UltraFICO®An Initial Discussion

While this new alternative “credit” algorithm is not set to roll out until sometime in 2019, included below are my initial thoughts based on the BIAA press release and the below referenced articles from the Wall Street Journal, Consumer Affairs and USA Today.

Experian, FICO and Finicity Launch New Ultra FICO Credit Score

With Ultra FICO® Score, a consumer grants permission to contribute information from banking statements, including the length of time accounts have been open, frequency of activity, and evidence of saving, which can be electronically read by Finicity and combined with consumer credit information from Experian to provide an enhanced view of positive financial behavior.

Experian, FICO and Finicity estimate this new score has the potential to improve credit access for the majority of Americans and is particularly relevant for those who fall in the grey area in terms of credit scores (scores in the upper 500s to lower 600s) or fall just below a lender’s score cut-off. Consumers who are relatively new to credit with limited history or those with previous financial distress that are getting back on their feet stand to benefit the most.

This new system will roll out next year. Initially, the most likely use will be for beginner credit cards. The UltraFICO® is an add-on feature some lenders will offer to enhance a prospective borrowers credit profile and score.

The prospect must provide access for a one-time snapshot of their banking/bill paying account. The data analyzed will be regular payments of rent and utilities. The expected average balance in the account should be $400 or more. There should be no overdrafts or NSF checks in recent months. It’s expected there will be more income than outgo to the account. Discussed is that the checking/bill paying account must be established for some undefined time.

The above referenced WSJ article captures the essence of what the new credit score enhancing tool is expected to be. It will not, in the immediate future, be used by mortgage lenders. I expect that it may be used by some auto dealers.

UltraFICO® score takes into account how much money you have in the bank

According to the Journal report, the new UltraFICO® would be a tool for consumers whose credit scores are not that great. If they have a few hundred dollars in the bank and have had the bank account for a number of [undisclosed] years without overdrawing they might see their credit standing rise.

But in practice, the new formula is likely to be of greater benefit to consumers who already have high credit scores because they are the consumers most likely to have accumulated some cash in the bank. Consumers with low credit scores are often in that situation because they lack the extra cash to meet an unexpected expense.

Based on practicality and experience, I believe this Consumer Affairs writer is off-base in his analysis of who this will help the most. Someone with >760 FICO® Scores has no need for a bump of a few points whereas someone with a 620 score most definitely has the need. We’ll soon figure out just how many months one must have $400 or more in their account to gain the bump.

New FICO system could lift credit scores by including checking and savings history

Finally, from the above referenced article from USA Today: “...it remains to be seen how fast lenders will adopt this supplemental scoring system. For instance, FICO’s latest credit score – FICO 9 – was released four years ago, but the previous version of the score – FICO 8 – remains the most widely one used.

Consider the fact that neither FICO 8 or 9 are used in the mortgage lending industry. UltraFICO® may be used by certain credit card issuers as well as some vehicle lenders. We’ll know more next year.

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Financially Speaking™ James Spray RMLO, CNE, FICO Pro | CO LMO 100008715 | NMLS 257365 | October 29, 2018 | October 30, 2018

Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct. This information is not legal advice and is for guidance only. You may use this information in whole and not in part providing you give full attribution to James Spray.

Free Credit/Security Freezes – All 3 Bureaus – Free Unfreezing

Thanks to a new federal law – the Economic Growth, Regulatory Relief, and Consumer Protection Act – consumers will be able to contact each of the three major credit reporting agencies and direct them to place a free freeze on the consumer’s credit file. By restricting access, a credit freeze makes it harder for identity thieves to open new accounts in consumers’ names.

Not only will it be free for consumers to freeze their credit, but they can lift that freeze for free, too. And the law requires the credit reporting agencies to do it in a hurry. If a consumer asks for a freeze online or by phone, the credit reporting agency has to put the freeze in place no later than the next business day. If the consumer wants to lift the freeze…that has to happen within an hour.

This new law is effective September 21, 2018. Click here for more.

The New York Times published good article on the subject. “Freezing Credit Will Now Be Free. Here’s Why You Should Go for It.https://nyti.ms/2Mw01rU

Financially Speaking™ James Spray RMLO, CNE, FICO Pro | CO LMO 100008715 | NMLS 257365 | August 16, 2018 | Updated September 16, 2018

Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct. This information is not legal advice and is for guidance only. You may use this information in whole and not in part providing you give full attribution to James Spray.

New Credit After Chapter 7 Bankruptcy

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New Credit After Chapter 7 Bankruptcy

This post is written specifically for those who’ve recently been granted a Discharge from a Chapter 7 Bankruptcy. Chapter 7 is type of bankruptcy where the debtor does not make periodic payments to a bankruptcy trustee for 3 to 5 years.

