Mortgage Rates
June 21, 2010
Product
Interest RateAPR
Conforming 1and FHA Loans
30-Year Fixed 4.75% 4.94%
30-Year Fixed FHA 4.75% 5.50%
15-Year Fixed 4.00% 4.431%
5-Year ARM 3.5% 3.594%
5-Year ARM FHA 3.125% 3.150%
Larger Loan Amounts in Eligible Areas – Conforming and FHA.1
30-Year Fixed 4.75% 4.886%
30-Year Fixed FHA 4.75% 5.442%
5-Year ARM 3.875% 3.679%
Although they had paid off their home's first mortgage, the loan payment for the second mortgage was costing them $640 a month.
A year ago, the couple consulted with their four children, and took out a reverse mortgage on their $380,000 home. The reverse mortgage paid off the $80,000 they'd borrowed and gave them a $200,000 line of credit.
"The freedom of not having to pay out that $640 every month was unbelievable, especially when you're retired," she said.
Because they have other sources of retirement income, the couple has not touched the $200,000 line of credit. "We can use it if we want or let it sit there. It gives us peace of mind to know we've got that $200,000 line of credit," she said.
"You do have to sell the house after either my husband or I would pass, but our kids are O.K. with that."
Mark Harrington of Horizon Home Mortgage in Windsor says "Reverse mortgages were developed to allow baby boomers -- specifically people age 62 and over -- the opportunity to remain in their homes." .
But relatively few seniors have opted for a reverse mortgage. Since they were introduced in 1989, only 600,000 homeowners have taken out a reverse mortgage. The upfront fees can be steep and many consumer advocates say a reverse mortgage should be a last resort for meeting financial needs.
To qualify for one, you must be 62 or older and own your own home outright or have a low mortgage balance. But fewer than 1 percent of eligible homeowners have obtained a reverse mortgage, a home mortgage loan in which the lender pays you.
A reverse mortgage allows homeowners to convert a portion of their home's equity into cash. The loan can be taken in the form of a monthly payment, a lump sum, a line of credit or a combination.
Buying A Smaller Home
The Federal Housing Authority recently introduced a new type of reverse mortgage for seniors, intended to streamline the process of downsizing, selling their current residence and buying a smaller home. The "Reverse Mortgage for Purchase" allows eligible homeowners to buy a new home and take out a reverse mortgage as a single transaction, thereby reducing closing costs.
"People were doing this anyway," said Susanna Montezemolo, vice president of federal affairs at the Center for Responsible Lending. "This new category of reverse mortgage reduces costs."
Unlike a traditional home equity loan or second mortgage, repayment of either type of reverse mortgage is not required until the homeowner dies, moves or sells the home.
"A lot of people think that once you run out of the money, it triggers a repayment event," Harrington said. "That's not the case."
The proceeds from the sale of the residence are used to repay the lender. If the proceeds don't cover the loan amount, the homeowner's heirs are not responsible for the shortfall.
"You [or your heirs] will never owe more than the value of the home if you sell the property to repay the loan, even if the value of your home declines," according to the National Council on Aging's guide, Use Your Home to Stay at Home.
Although the income you receive from a reverse mortgage is tax-free, it can affect your eligibility for certain need-based benefits such as Medicaid and Supplemental Security Income.
And if you want to make repairs or alterations to your home, there are cheaper ways to borrow money than a reverse mortgage, which can be very costly, said Norma Garcia, senior attorney for Consumers Union, which publishes Consumer Reports. She notes that some cities and states have low-cost home-improvement loans and grants for seniors.
"Anyone considering a reverse mortgage should seek independent, HUD-approved counsel," Garcia said. "It should not come from the company that has an interest in selling you a reverse mortgage.
"There are many options with respect to reverse mortgages and they can be confusing," she added. "Even if you've had a home mortgage, this is an entirely different product. A good mortgage counselor can help you to decide whether a reverse mortgage is good for you."
Upfront Fees
To acquire a reverse mortgage, "you pay a lot of fees upfront," Montezemolo said.
"You can pay thousands of dollars before you're ever paid a dime," Montezemolo added. "If you need to make repairs or alterations and have retirement savings or other sources of income, you're better off tapping into those savings or other sources because there is no upfront fee to get the money."
The amount you can borrow is based on the appraised value of your home, interest rates and your age, a critical factor. The younger you are when you obtain a reverse mortgage, "the longer the compound interest will grow and the more you'll owe," AARP experts caution.
"The average client we see is about age 72," Harrington said. At that point, they qualify for about 60 percent of the value of their home."
"Most of the negatives floating around are dramatically overstated," said Jeff Lewis, chairman of Generation Mortgage. "As long as you maintain your home and pay your property taxes and insurance, you can't be forced to leave. Homeowners still retain title and ownership to their homes during the life of the loan, and can choose to sell it at any time," Lewis said.
