Sep 082008

This is an opportune time to look at credit repair. Is your credit score in the tank? Are their errors, paid items or anything that the Fair Credit Reporting Act says you can dispute on your report? Disputing is not only a viable option; it may be the best thing you can do for yourself and your family.

Consider the things in your life that are directly affected by your credit scores: insurance rates, eligibility for bank accounts, utility deposits for your home, new jobs or promotions, renting a house, buying a house, high limits on credit cards . . . your credit may be your best asset if you take care of it.

If you could look at the real estate industry over the past 50 years, you would see that every 10 to 12 years there has been an adjustment either up or down not only in real estate prices but in the financial products supporting the industry and in the credit bureaus supplying the information.

In the mid 1990’s the mortgage industry went through an adjustment with what is known as the “A” paper lenders. These are the banks and lenders who would normally only lend money to people with excellent credit and plenty of money for 20% to 30% down payments. The market tightened up so much and the financing guidelines became so strict that it became almost impossible for Mr. and Mrs. Middle America to buy a home. This is when the Sub-Prime lenders stepped up to the plate and said “We can help you buy a home”. They designed many creative financing packages to help middle-income consumers – those with not-so-stellar credit and not enough money for large down payments — to become homeowners. This was a great benefit to the real-estate industry and played a pivotal role in turning around the industry at that time. This worked well until the lenders got caught up in their own game and the numbers of defaults began escalating.
In the past several years the public has become accustomed to 100% financing, two-year adjustable rates which create smaller monthly payments, and lenders doing just about anything to sell themselves on their creative financing. But what most borrowers don’t understand, because it is never explained to them, are the actualities of the payment adjustments and the timing of these adjustments, which lead to higher and unaffordable payments. When the adjustments happen it is a recipe for disaster and a probable foreclosure for the borrower.

The number of defaults happening today is at an all-time high. The lenders are getting hit so hard that more than 160 of them have gone out of business in the past several months and the rest are making guideline adjustments on a daily basis. We are now seeing that 10-to-12-year adjustment in the industry again. The strong will survive and the weak will succumb, and the industry will be better and stronger as a result.

What the general public needs to know is that there will always be banks and lenders willing to make loans. The consumer’s credit score (Beacon, FICO) is more important than ever. We are a far cry from being in a doomsday scenario — this is only an adjustment. Many financial institutions will become stronger while others will die. But what the public needs to understand is that the 100% loans, and the stated-income and stated-asset loans, as well as many other types of creative financing, may still be with us, but the lending credit-score guidelines for these loans are much more stringent today. Lenders are making adjustments to their guidelines on a daily basis, and normally not in the borrower’s favor. What a consumer used to get with a 600 beacon score now needs a 680 beacon score for the same loan. A borrower may be told that they are approved for a mortgage one day and see the offer taken back the next day, simply because the lender tightened its belt. It’s hard for the borrower not familiar with the industry to understand what’s going on behind the scenes. It is also becoming harder and harder for people of lesser means to qualify for a home mortgage. The important thing to remember is that there are many lenders out there willing to do everything possible to lend you their money. They are just going to try to make sure that it will be good for both parties (using prudent underwriting).

Contributing writer: Donna Loader, Certified Credit Consultant, veteran in the market of financing residential and commercial properties for over 20 years. Contact her at [email protected] (866-314-1288) or check out

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