Posted by spnotaryplus on 3/13/09 9:44am
Msg #280573

Credit Score........

I did some searching using the search button regarding the using of a persons credit score when refinancing their home. Unless I missed something I didn't see any info on this subject. Also if this is not the place to post this question, please let me know where to list it.

Here goes:
I was asked by a friend who wants to refinance his home this question: There are two people on the loan, mortgage, title etc. Question: Why does the broker want to use the lower credit score (which is co-borrowers) for refinancing and not use the higher one which is over 720 (which is the primary borrowers score)?

Now to me that doesn't sound right. Now I have worked in the past with underwriters who informed me that they argue with the brokers on this issue quite a bit. From what I know they always look to use the better score when purchasing or refinancing a home. Would it be wrong to say that the broker should use the higher score and not the lower one? Or could there be legitimate reasons why they would use the lower one?

Could someone help shed some light on this subject?

Thanks

Reply by Linda_H/FL on 3/13/09 9:52am
Msg #280576

Re: Credit Score........hmmmm

I was always told they use the "median score"...the one in the middle...

Reply by spnotaryplus on 3/13/09 10:03am
Msg #280579

Re: Credit Score........hmmmm

Yes that is true but the middle score of the primary borrower is higher and they want to use the co-borrowers score instead. To me that sounds funny or it's not being explained correctly. Usually, as I was told, they would use the higher "median score" of the two individuals.

Reply by PAW on 3/13/09 10:08am
Msg #280581

Re: Credit Score........hmmmm

With today's environment, brokers and lenders often use the lower median score because that reflects the higher risk. "Lower median" means the lower of the two median scores. Each borrower should get three scores (one from each reporting agency) and the median score is used. If there are two borrowers, then the two median scores are compared and the lower score is now being used. It used to be the higher median score, but with all the tanked loans, the conservative approach is to use the lower score as the guideline.

Gone are the days when brokers and lenders simply got one score. More often they get all three to determine the median. Some lenders are being over conservative and use the lowest of the three. And, if one borrower has a really terrible score (such as an individual bankruptcy in the past couple of years) and the other borrower has a 'safe' or acceptable median score, then the broker or lender will write up the loan in just one borrower's name. It's still a game the broker plays, just that the rules are more strict than what they used to be.

Reply by spnotaryplus on 3/13/09 10:16am
Msg #280584

Re: Credit Score...........

Thank you both for all the help. As you mentioned PAW "in todays enviroment" which to me now does make sense I thought it used to be they used the higher but I did not realize that it could or has changed to where they are now using the lower score. I appreciate the help from the two of you.

Thanks

Reply by sue_pa on 3/13/09 10:30am
Msg #280587

Re: Credit Score........hmmmm

.... And, if one borrower has a really terrible score (such as an individual bankruptcy in the past couple of years) ...

I've always wondered about this. During "the years" I'd completed quite a few loans where I knew they had declared bankruptcy - either I saw it on the 1003 or they were complaining about discharged debts still showing up on the 1003. Their loans always appeared pretty good to me. I specifically remember one young couple that had 2 newish cars in the driveway and it appeared everything in the house was brand new - I've still got my grandma's sister's end tables in my basement !!! They told me they had gone bankrupt and immediately thereafter the credit offers rolled in ... I assumed it was because their credit was then "good" since they didn't owe anything. I also assumed ... I know ... that with today's changes with the bankruptcy laws and the tighter credit restrictions that this couldn't happen any longer. Lo and behold a few weeks ago I did a Chapter 13 work out loan ... don't get me started on the amount of paperwork .... but their rate was decent - I don't remember but I'm thinking 5% or 6%.

I always thought that bankruptcy was the kiss of death for 10 years ... no idea why I always thought that but I have.

Reply by PAW on 3/13/09 11:26am
Msg #280595

Re: Credit Score........hmmmm

Bankruptcy isn't looked at as harshly as it used to. Just because one files bankruptcy doesn't necessarily mean they can't manage their finances and credit wisely. Especially in the past few years, many bankruptcies were the result of "extenuating circumstances beyond the individual's control" meaning it wasn't their fault. (For example, a 58 year old getting laid off from a 6-figure position. ) Senior and upper-middle management positions were the most vulnerable because they lived within their means, but lost their means to live the same lifestyle. Couple that with the decline in the housing market and viola, instant mess and probable bankruptcy.

Any account included in a bankruptcy remains on your personal credit report for a maximum of 7 years from the date the bankruptcy was filed. The bankruptcy itself, listed in the public record information section of a credit report, remains for either 7 years from the filing date if it was a Chapter 13, or 10 years from the filing date if it was a Chapter 7, 11 or 12. But the calculation of one's credit score doesn't place as much weight on a bankruptcy that is more than 2 years previous.

Even with lower credit scores, the underwriter still has the decision on how much weight to put on the score. People who filed Chapter 11 due to circumstances beyond their control and can prove credit management and credit rebuilding, are better candidates for loans than someone who is up-to-date but on the edge of financial ruin.

Reply by Shoshana Roller on 3/13/09 6:20pm
Msg #280639

The Golden Rule

He who has the gold, makes the rules.
As I just told a particularly difficult mortgage client today, about the only thing we can count on is death and taxes.
Things change from one minute to the next.
Shoshana

Reply by MW/VA on 3/13/09 7:32pm
Msg #280644

I've seem several situations where they've kept one party off the Note because of credit score issues. If one has a lower credit score, it could affect their rate. I have also seen that where one party isn't employed (housewife, for instance) who has no ability to repay the loan, and could affect qualifying. At least this is what I've been told--could be all wrong.