><li>New credit users can NO LONGER add themselves to another person’s account as an authorized user to generate a score. </li></ul><ul><li>Mixture is best. </li></ul><ul><li>The type of credit card DOES matter. </li></ul><ul><li>3 to 5 revolving credit cards with established history is optimal. </li></ul>
  13. 13. Inquiries: 10% <ul><li>Hard vs. soft Inquiries. </li></ul><ul><li>14-day window for pulling reports. </li></ul><ul><li>Inquiries affect a score for one year. </li></ul><ul><li>Inquiries can cost between 2 and 30 points, depending on the current score. </li></ul><ul><li>Pre-approved card offers are NOT really pre-approved. </li></ul>
  14. 14. BORROWERS NEED TO WORK ON OPTIMIZING THEIR CREDIT TODAY! <ul><li>Step 1 - Order Credit Reports & Scores : The first step is for borrowers to get a complete picture of their current credit situation by ordering a copy of their credit reports and scores for all three national credit bureaus - TransUnion®, Equifax and Experian®. </li></ul><ul><li>Step 2 - Verify the Data Being Reported : It is the consumer's responsibility to verify the accuracy of the data being reported. </li></ul><ul><li>Step 3- Dispute Any Inaccurate Information : Have borrowers contact their creditors and send letters of dispute to the credit bureaus to have errors on their report corrected. These must be sent via CERTIFIED mail. </li></ul>
  15. 15. Partnerships Are Critical! <ul><li>Not the time to refer three lenders! </li></ul><ul><li>You need one “go-to” lender </li></ul><ul><ul><li>Wide array of available products </li></ul></ul><ul><ul><li>Expert in underwriting </li></ul></ul><ul><ul><li>“Credit analysis and repair” partnerships </li></ul></ul><ul><ul><li>Local and accountable </li></ul></ul>
  16. 16. Buyer/Seller Action Steps <ul><li>Review Credit Report Every 3-6 Months </li></ul><ul><li>Pre-Qualifications Are Worthless! </li></ul><ul><li>Pre-Approvals Good for 120 Days </li></ul><ul><li>Do Not Accept Pre-Approvals From the Unknown and Non-Local </li></ul>
  17. 17. Next Action Steps <ul><li>Seller Action Meetings </li></ul><ul><ul><li>Inform </li></ul></ul><ul><ul><li>Risk analysis meeting involving originator </li></ul></ul><ul><ul><li>Assess willingness to navigate waters </li></ul></ul><ul><ul><li>Promote aggressively to buyers’ agents </li></ul></ul><ul><li>Buyer Action Meetings </li></ul><ul><ul><li>Inform </li></ul></ul><ul><ul><li>Pre-approve with mortgage lender </li></ul></ul><ul><ul><li>Direct toward realistic sellers </li></ul></ul><ul><ul><li>Continually communicate with other listing agents </li></ul></ul>
  18. 18. Contact Us <ul><li>PROSPERITY MORTGAGE CO. </li></ul><ul><li>410-499-3456 </li></ul><ul><li>Fax- 866-551-1382 </li></ul><ul><li>HTTP://PHILIPGLOVER.COM </li></ul>