The first step is to establish new credit in a strategic manner. Of course, you must also use your new credit in a responsible manner. In some cases, it is necessary to get your credit reports corrected to establish new credit. We’ll address both steps below.

Step One

First, when establishing new credit. Ignore well-meaning advice to get a $300/500 secured credit card from just any bank that will open an account for you. Start with joining a credit union. With most credit unions, there are no fees. Also, there are no annual fees and no-cost to use many ATMs all over the USA. Take a moment and read my post on credit unions.

In searching for the credit union (CU) to be the fit, do your homework. Call or stop in and ask about secured credit cards (this will lead you to someone that can answer or can get answers to your questions).

Now that you have found your CU, open your Share (savings) account. Save $1,000.00 or more. Secure this savings against a Visa or MasterCard issued by your credit union. To build good and excellent credit scores, use no more than 20% of your credit limit. Ever. For example, on your $1,000.00 credit limit, never have more than $200.00 in use. For best results, payoff the balance monthly. Your higher credit scores get you rewarded with lower interest rates on home and auto loans, insurance, credit cards and better employment opportunities.

Most credit unions will offer an unsecured card after you have established your good credit management practices for one-year. At this time, your savings securing your card will be released and another card issued. Your credit history will follow the new account.

Next, open 2 or 3 lower limit credit card or other revolving accounts (department stores, Internet stores, gas cards, etc.). The key is to have 3 to 4 revolving accounts open and in use occasionally. Do know that credit is a use it or lose it commodity.

On selecting the credit accounts, don’t bother applying to any creditors which were listed in your bankruptcy. Perform a Google Search such as this: “secured credit card + bankruptcy”. In your screening process, avoid those with an annual fee.

After about 9-12 months of opening the accounts as above discussed and using them as above discussed, you should have actual lending scores (FICO® Scores) in the 700-720 range. These techniques have helped many clients over several decades.

Step two

Not everyone will need to take step two. All should read the info in step two.

In order to build new credit after bankruptcy, you may need to get corrections made to one or more of your three credit reports to reflect only accurate information. By accurate information what we mean is to make sure that all your bankrupted accounts reflect a zero-balance due.

Understand that a bankruptcy discharge does not remove your previous credit history from your credit reports. Time does. Seven years from the date of last activity (last use or last payment), the account will be removed from your credit report.

Keep in mind that the older a negative item on your credit report is the less it counts against your credit score. Also, the longer you have information reporting on your credit report, the better it counts for your credit history which results in a better credit score.

As a rule of thumb, by the time the case is Discharged, several months following the filing of the bankruptcy case, most creditors will have reported the accounts as included in bankruptcy. In some instances, a creditor fails to update their record with the credit reporting agencies (CRA).

So, in these instances, let’s talk about getting the incorrect items corrected. Often, the dispute process is neither quick or easy. Understand the CRAs are not your friends. Use caution with what you say or write to a CRA. For specifics on how to dispute information on your credit reports, I suggest you read my blog titled: Credit Repair/Dispute Basics.

A word on entering comments to clarify some situation or another; such comments do not do anything positive for your credit scores or your credit history. It is of no benefit to you to make comments. Everything you say can and will be used against you. This is one of those times to consider the Miranda Warning along with the idiom less is more. When and only if necessary, you may address individual items as requested by your loan officer for an underwriter. Open or unresolved disputes on your credit report(s) can keep you from gaining credit approval.

To begin correcting your reports, you need to get a copy of each of your credit reports. There are three credit reporting agencies: TransUnion, Equifax and Experian. You can get a copy of your three credit reports once a year for free via the Official Site authorized by Federal law: http://www.annualcreditreport.com. It does you no good to only review one or two reports. Review all three of them annually.

For mortgage approval (purchase or refinance), two (2) years following your Discharge, you will be eligible to apply for an FHA, VA or Rural mortgage loan. Four (4) years following your Discharge, you will be eligible to apply for a conventional mortgage loan.

Contact me below or via Quora with specific questions.

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Financially Speaking™ James Spray RMLO, CNE, FICO Pro | CO LMO 100008715 | NMLS 257365 |April 6, 2018 | Copyright 2018

Notice: The information on this blog is opinion and information. While I have made every effort to post and link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct for your situation. This information is not legal advice and is for guidance only. You may reproduce this information in whole and not in part, providing you give full attribution to James Spray.

Timeline: Bankruptcy to Mortgage Chart

Experiencing a severe credit event such as foreclosure, short-sale, deed-in-lieu of foreclosure or bankruptcy does not mean you will never be eligible to get a home loan. This chart provides the time-out periods required by event. The assumptions are that you have established acceptable credit scores and meet underwriting guidelines. In certain circumstances, one may qualify for a mortgage upon discharge of a Chapter 7 or during a Chapter 13.

