Qualified Home Buyers Rejected For Questioning Their Credit

DALLAS, Oct. 26 – If consumers question a credit account, it could cause them to be refused a mortgage loan even though they meet all other loan requirements, according to credit expert Eddie Johansson, president of Credit Security Group, a leading credit analysis and rescoring firm. Johansson suspects this is a result of confusion about how to interpret and implement a new policy by Fannie Mae, the largest source of home financing.

Johansson said his firm has successfully resolved these cases, but most borrowers are going to find this extremely difficult. He believes they should not have to face this problem. Johansson said resolution has taken a week for some cases and 35-75 days for others. Delays can cause current real estate contracts to expire and force the borrower to go through the loan process all over again.

Johansson said that merely calling to ask a question about a bill can result in the account being marked as a consumer dispute which can result in the lender’s refusal. Creditors and debt collection agencies are quick to flag an account as a consumer dispute to protect themselves under federal law. “There are several ways that the phrase ‘consumer disputes’ can be put on your account even without your knowledge. Once it’s there, it often stays there. It’s difficult for you to remove,” he said.

It’s difficult because the usual way to correct credit information is to contact the credit reporter which creates yet another consumer dispute. “It’s a Catch-22,” Johansson said.

Johansson said the most recent case he helped resolve involved a borrower who had excellent credit scores and met all the other loan requirements.  Yet the application was initially rejected because a credit card account was marked “consumer disputes.” The account was paid up with no late payments. “There’s no good reason to reject or delay this loan,” Johansson said.

Johansson’s firm, which works with both lenders and borrowers, began encountering different types of cases involving loan rejection for consumer disputes last February. Mortgage professionals referred to a new requirement by Fannie Mae contained in the latest release of Fannie’s desktop underwriting (DU) software Version 7.1.

Johansson said, “The loan officers referred to DU 7.1 or to their lending source’s new requirement under DU 7.1. This was interpreted as requiring the removal of consumer disputes from all such accounts listed by DU 7.1 – even if there was a legitimate dispute."

Johansson said a plain reading of DU 7.1 guidelines requires the verification of consumer disputes, but does not prohibit the borrower from having legitimate disputes. “The refusals could be a problem in understanding or implementing this guideline anywhere along the line from loan officer to the actual funding source,” he said.

Johansson said the bottom line is that “qualified borrowers are being rejected for home loans without good reason. This is not good for them, the housing and lending industry or the economy.”

About Credit Security Group

Credit Security Group serves consumers and lending organizations nationwide and advises major banks, mortgage lenders and their clients on how the system works and how to most effectively use this knowledge. Credit Security Group conducts seminars and educational presentations to consumers, banking and real estate groups and associations. Credit Security Group has offices in Dallas, Houston, Longview and Nacogdoches, Texas.

New Credit Score Model Not Helping Home Buyers Says Credit Expert

DALLAS, Aug. 26 – Credit Expert Eddie Johansson believes the improved FICO 08 credit scoring model will increase the credit scores of a significant segment of borrowers. But it's not helping home buyers. According to Johansson, president of Credit Security Group, a leading nationwide credit analysis and rescoring firm, that's because the largest sources of home financing, Fannie Mae and Freddie Mac, have not yet approved it.

"When Fannie and Freddie approve it, it has arrived - but not until then," he said. Neither organization has provided its schedule or intentions for approving the FICO 08-based credit scores available from two major credit bureaus.

Credit scores help lenders determine whether a mortgage loan is approved and the interest rate offered. In general, the higher the score, the easier it is to get a mortgage loan and the lower the interest rate.

Johansson said his analysis predicts the new model – if approved – will have the most impact on the current refinancing boom and mid-to-higher-end home sales. Speaking to 150 bank executives at the Independent Bankers Association of Texas Leadership Conference in San Antonio and to banking educators attending the Financial Literacy Summit at the Federal Reserve Bank of Dallas, Johansson said, “If it's implemented as expected, it is a great opportunity to boost the housing market.”

Johansson believes the new model will be a more accurate measure of credit risk. “It takes into account more of the borrower’s history and penalizes them less for a single unusual event,” he said. "It also has more score card levels, allowing finer adjustment of credit scores.” He said it will reduce the power of unscrupulous credit collectors too, since a single bad event – reported in error – will have less impact on scores.

FICO 08’s developer, Fair Isaac Corporation, predicts it will help lenders reduce default rates on consumer loans 5 to 15 percent.

Fannie Mae and Freddie Mac own or guarantee almost 31 million home loans worth about $5.4 trillion, which makes it all the more important that they approve the new score model.

Johansson will be a featured speaker on understanding and improving credit scores for consumers and small business owners at the Austin Money Show September 25-26. Registration is available at www.AustinMoneyShow.com.