A reverse mortgage can be a good option, but not the best option if you have other sources of income, Montezemolo said. And if you plan to leave your home to your children, tapping into your home's equity with a reverse mortgage may leave them with less.
"With the ads they run late at night, people get lured into reverse mortgages. Sometimes I get the sense that people think it's free money. It is a loan. There are fees. It has to be paid back," Montezemolo said.
To find an independent counselor in your area go to: http://tinyurl.com/2upalae.
To view HUD's home page on reverse mortgages, officially known as Home Equity Conversion Mortgages, go to: http://www.hud.gov/offices/hsg/sfh/hecm/hecm--df.cfm
AARP publishes a 44-page booklet on reverse mortgages. "Read this guide figure out the questions you have and then go to counseling, said Montezemolo. Go to click on "Reverse Mortgage Loans: Borrowing Against Your Home"
Monday, June 21, 2010
Today's Rates
Mortgage Brokers Fight to Change Appraisal Rules
The Wall Street Journal
Fri, 18 Jun 2010
By Jessica Holzer
The mortgage-broker and real-estate industries are pushing to get a measure that would kill new home-appraisal rules inserted into legislation to overhaul financial-sector regulation.
The Home Valuation Code of Conduct, adopted in May 2009 to ensure appraisers' independence, bars mortgage brokers and bank-loan officers from selecting appraisers. The brokers and Realtors complain the rules have produced low-ball appraisals that have blown up deals, while appraisers say the change has hurt appraisal quality.
Mortgage lenders, on the other hand, are trying to fend off the measure. Several major lenders own or have a stake in companies that have seen a surge in business as a result of the new rules. "We're going to try all we can to keep it out," said John A. Courson , the Mortgage Bankers Association's president and chief executive officer.
Inflated appraisals were widely blamed for helping to fuel the sharp run-up in home prices during the past decade. Before adoption of the new standards, appraisals were typically ordered directly by loan officers or mortgage brokers who worked regularly with the same local appraisers.
Lenders contend that the new standards have ensured that appraisers aren't pressured by loan officers to make the appraisal match the contract price, which would increase chances of getting the mortgage loan approved.
The Code of Conduct was adopted last spring by Fannie Mae and Freddie Mac, the government controlled mortgage giants, in settling a New York state attorney general's probe of their appraisal standards.
Realtors and mortgage brokers succeeded in getting language inserted into the House-passed financial-regulation bill to end the new protocols. The measure would direct federal regulators to craft an improved set of rules.
The language, however, didn't make it into the most recent draft being used as a basis for House and Senate negotiations. Lawmakers are expected to turn their attention to the appraisal rules and other mortgage provisions next week.
The new system has been a boon to vendors that specialize in farming out appraisal requests to a network of in-house and independent appraisers. Critics argue that these middlemen have pushed appraisers to do more work in less time, resulting in a cram-down in fees across the industry that is hurting the quality of work.
Appraisers have seen their fees slashed by 60%, according to Bill Garber, chief federal lobbyist for the Appraisal Institute, the industry's main trade group. Mr. Garber contends that a new mortgage-broker licensing law and a myriad of state laws passed in the wake of the housing bust are sufficient to discourage collusion between brokers and appraisers.
"There's now a layer of oversight that didn't exist prior to the Home Valuation Code of Conduct that I think we can build from," he said.
National Association of Mortgage Brokers CEO Roy DeLoach contends that out-of-town appraisers hired by vendors are eating away at homeowner equity through home valuations that aren't credible: "It's basically hollowing out the equity in communities whether you intend to sell or not."
Many of the largest U.S. mortgage lenders, including J.P. Morgan & Co. and Citigroup, own or have stakes in the middleman companies, known as appraisal-management companies.Steve O'Connor, senior vice president of government affairs at the Mortgage Bankers Association, argued that it was sound policy to have a fire wall between the appraiser and the loan underwriter.
His group supports federal oversight of appraisal-management companies. But it also is pushing to cap any fees charged to the companies to fund the regulator at $5,000 annually.
Mortgage lenders are also fighting language in the financial-regulation overhaul bill that would require disclosure to home buyers regarding the share of the appraisal's cost that is going to the appraisal-management company.
Fri, 18 Jun 2010
By Jessica Holzer
The mortgage-broker and real-estate industries are pushing to get a measure that would kill new home-appraisal rules inserted into legislation to overhaul financial-sector regulation.
The Home Valuation Code of Conduct, adopted in May 2009 to ensure appraisers' independence, bars mortgage brokers and bank-loan officers from selecting appraisers. The brokers and Realtors complain the rules have produced low-ball appraisals that have blown up deals, while appraisers say the change has hurt appraisal quality.
Mortgage lenders, on the other hand, are trying to fend off the measure. Several major lenders own or have a stake in companies that have seen a surge in business as a result of the new rules. "We're going to try all we can to keep it out," said John A. Courson , the Mortgage Bankers Association's president and chief executive officer.