Financially Speaking™ James Spray RMLO, CNE, FICO Pro | CO LMO 100008715 | NMLS 257365 | Originally published in 2010 and updated regularly | September 19, 2017 Contact me to obtain a pdf copy of this chart.

Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct for your situation. This information is not legal advice and is for guidance only. You may reproduce this information in whole and not in part, providing you give full attribution to James Spray.

Obsessives Have Cracked the Perfect FICO Credit Score of 850 – Bloomberg

Kudos to Suzanne Woolley for authoring an article which accurately portrays how one can improve their credit.

Source: Obsessives Have Cracked the Perfect FICO Credit Score of 850 – Bloomberg

Realtors: 2 Deals In 1 – The Purchase Reverse Mortgage

Back to Back Closings

Back to Back Closings

Realtors: 2 Deals In 1 – The Purchase Reverse Mortgage

The Home Equity Conversion Mortgage for Purchase (HECM) is known in the industry as the H4P. The H4P is an FHA Insured reverse mortgage which is guaranteed by the Department of Housing and Urban Development.

In writing this post I recall a specific H4P transaction where I was privileged to originate a purchase reverse mortgage for a delightful fellow Colorado native. This transaction closed in July 2013. The purchaser, age 63, sold her townhome in Parker for $115,000.00 and in conjunction with the H4P used the combined proceeds to purchase a townhome in Castle Rock for $227,600.00.

The financial details of that transaction are as follows: The buyer’s cash to close requirement was $96,400.00 plus her earnest money of $2,000.00. This sum of $98,600.00 included pro-rata property taxes, insurance and HOA fees.  The H4P proceeds to close were $129,200.00. In addition, the FHA UFMIP, origination fee and allowed closing costs totaling $11,400.00 were financed. All figures have been rounded to the nearest $50.00.

Purchase Price $227,600.00
Buyer Cash to Close + Earnest Money     98,400.00
H4P Cash at Closing $129,200.00
Financed Closing Costs     11,400.00

She found it most desirable to purchase her new home and not have to make mortgage payments ever again. Of course, she may make periodic payments or payoff the loan at any time but only if she wishes. It bears observing that she made this decision with the blessing of her children, one of whom is a CPA. Going forward, she simply pays the taxes, insurance and HOA dues. She does not need to pay monthly mortgage payments again for so long as she lives in her home.

On qualifying, for all intents and purposes, this was a Stated Income loan. As a matter of responsible underwriting, it was merely confirmed she had sufficient income to pay real estate taxes, insurance and HOA dues.

Due to adjustments* which FHA made to the HECM program in September 2013, an identical transaction as described in this post would presently require cash to close from the buyer of approximately $114,950.00.

On qualifying, for all intents and purposes, this was a Stated Income loan. As a matter of responsible underwriting, it was merely confirmed she had sufficient income to pay real estate taxes, insurance and HOA dues.

Due to adjustments* which FHA made to the HECM program in September 2013, an identical transaction as described in this post would presently require cash to close from the buyer of approximately $114,950.00.

For additional facts on the FHA Reverse Mortgage program (HECM), you may wish to click on this link: Reverse Mortgage Facts. Further discussion and illustration on the H4P is available on this link: What Is A Purchase Reverse Mortgage?

TIPS: There are no concessions allowed by sellers, builders or agents; this includes any personal property (such as appliances). In addition, the buyer must pay for the title insurance. There can be no repair set-asides; all repairs, where major property deficiencies threaten the health and safety of the homeowner and/or jeopardize the soundness and security of the property, must be completed by the seller prior to closing. Another unique feature of this program is to set your closings for about 10:00 AM and not later than 11:00 AM to help make sure the H4P funds the same day as the closing. On the closer, few are experienced with the H4P, most are experienced with the traditional reverse mortgage and think the H4P is the same. It is not. Given the buyer is paying for the title insurance, I suggest we use a closer well-trained in the HP. I have such a closer.

Finally, although a rare circumstance, should a buyer have two FHA Case Numbers open, the non-purchase case number must be cancelled prior to final loan approval. As of this post, FHA will not allow an application to be taken until the Certificate of Occupancy has been issued.

If a non-borrowing spouse is involved in the transaction, the non-borrowing spouse (NBS) may not be a party to the real estate purchase contract. For more information on the NBS you may wish to read: Reverse Mortgages and the Under-Age 62 Spouse.

[*HUD Mortgagee Letter 2013-27]

Update: There are market and borrower favorable changes pending application to the H4P on September 19, 2017. When they go into effect, this posting will be updated to reflect the changes.