About Credit Security Group

Credit Security Group serves consumers and lending organizations nationwide and advises major banks, mortgage lenders and their clients on how the system works and how to use this knowledge to improve scores. CSG conducts seminars and educational presentations to consumer, banking and real estate groups and associations and has offices in Dallas, Houston, Longview and Nacogdoches, Texas.

Credit Expert On City Credit Score Enhancement Programs: ‘The Devil’s in the Details’

Houston, Feb. 25 --- Key administrative factors must be considered by cities debating programs such as the one proposed in Houston, according Eddie Johansson, president of Credit Security Group, a leading nationwide credit score analysis and rescoring firm.

The proposal before the Houston City Council was to help home buyers pay off debts to improve their credit scores.

Johansson said the sole purpose of credit scores is to accurately reflect the borrower’s credit risk. “If, at the end of the day, the borrower’s credit scores are a true, accurate measure of risk, then this critical role is maintained,” said Johansson.

Johansson said an inaccurately high credit score can be just as harmful to consumers as an inaccurately low one. “Borrowers must not think that because they can, they should,” he warned. “If their need of assistance to raise their scores comes from ongoing factors and habits, these need to be addressed first. The last thing anyone needs today is keys to a home they can’t afford.”

Johansson said the second factor is whether the lender and borrower are properly educated on credit scoring models. “The credit score system is often counterintuitive,” he said.

Johansson said that if the borrower’s score is close to qualifying for a loan, educating them on the proper action may be all that is needed. “Worst case,” he cautioned, “The lender and borrower are unaware that what they are doing will actually reduce the borrower’s credit scores.”

Johansson conducts credit score education seminars for consumers and mortgage professionals. He spoke recently about credit scores at the Texas Bankers Association’s Financial Literacy Summit and will present a program on the FICO credit score model at the Independent Bankers Association of Texas’ Leadership 2009 Conference.

Johansson said approving any assistance program is a political decision for the citizens of a city and their elected representatives to make. “It’s critical that they make an informed decision – and watch out for the details,” he said.

About Credit Security Group

Credit Security Group serves consumers and lending organizations nationwide and advises major banks, mortgage lenders and their clients on how the system works and how to use this knowledge to improve scores. CSG has offices in Houston, Dallas, Longview and Nacogdoches, Texas.

Houston-area Bank And Mortgage Professionals Adjust to Tighter Home Loan Requirements

Houston, Feb. 3 -- New Freddie Mac and Fannie Mae policies have made credit scores much more important to Houston’s mortgage lenders. In general, loan requirements have increased, and fees and down payment requirements are higher for lower scores. The new policies can result in borrowers not getting a loan or paying thousands of dollars more for a home loan.

“This has caused a huge increase in the demand for knowledge about the credit scoring system, or FICO,” said Reggie Rice, Houston Analyst at Credit Security Group (CSG), a leading nationwide credit score analysis and rescoring firm.

Rice said that in the past most mortgage professionals were only interested in what the borrower’s score was, not whether it was accurate or due to factors the borrower could easily change. “It’s a different world now,” he said.

Rice teaches CSG’s FICO Education Series fo Mortgage Professionals and has presented seminars to twenty audiences comprised of hundreds of lending professionals in the Houston area in recent months.

Credit scores are the primary measure of a borrower’s risk and can determine whether a loan is made and the interest rate offered. Rice said how scores are calculated is counterintuitive and that even the very best mortgage professionals have misconceptions.

“The seminar knocked down quite a few of the truths I thought I had,” said Phil Huffman of Keller-Williams.

”Top firms stay that way by learning more to help their customers more,” said Rice. Past participants in CSG seminars include mortgage professionals from Keller-Williams, Texas Home Group, Texas Home Builders, CTX Mortgage, Century 21, Gibraltar Mortgage, Wells Fargo, Bank Of America, Envoy Mortgage, Remington Mortgage, John Daughtery Realty, Secure Mortgage and Cedar Stone Mortgage.

The FICO Education Series has been presented at Keller-Williams, Fox & Jacob Homes, Patriot Bank, John Daughtery Realty and First American Title. To attend, call CSG/Houston at 281-857-6898.

More information on Credit Security Group’s services and seminars can be found at their website: http://www.CreditSecurityGroup.com .

About Credit Security Group

Credit Security Group serves consumers and lending organizations nationwide and advises major banks and mortgage lenders and their clients on how the system works and how to improve their credit scores. CSG has offices in Houston, Dallas, Longview and Nacogdoches, Texas.

January 7, 2009

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Credit Analyst Warns of Trap For Credit Card Customers

DALLAS, Jan. 7 -- “Many people will have their credit scores lowered this year if they’re not watchful, know what to do and take action,” said Eddie Johansson, president of Credit Security Group, a leading nationwide credit score analysis and rescoring firm.

Credit scores are used by lenders to determine credit risk. Lower scores result in loss of credit and higher interest rates. Financial analysts predict cuts up to $2 trillion in credit card account lines over the next 18 months.