Inflated appraisals were widely blamed for helping to fuel the sharp run-up in home prices during the past decade. Before adoption of the new standards, appraisals were typically ordered directly by loan officers or mortgage brokers who worked regularly with the same local appraisers.
Lenders contend that the new standards have ensured that appraisers aren't pressured by loan officers to make the appraisal match the contract price, which would increase chances of getting the mortgage loan approved.
The Code of Conduct was adopted last spring by Fannie Mae and Freddie Mac, the government controlled mortgage giants, in settling a New York state attorney general's probe of their appraisal standards.
Realtors and mortgage brokers succeeded in getting language inserted into the House-passed financial-regulation bill to end the new protocols. The measure would direct federal regulators to craft an improved set of rules.
The language, however, didn't make it into the most recent draft being used as a basis for House and Senate negotiations. Lawmakers are expected to turn their attention to the appraisal rules and other mortgage provisions next week.
The new system has been a boon to vendors that specialize in farming out appraisal requests to a network of in-house and independent appraisers. Critics argue that these middlemen have pushed appraisers to do more work in less time, resulting in a cram-down in fees across the industry that is hurting the quality of work.
Appraisers have seen their fees slashed by 60%, according to Bill Garber, chief federal lobbyist for the Appraisal Institute, the industry's main trade group. Mr. Garber contends that a new mortgage-broker licensing law and a myriad of state laws passed in the wake of the housing bust are sufficient to discourage collusion between brokers and appraisers.
"There's now a layer of oversight that didn't exist prior to the Home Valuation Code of Conduct that I think we can build from," he said.
National Association of Mortgage Brokers CEO Roy DeLoach contends that out-of-town appraisers hired by vendors are eating away at homeowner equity through home valuations that aren't credible: "It's basically hollowing out the equity in communities whether you intend to sell or not."
Many of the largest U.S. mortgage lenders, including J.P. Morgan & Co. and Citigroup, own or have stakes in the middleman companies, known as appraisal-management companies.Steve O'Connor, senior vice president of government affairs at the Mortgage Bankers Association, argued that it was sound policy to have a fire wall between the appraiser and the loan underwriter.
His group supports federal oversight of appraisal-management companies. But it also is pushing to cap any fees charged to the companies to fund the regulator at $5,000 annually.
Mortgage lenders are also fighting language in the financial-regulation overhaul bill that would require disclosure to home buyers regarding the share of the appraisal's cost that is going to the appraisal-management company.
Rate News
Mixed Mortgage Market
Average 30-year 4.75%
June 17, 2010
By SAM GARCIA
Loan activity was lower, refinance share fell and the jumbo spread was wider this week. But adjustable rates were lower and fixed rates were mixed.
The average 30-year fixed-rate mortgage moved 3 basis points higher from last week to 4.75 percent in Freddie Mac's latest weekly survey of 125 mortgage lenders. The 30-year was 5.38 percent one year ago. Freddie forecasts that the 30-year will average 4.9 percent in the second and third quarters then rise to 5.0 percent in the fourth quarter.
The conventional 30-year was 4.763 percent in the Mortech-MortgageDaily.com Mortgage Market Index report for the week ended June 16, lower than the prior week's 4.780 percent. But the jumbo 30-year rose 1 basis point to 5.680 percent, pushing to conventional-jumbo spread to 92 BPS from last week's 89 BPS.
Mortgage rates might fall further based on the yield on the 10-year Treasury bond, which fell to 3.21 percent today from 3.33 percent last Thursday, according to data from the U.S. Department of the Treasury.
However, nearly two-thirds of Bankrate.com panelists for the week June 17 to June 23 predicted mortgage rates will remain within 2 BPS of their current levels during the next week. More than a third predicted an increase and none expected a decline.
Like the 30-year, the 15-year fixed-rate mortgage was 3 BPS higher in Freddie's report, averaging 4.20 percent. The Mortgage Market Index report indicated that the 15-year fell to 4.140 percent from 4.180 percent.
In Freddie's report, the five-year Treasury-indexed hybrid adjustable-rate mortgage improved 3 BPS to 3.89 percent.
A much bigger decline -- 9 BPS -- occurred with the one-year Treasury-indexed ARM, which averaged 3.82 percent in Freddie's survey. The one-year was 4.95 percent a year prior and hasn't been this low since the week ended May 6, 2004, when it averaged 3.76 percent. The secondary lender expects the one-year to average 4.1 percent this quarter then climb to 4.2 percent in the final quarter of this year.
The one-year ARM's index, the yield on the one-year Treasury bill, closed today at 0.28 percent, 6 BPS better than a week prior. The yield on the six-month London Interbank Offered Rate was 0.75 percent yesterday, Bankrate.com reported. LIBOR was unchanged from the prior Wednesday.