Notice: The information provided is not intended to be an indication of loan approval or a commitment to lend. Additional program guidelines may apply. Information is subject to change without notice.

Disclaimer: This article does not represent that any of the information provided is approved by HUD or FHA or any US Government Agency.

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 Financially Speaking  James Spray, RMLOCNE, FICO Pro |CO LMO 100008715 / NMLS 257365 |Published: April 3, 2014 ~ Updated: February 6, 2017

 Notice: The information on this blog is opinion and information. While I have made every effort to compose and link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct. This information is not legal advice and is for guidance only. You may use this information in whole and not in part providing you give full attribution to James Spray.

Reverse Mortgage Primer: A Realtor’s Notes

For Homeowners Over 62, a Reverse Mortgage Could Address Some Financial Needs

Jim Smith Golden RE Logo

Recently our agents and I received training on Home Equity Conversion Mortgages (HECM), better known a “reverse mortgages.” These loans can be taken out on your current home or used to purchase a new home. What makes them particularly attractive is how they can turn your home from an expense (if you have a mortgage currently) into a source of money for the rest of your life after age 62.

In a normal mortgage, you have monthly payments of PITI—principal plus interest plus taxes and insurance. With a reverse mortgage, the principal increases instead of decreases because the principal and interest is being drawn from the equity you have in your house.

If you have longevity in your genes and don’t need to leave the value of your house to your heirs, this can be a good solution because no matter how long you live, as long as you continue to live in your house, you will never be “upside down.” The mortgage continues to be paid even after your equity is used up.  When you die and the house is sold by the lender, any shortage in payoff is covered by the mortgage insurance which is built into the loan.

This scenario is not for everyone, but it has enough advantages that it is worth speaking with a reverse mortgage specialist who can study your financial situation and help you decide if a reverse mortgage is right for you.

We had such a specialist — James Spray of MilestoneMtg.net, dba The Mortgage Company — speak to us and answer such questions as:

What happens if both husband and wife are on the mortgage and one of them dies? The surviving spouse can stay in the house until he or she dies.

What if you go into assisted living? Once all borrowers on the loan no longer live in the house, the loan must be paid. If there’s still equity in the house, it can be listed and sold just like any other house, and the loan is paid off.  If the equity has been exhausted and you’re “under water,” then you deed the home over to the lender and walk away not owing anything.

What if a son or daughter wants to buy the house? They can buy the house, with the loan paid off at closing, but if the house has negative equity, they can buy the house from the lender for 95% of its appraised value, regardless of how large the principal had grown.

Are property taxes and insurance escrowed? No, you must pay those directly, along with any HOA dues.

Can you take cash out when you refinance with a reverse mortgage? Yes, depending on your age, you can take out half or more of your home’s appraised value when you refinance into a reverse mortgage. The older you are, the more you can take out, based on actuarial tables. That’s why I say that if you have longevity in your genes, you could take out your full equity in your home before you die and continue to live in the house until all borrowers die without making any mortgage payments again—just taxes, insurance and HOA dues.

Can I sell my house and downsize? You should do that before you take out a reverse mortgage. Sell your house now, buy your perfect “forever” home, and finance it with the reverse mortgage, putting down only the minimum down payment based on the actuarial tables.  Keep the other proceeds from the sale of your current home as cash to spend, save or invest as you wish.

What about Social Security?  As you know, you get a much higher Social Security payment if you wait until age 70 to start drawing it.  Refinancing or purchasing with a reverse mortgage at age 62 could make it possible by lowering your living costs for you to wait until age 70 to start drawing Social Security.

What if my credit isn’t very good? Unlike with a regular mortgage, credit is not a factor in approving a reverse mortgage, barring recent bankruptcy or other derogatory factors. You need only prove that you’ll be able to keep paying the taxes, insurance and HOA fees (if any) on your home. Not doing so risks foreclosure.

You probably have many other questions.  If I can’t answer them for you, I’d be happy to connect you with Jim Spray or another specialist.

Jim Smiths Sig for blog

Read my weekly Real Estate Today column as published in the Denver Post at www.JimSmithColumns.com

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The above article is to be/was published in the Denver Post on September 8, 2016 by Realtor Jim Smith of Golden Real Estate, Inc. His office is located in Jefferson County, Colorado. It is reprinted here with permission/blessings of the author.

Financially Speaking™ James Spray RMLO, CNE, FICO Pro | CO LMO 100008715 | NMLS 257365 |September 2, 2016

Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct for your situation. This information is not legal advice and is for guidance only. You may reproduce this information in whole and not in part, providing you give full attribution to James Spray.