Credit scores in mortgage lending
(Also, see Fannie Mae credit score chart)
How the home loan industry uses the FICO score
Credit scores? We don't need no stinking credit scores.
creditscoring.com, 7/12/2000: "Fannie Mae: 'You might have heard that the next version of Fannie Mae's system - due next month - will no longer rely on the FICO credit score...'"
Guide to Underwriting with DU
Desktop Underwriter is Fannie Mae's automated underwriting system.
"Even though the FICO score is not an integral part of DU's risk assessment (DU performs its own credit analysis)... DU evaluates characteristics within the credit report that research has proven to be predictive of mortgage default instead of relying solely on the credit scores as a measure of the borrower's creditworthiness." (1/07)
"While there are no minimum credit score requirements contained in the Standard Eligibility Criteria (with the exception of mortgages with a home equity combined loan-to-value ratio in excess of 95 percent, and mortgages with an interest-only feature), we anticipate that lenders generally will use a credit score for all manually underwritten mortgages based on our comprehensive risk assessment approach to underwriting guidelines." (12/06)
"... helps lenders serve low- and moderate-income borrowers and communities with flexible terms and many options."
- Manual underwriting minimum credit score, zero down payment: 620 (1/23/07)
- "Representative minimum credit scores for manual underwriting (or use enhanced credit evaluation): 620 for 100% LTV" (5/31/07)
- "Selling Guide," Minimum Credit Score (06/23/06)
"Mortgage Loans Underwritten Outside of DU" - 95% purchase: 640 minimum credit score (12/20/06)
IO Approval Non-DU/ (minimum credit score): 95/95% LTV (640)
"Freddie Mac strongly recommends that the Seller use Credit Scores to underwrite Manually Underwritten Mortgages." (6/22/07)
FICO over 660, 1-unit property: "A Borrower whose FICO score is in this range is likely to have an acceptable credit reputation."
"Loan Prospector [automated underwriting system] will automatically request FICO scores for each Borrower and select one FICO score that will be used to evaluate the Mortgage."
Lines in the $and
Standard conventional loan coverage
FICO SCORE 620+, 25% coverage: .71
(.0071/12 x 200,000 loan = $118.33/mo.)
FICO score 619, 25% coverage: 1.47
(.0147/12 x 200,000 loan = $245.00/mo)
The cost of bad credit: $126.67 a month.**
Mortgage insurance coverage requirement: 20% for 100% LTV (5/07)
*"'Standard' loans are defined as having a credit (FICO) score of at least 620 or comparable credit criteria."
PMI - 20% coverage for MyCommunity: "620+" score for monthly "Standard"* coverage = .59%
(.0059/12 mo x 100,000 loan = $49.17/mo)
But, go one point under 620 ("FICO 600 - 619") and the mortgage insurance rate is more than doubled: 1.37%.
(.0137/12 mo x 100,000 loan = $114.17/mo)
The cost of bad credit: $65.00 a month.**
MGIC, Radian, Genworth, AIG
**Not to mention that the hazard/homeowners insurance rate might be higher, too.
|April, 1997: "Information on how to obtain one's credit score is suspiciously absent from your site. How do I get mine?"
"And we're not running a game show. I mean, we're evaluating risk. We're not trying to have people get--achieve the highest score."
"Fisher is a fan of going by the book and then beyond it."
"He beat the scoring proponents to the punch by scooping up the web address http://www.creditscoring.com, from which he launches often strident, sometimes wacky, but usually well-documented attacks on the credit-scoring concept and the industries that support it."
Realty Consumers Empowered By Online "Peoples" Court - "His Web site CreditScoring.com helped him-- and millions of other consumers-- extend fair credit reporting rights to credit scoring information."
"Fisher operates the www.creditscoring.com Web site, which skewers the secrecy of the credit bureaus and Fair, Isaac." - The Detroit News
CreditScoring.com is an exceptionally-interesting site that offers news and information regarding credit scoring and--
really-- the entire credit process."