ARM share edged up to 5.2 percent from 5.1 percent the prior week in the Mortgage Bankers Association's Weekly Mortgage Applications Survey for the week ended June 11. ARM share rose despite last week's bigger decline in the 30-year.
Mortgage activity declined 6 percent this week, with the Mortgage Market Index coming in at 257, down from 274 seven days earlier. The average U.S. loan amount fell to $211,982 from $215,771 last week. Washington, D.C.'s, $300,066 was the highest average loan amount, and North Dakota's $151,279 was the lowest.
This week, refinance share edged lower in the Mortech-MortgageDaily.com report, with refinances representing just under half of activity, off from half last week. Rate-term refinance share was 35 percent, and cashout refinance share was 14 percent.
Last week, mortgage applications increased 18 percent on a seasonally adjusted basis in MBA's survey. Purchases were up 7 percent, and refinances were 21 percent higher -- pushing the refinance share to 75 percent from the previous week's 72 percent.
Freddie projects the refinance share of applications will be nearly two-thirds this quarter then fall to 45 percent in the third quarter and to one-fourth by next year.
Average 30-year 4.75%
June 17, 2010
By SAM GARCIA
Loan activity was lower, refinance share fell and the jumbo spread was wider this week. But adjustable rates were lower and fixed rates were mixed.
The average 30-year fixed-rate mortgage moved 3 basis points higher from last week to 4.75 percent in Freddie Mac's latest weekly survey of 125 mortgage lenders. The 30-year was 5.38 percent one year ago. Freddie forecasts that the 30-year will average 4.9 percent in the second and third quarters then rise to 5.0 percent in the fourth quarter.
The conventional 30-year was 4.763 percent in the Mortech-MortgageDaily.com Mortgage Market Index report for the week ended June 16, lower than the prior week's 4.780 percent. But the jumbo 30-year rose 1 basis point to 5.680 percent, pushing to conventional-jumbo spread to 92 BPS from last week's 89 BPS.
Mortgage rates might fall further based on the yield on the 10-year Treasury bond, which fell to 3.21 percent today from 3.33 percent last Thursday, according to data from the U.S. Department of the Treasury.
However, nearly two-thirds of Bankrate.com panelists for the week June 17 to June 23 predicted mortgage rates will remain within 2 BPS of their current levels during the next week. More than a third predicted an increase and none expected a decline.
Like the 30-year, the 15-year fixed-rate mortgage was 3 BPS higher in Freddie's report, averaging 4.20 percent. The Mortgage Market Index report indicated that the 15-year fell to 4.140 percent from 4.180 percent.
In Freddie's report, the five-year Treasury-indexed hybrid adjustable-rate mortgage improved 3 BPS to 3.89 percent.
A much bigger decline -- 9 BPS -- occurred with the one-year Treasury-indexed ARM, which averaged 3.82 percent in Freddie's survey. The one-year was 4.95 percent a year prior and hasn't been this low since the week ended May 6, 2004, when it averaged 3.76 percent. The secondary lender expects the one-year to average 4.1 percent this quarter then climb to 4.2 percent in the final quarter of this year.
The one-year ARM's index, the yield on the one-year Treasury bill, closed today at 0.28 percent, 6 BPS better than a week prior. The yield on the six-month London Interbank Offered Rate was 0.75 percent yesterday, Bankrate.com reported. LIBOR was unchanged from the prior Wednesday.
ARM share edged up to 5.2 percent from 5.1 percent the prior week in the Mortgage Bankers Association's Weekly Mortgage Applications Survey for the week ended June 11. ARM share rose despite last week's bigger decline in the 30-year.
Mortgage activity declined 6 percent this week, with the Mortgage Market Index coming in at 257, down from 274 seven days earlier. The average U.S. loan amount fell to $211,982 from $215,771 last week. Washington, D.C.'s, $300,066 was the highest average loan amount, and North Dakota's $151,279 was the lowest.
This week, refinance share edged lower in the Mortech-MortgageDaily.com report, with refinances representing just under half of activity, off from half last week. Rate-term refinance share was 35 percent, and cashout refinance share was 14 percent.
Last week, mortgage applications increased 18 percent on a seasonally adjusted basis in MBA's survey. Purchases were up 7 percent, and refinances were 21 percent higher -- pushing the refinance share to 75 percent from the previous week's 72 percent.
Freddie projects the refinance share of applications will be nearly two-thirds this quarter then fall to 45 percent in the third quarter and to one-fourth by next year.
Friday, June 18, 2010
Mortgage Fraud Rose and Getting Worse
FBI releases fiscal 2009 mortgage fraud report
June 17, 2010
By MortgageDaily.com staff
An annual report from the government indicates mortgage fraud continued to increase last year, is even worse this year and is expected to deteriorate further. Areas of rising concern are schemes tied to reverse mortgages, commercial mortgages and distressed mortgages.