“This will have very bad consequences for consumers who are not prepared,” said Johansson speaking recently about credit scores at the Texas Bankers Association’s Financial Literacy Summit.

Analysts predict many card companies will be canceling unused cards and lowering limits this year. According to Johansson, “This is how the trap will be set: you have a $4,000 balance on a card that the company lowers your limit from $10,000 to $5000. You don’t know it, but your credit score has just taken a hit — and it’s only beginning.” Johansson says credit companies constantly monitor your credit score, which causes the trap to spring.

“Another company lowers your limit and increases your interest rate, ‘due to decreased credit score.’ This lowers your credit score further. Another company cancels an unused card. The cycle snowballs with other cards, and then the same ones over again. If you are planning a major credit move — say, refinancing your house for lower rates, your lower credit score hurts your chances of refinancing and greatly increases the interest rate offered.”

Johansson points out that the consumer here has done nothing different, hasn’t gone into more debt, hasn’t missed any payments. Yet, his rates have gone up and his ability to use credit has been damaged — while he was unaware. And once ensnared it’s difficult to get out. “This is why it’s a trap,” Johansson said.

“You can prevent this from happening to you,” he said, “if you know how.”

“The critical piece of this trap is your credit score,” said Johansson. “It’s what keeps the snowball rolling. Your credit score is also the sole measure used to determine your credit risk and interest rates in the future. You should carefully guard it as it comes under attack this year,” he said.

With the amount of credit reduction projected, almost everyone will lose some credit availability, Johansson said. “You can’t control credit card companies reducing the amount of credit in the system, but you can make sure it does not hurt your credit score — and this is critical to maintaining your ability to manage your finances in addition to saving you thousands of dollars in fees and interest payments.”

Johansson gives specific advice on what to do. The key is in your credit scores — knowing how the scoring system works and how to avoid hits to your score. In brief, the steps are:

1. Keep your balances low on existing cards.
   
   
2. Remember it’s the balance/limit ratio that counts — not the balance amount. If a credit card company lowers your limit, immediately lower your balance if necessary to stay under eight percent. Try to keep all cards under the eight percent guideline.
   
   
3. Charge small amounts on your old, unused credit cards. This makes them active which increases the limit portion of your balance/limit ratio. Keeping a balance can also prevent the account from being closed.
   
   
4. Avoid opening new lines of credit if at all possible. Use new credit sparingly and for your best advantage.
   
   
5. Don’t price-shop where the seller pulls your credit score. This includes homes and cars among other products and services. If you’re not sure, make sure — tell them not to pull your credit report.
   
   
6. Whatever it takes, avoid any negative events on your credit report.
   
   
7. Monitor your credit reports; be alert for any changes. Correct inaccurate information in your report, or hire a professional to do so. Besides keeping your score from decreasing, many people increase their scores by correcting their data at the credit bureaus.

If you face a cash squeeze, Johansson has key advice: Know which bills report to credit bureaus and pay them first. “If you absolutely must be late some bills, pay the ones that affect your credit score first,” he recommended. These include car payments, mortgage and credit card bills as well as other revolving and installment accounts.

“If you just cannot pay your bills, you must make arrangements to get current and prioritize your bill payments,” he said.

Johansson emphasized the high potential damage of collection notices from current creditors. “A collection notice means you are about to receive a severe hit to your credit score. Pay these immediately, or contact the original creditor to make arrangements. You must be certain not to get a collection on your credit report at this time,” he said. “This will start the snowball really rolling and make a bad situation much worse. A single, recent, one dollar debt collection can dramatically lower your credit scores.”

Johansson said that consumer’s lack of knowledge about the credit systems is particularly costly in these times and that there is a great deal of misinformation. “How much you have in the bank does not affect your credit score, Johansson said. “A common misconception is that if you have a high paying job, lots of assets and net worth, this means you have low credit risk and scores.” Johansson said that while these matter when you go to borrow money, they do not affect your credit score at all. “This is solely determined by your FICO score and data reported to the three major credit reporting companies — this doesn’t include any asset or income information for you or your spouse.

Lenders have reduced the limits on what are known as home equity lines of credit, or HELOCs. Many investors do not realized that HELOCs are scored as revolving accounts and will be affected similarly to credit card accounts,” Johansson recently told investors at the North Texas Association of Housing Providers’ Year End Financial Clinic.

Consumers should be careful not to act emotionally and to not take this personally, Johansson cautioned. “This is done by computer programs, unfortunately,” he said, “and you should not feel singled out. Everyone will take a hit. You need to act calmly and wisely to make it through this time with your credit intact.”

About Credit Security Group

Credit Security Group serves consumers and lending organizations nationwide and advises major banks and mortgage lenders and their clients on how the system works and how to improve credit scores. CSG also conducts seminars and educational presentations to consumer, banking and mortgage groups and associations. President Eddie Johansson has appeared on television and radio programs as the consumer credit score expert.