An estimated $14 billion in fraudulent mortgages were originated last year, according to the 2009 Mortgage Fraud Report "Year in Review" from the Federal Bureau of Investigation. Around $7.5 billion of the loans were insured by the Federal Housing Administration, and $6.5 billion were conforming.
The report was prepared by the Financial Crimes Intelligence, Directorate of Intelligence and is designed to help program managers at the FBI's Financial Crimes Section, Criminal Investigative Division, better understand the threat of mortgage fraud as well as identify trends, allocate resources and prioritize investigations.
The report was based on open source reporting and reporting from the government and the mortgage industry. MortgageDaily.com was listed among the sources.
Pending FBI investigations related to mortgage fraud were 2,794, jumping from fiscal 2008's 1,644. First-half 2010 investigations were running at 3,029. Two-thirds of the investigations involved more than $1 million in losses.
Overall mortgage fraud losses climbed to $2.798 billion in fiscal 2009 from $1.491 billion a year earlier. First-half 2010 losses are already at $1.961 billion -- $0.788 billion worse than the same time last year.
The number of FinCEN Suspicious Activity Reports tied to mortgage fraud that were filed by financial institutions were 67,190 during fiscal 2009, climbing from 63,713 the prior year. During the first six months of the current fiscal year, 37,739 SARs were filed -- up from around 33,339 during the same period last year.
But the FBI clarified that the mortgage fraud reported in SARs filings actually happened at varying points prior to the filing. The lag time can be two or more years before the fraud is discovered or reported.
At the Office of Inspector General at the U.S. Department of Housing and Urban development, the number of pending investigation rose 31 percent from fiscal 2008.
"Mortgage fraud perpetrators are industry insiders, including mortgage brokers, lenders, appraisers, underwriters, accountants, real estate agents, settlement attorneys, land developers, investors, builders, and bank and trust account representatives," the report stated. "Perpetrators are also known to recruit ethnic community members as victims and co-conspirators."
The distressed housing market is creating opportunities for mortgage fraud, and schemers are looking to cash in on billions of dollars from federal programs and initiatives resulting from the American Recovery and Reinvestment Act including the Hope for Homeowners Program, the Home Affordable Modification Program and the Home Price Decline Protection Program.
The programs are not transparent, according to the agency, and they lack accountability, oversight and enforcement.
Among the types of mortgage fraud schemes that were prevalent last year were foreclosure rescue, short-sale and loan modification schemes. Short-sale schemes involve a fraudulently low appraisal of the property to encourage the lender to take a bigger discount.
The elevated activity is expected to continue beyond this year.
Also on the FBI's most unwanted list were reverse mortgage schemes -- which the government warns remain a high concern. Reverse players -- including originators, appraisers and real estate agents -- recruit prospective borrowers through channels including church, seminars and advertising. They then steal their equity.
More than $100 billion in losses is projected commercial mortgage fraud by the end of this year. The $6.4 trillion commercial real estate market is getting hit with the same wave of fraud that the residential market experienced over the past few years.
"The same factors that contributed to the increase in residential mortgage fraud -- lax underwriting, lack of quality control, and an inflated market -- are also potentially causing a significant number of commercial real estate loans to fail," the report said.
Debt-elimination schemes are also re-emerging.
California topped the worst states for mortgage fraud during 2009, followed by Florida, Illinois and Arizona. No. 5 was Georgia.
FBI field offices with the most pending investigations last year were Tampa, Los Angeles and New York.
The FBI said that the $25 million authorized annually for FHA includes some funds for reducing fraud. The funding runs from 2009 to 2013 and was the result of recent legislation.
But despite higher credit quality and increased due diligence, mortgage industry insiders claim there is still evidence of significant error rates in loan closures, the FBI cautioned. In addition, concern has risen that new Real Estate Settlement Procedures Act requirements are confusing the very people who must adhere to them.
Current market conditions continue to be fertile for enterprising scammers who exploit loopholes and gaps in mortgage lending.
FBI releases fiscal 2009 mortgage fraud report
June 17, 2010
By MortgageDaily.com staff
An annual report from the government indicates mortgage fraud continued to increase last year, is even worse this year and is expected to deteriorate further. Areas of rising concern are schemes tied to reverse mortgages, commercial mortgages and distressed mortgages.
An estimated $14 billion in fraudulent mortgages were originated last year, according to the 2009 Mortgage Fraud Report "Year in Review" from the Federal Bureau of Investigation. Around $7.5 billion of the loans were insured by the Federal Housing Administration, and $6.5 billion were conforming.
The report was prepared by the Financial Crimes Intelligence, Directorate of Intelligence and is designed to help program managers at the FBI's Financial Crimes Section, Criminal Investigative Division, better understand the threat of mortgage fraud as well as identify trends, allocate resources and prioritize investigations.
The report was based on open source reporting and reporting from the government and the mortgage industry. MortgageDaily.com was listed among the sources.
Pending FBI investigations related to mortgage fraud were 2,794, jumping from fiscal 2008's 1,644. First-half 2010 investigations were running at 3,029. Two-thirds of the investigations involved more than $1 million in losses.
Overall mortgage fraud losses climbed to $2.798 billion in fiscal 2009 from $1.491 billion a year earlier. First-half 2010 losses are already at $1.961 billion -- $0.788 billion worse than the same time last year.
The number of FinCEN Suspicious Activity Reports tied to mortgage fraud that were filed by financial institutions were 67,190 during fiscal 2009, climbing from 63,713 the prior year. During the first six months of the current fiscal year, 37,739 SARs were filed -- up from around 33,339 during the same period last year.
But the FBI clarified that the mortgage fraud reported in SARs filings actually happened at varying points prior to the filing. The lag time can be two or more years before the fraud is discovered or reported.
At the Office of Inspector General at the U.S. Department of Housing and Urban development, the number of pending investigation rose 31 percent from fiscal 2008.
"Mortgage fraud perpetrators are industry insiders, including mortgage brokers, lenders, appraisers, underwriters, accountants, real estate agents, settlement attorneys, land developers, investors, builders, and bank and trust account representatives," the report stated. "Perpetrators are also known to recruit ethnic community members as victims and co-conspirators."
The distressed housing market is creating opportunities for mortgage fraud, and schemers are looking to cash in on billions of dollars from federal programs and initiatives resulting from the American Recovery and Reinvestment Act including the Hope for Homeowners Program, the Home Affordable Modification Program and the Home Price Decline Protection Program.
The programs are not transparent, according to the agency, and they lack accountability, oversight and enforcement.
Among the types of mortgage fraud schemes that were prevalent last year were foreclosure rescue, short-sale and loan modification schemes. Short-sale schemes involve a fraudulently low appraisal of the property to encourage the lender to take a bigger discount.
The elevated activity is expected to continue beyond this year.
Also on the FBI's most unwanted list were reverse mortgage schemes -- which the government warns remain a high concern. Reverse players -- including originators, appraisers and real estate agents -- recruit prospective borrowers through channels including church, seminars and advertising. They then steal their equity.
More than $100 billion in losses is projected commercial mortgage fraud by the end of this year. The $6.4 trillion commercial real estate market is getting hit with the same wave of fraud that the residential market experienced over the past few years.
"The same factors that contributed to the increase in residential mortgage fraud -- lax underwriting, lack of quality control, and an inflated market -- are also potentially causing a significant number of commercial real estate loans to fail," the report said.
Debt-elimination schemes are also re-emerging.
California topped the worst states for mortgage fraud during 2009, followed by Florida, Illinois and Arizona. No. 5 was Georgia.
FBI field offices with the most pending investigations last year were Tampa, Los Angeles and New York.
The FBI said that the $25 million authorized annually for FHA includes some funds for reducing fraud. The funding runs from 2009 to 2013 and was the result of recent legislation.
But despite higher credit quality and increased due diligence, mortgage industry insiders claim there is still evidence of significant error rates in loan closures, the FBI cautioned. In addition, concern has risen that new Real Estate Settlement Procedures Act requirements are confusing the very people who must adhere to them.
Current market conditions continue to be fertile for enterprising scammers who exploit loopholes and gaps in mortgage lending.
Today's Rates
Mortgage Rates
June 18, 2010
Product
Interest RateAPR
Conforming 1and FHA Loans
30-Year Fixed 4.75% 4.94%
30-Year Fixed FHA 4.75% 5.50%
15-Year Fixed 4.125% 4.47%
5-Year ARM 3.75% 3.675%
5-Year ARM FHA 3.25% 3.21%
Larger Loan Amounts in Eligible Areas – Conforming and FHA.1
30-Year Fixed 4.75% 4.886%
30-Year Fixed FHA 4.75% 5.442%
5-Year ARM 3.75% 3.716%
Republicans contend that some of the proposed regulations give Washington too much power over the economy while failing to address issues such as the future of troubled mortgage giants Fannie Mae and Freddie Mac, which were seized by federal regulators in 2008.
"The American economy will once again become the laboratory for another grand Democrat experiment in big government and central management," said Sen. Richard Shelby, R-Ala. "I am afraid that our economy's prognosis is not good unless significant changes are made to this bill."
Senate Banking Committee Chairman Christopher J. Dodd, D-Conn., said his colleagues were determined to withstand what he called a "last-minute lobbying blitz" by the financial industry to water it down.
"This bill, made so strong over the course of the last year, will not be weakened in the last throes of the debate," Dodd vowed.
Although formal proposals will be offered and votes taken in public sessions, much of the decision-making, and deal-making, will take place behind closed doors as House and Senate Democrats hammer out changes.
Congress in recent years has shunned formal conference committees in favor of backroom, ad hoc negotiations that provide more flexibility and less scrutiny. But cracking down on Wall Street is popular with the electorate. And with enough Republican support in the Senate to avoid a filibuster, congressional Democratic leaders opted for a public conference committee process. C-SPAN broadcast Thursday's meeting and has committed to air all the open sessions.
Still, Republicans said Democrats were already maneuvering behind the scenes. They complained that Democratic leaders added 300 pages to the Senate bill without marking the changes and delivered the new 1,974-page product just a couple of hours before Thursday's conference committee session.
"It appears, at this point, that the only facet of this conference that will be public is when the Republicans get our one and only chance to amend what has already been decided by our Democrat colleagues behind closed doors," Shelby said.
The conferees elected House Financial Services Committee Chairman Barney Frank (D-Mass.) as chairman, and he promised that no changes will be made to the bill that are not openly debated and voted on by the conference committee.
The U.S. Chamber of Commerce, which has led the charge against an agency to protect consumers in the financial marketplace, plans to launch an online effort to get businesses to highlight for targeted lawmakers the legislation's effect on creating jobs and obtaining credit.
Meanwhile, Americans for Financial Reform, a coalition of labor, consumer, civil rights and liberal activist groups, had Nobel Prize-winning economist Joseph Stiglitz brief reporters this week on the need for tough new regulation of complex financial derivatives.
Housing Starts Turn Ugly In May
June 11, 2010
By JIM PUZZANGHERA
Los Angeles Times, (MCT)
Housing Starts Turn Ugly in May
Housing starts fell 10% in May to an annualized rate of 593,000 units, far below the expectations of many analysts who were looking for a consensus reading of 648,000. The Commerce Department reported that applications for new building permits, a sign of future activity, also declined, sinking 5.9% to an annual rate of 574,000, the lowest level in a year. Meanwhile, April's numbers were revised downward to 659,000 from 672,000. According to a report by Barclays Capital, "The weakness in housing starts today was driven entirely by single family starts, which fell to 17.2%, to 468,000 from 565,000, completely reversing the 5.6% gain in April." There was some good news: multifamily rose 33% in May to 125,000 from 94,000. Regionally, the decline was concentrated in the South (-21.3%) and the Northeast (-6.3%). Analysts say builders are scaling back their construction plans now that federal tax credits for first-time and certain move-up buyers has expired.
By JIM PUZZANGHERA
Los Angeles Times, (MCT)
Housing Starts Turn Ugly in May
Housing starts fell 10% in May to an annualized rate of 593,000 units, far below the expectations of many analysts who were looking for a consensus reading of 648,000. The Commerce Department reported that applications for new building permits, a sign of future activity, also declined, sinking 5.9% to an annual rate of 574,000, the lowest level in a year. Meanwhile, April's numbers were revised downward to 659,000 from 672,000. According to a report by Barclays Capital, "The weakness in housing starts today was driven entirely by single family starts, which fell to 17.2%, to 468,000 from 565,000, completely reversing the 5.6% gain in April." There was some good news: multifamily rose 33% in May to 125,000 from 94,000. Regionally, the decline was concentrated in the South (-21.3%) and the Northeast (-6.3%). Analysts say builders are scaling back their construction plans now that federal tax credits for first-time and certain move-up buyers has expired.
Thursday, June 17, 2010
Tuesday, June 15, 2010
Google Mortgage Rates
Google is rolling out a new search function that allows consumers to shop and compare mortgage offerings from about 15 participating lenders.
The service, part of its AdWords Comparison Ads initiative, will display rates in specific states where there is matching mortgage coverage from participating lenders. Google’s technology partners in the service include Mortech, Insight Lending Solutions’
PriceMyLoan mortgage price engine, and lead management software firm Leads360. The feature does not require Google visitors to enter any private information during the search.
The service, part of its AdWords Comparison Ads initiative, will display rates in specific states where there is matching mortgage coverage from participating lenders. Google’s technology partners in the service include Mortech, Insight Lending Solutions’
PriceMyLoan mortgage price engine, and lead management software firm Leads360. The feature does not require Google visitors to enter any private information during the search.
How To Select A Loan Officer
Finding Right Loan Officer
Understanding how an originator operates
July 16, 2001
By Mortgage Daily staff
Finding the right loan officer can make the difference between owning the home you want and losing it because you couldn't obtain adequate financing by the closing date. That's because there are many programs for many situations, and a good loan officer knows which program is best for you.
Loan officers are also known as "loan originators," "loan agents" and "sales reps," among other titles. In order to choose a capable loan officer, it is a good idea to know that a loan officer is a salesperson. Some loan officers earn a base salary in addition to bonuses or commissions, and others work on straight commission with no base salary. In either case, the loan officer is responsible for convincing prospective borrowers that he or she can obtain financing under acceptable terms in time for the closing. Loan officers don't generally have any authority to approve loans. However, a good loan officer will usually have a productive relationship with the underwriter -- the person that does have the authority to approve your loan. In any event, the loan officer will often be the primary contact at the mortgage company you choose.
Loan officers can be employed by a lender or a mortgage broker. Working directly with a lender means that you are working with the company that has the authority to approve your loan. A direct lender loan officer is more likely to have a sound understanding of the guidelines and procedures of that specific lender, which can help the transaction process to move more smoothly. However, a loan officer employed by a mortgage broker -- who doesn't actually lend money but can work with many lenders -- usually has access to many different programs. If you are turned down by a direct lender, you will usually have no options. But with a mortgage broker, your loan package can be resubmitted to other lenders that may still approve your application. Because mortgage brokers acquire & service the customer and process much of the paperwork, lenders will give them wholesale pricing. For this reason, it is possible for a mortgage broker to provide terms as competitive as a direct lender. There are even some direct lenders that only accept applications from mortgage brokers and have no loan officers of their own.
In addition to points and fees, loan officers can earn income from yield spread premium. Basically, this means that an interest rate higher than the market rate will earn the loan officer additional fees (about 1 percent of the loan amount for each additional one-third percent in interest rate obtained). For instance, if the market interest rate for a particular day is 7.50 percent, but the loan officer convinces you to accept a rate of 7.875 percent, the loan officer will earn an additional 1 percent of your loan amount.
Mortgage loan applicants will often look to loan officers for guidance about where interest rates are heading. Mortgage rates are closely tied to Treasury securities and are impacted by movements in the bond market. A good loan officer won't necessarily try to predict whether mortgage rates will go up or down, but instead will inform you about your option to lock your interest rate or let it float, and about the risks associated with floating your rate. If you choose not to lock your rate, your loan officer -- knowing that you are unlikely to switch lenders near the closing date -- might have an opportunity to earn more yield spread premium.
Once you do lock your interest rate, you should be able to obtain a written confirmation of the rate lock, including the date it expires. In the case of a mortgage broker, you should obtain a copy of the lock they received from the lender.
Big producing real estate agents will usually only work with dependable, quality loan officers, so these referrals can be quite valuable. Some agents have in-house loan officers. A benefit to this situation is that the real estate broker carrying the license of your agent has a greater interest in seeing the transaction close and may offer some flexibility in commission rates or loan fees. However, a loan officer that is assured of getting the loan because of a strong referral may not always provide the most competitive terms; it is a good practice to compare the closing costs of at least three lenders by obtaining good faith estimates. Let each of the lenders review all of the competing estimates and point out problems they may see. This process will also help you begin to develop a relationship with the loan officer you eventually choose.
Builders often have their own in-house financing. It is not unusual for builders to provide less favorable terms if you use an outside lender. For instance, while some builders will pay for an owner's title policy if you use their in-house mortgage company (which is regularly paid by the sellers in most situations anyway), they won't pay for the policy if you go outside for your loan. You can still use the comparison of competing estimates to determine that the builder's deal is the best one.
A loan officer with many consecutive years' experience has likely been through many situations only encountered with the passage of time. This person also has been able to sustain a living in the mortgage profession, indicating a history of successful closings. While a new loan officer may have the best intentions, there are many variables involved in the mortgage process that can cause favorable terms to worsen or deals to fall through, and experience helps prevent this.
Most mortgage companies now offer instant automated approvals for borrowers with good credit and verifiable income. With an automated approval, not only do you immediately receive confirmation of your loan approval, but you will likely be required to provide far less documentation that traditionally required. Your loan officer should be familiar with these systems to ensure you are not needlessly rejected because of poor data input.
In summary, loan officers are salespeople that are compensated only when your mortgage loan successfully closes. There are advantages and disadvantages to working with a lender versus a broker, and both can provide competitive terms. Loan officers charge fees and earn yield spread premiums, and you should utilize good faith estimate comparisons to determine which mortgage company has the best terms for you, especially when considering a builder's or real estate agent's in-house mortgage company. Finally, much value can usually be associated with many years' experience in mortgage lending.
Understanding how an originator operates
July 16, 2001
By Mortgage Daily staff
Finding the right loan officer can make the difference between owning the home you want and losing it because you couldn't obtain adequate financing by the closing date. That's because there are many programs for many situations, and a good loan officer knows which program is best for you.
Loan officers are also known as "loan originators," "loan agents" and "sales reps," among other titles. In order to choose a capable loan officer, it is a good idea to know that a loan officer is a salesperson. Some loan officers earn a base salary in addition to bonuses or commissions, and others work on straight commission with no base salary. In either case, the loan officer is responsible for convincing prospective borrowers that he or she can obtain financing under acceptable terms in time for the closing. Loan officers don't generally have any authority to approve loans. However, a good loan officer will usually have a productive relationship with the underwriter -- the person that does have the authority to approve your loan. In any event, the loan officer will often be the primary contact at the mortgage company you choose.
Loan officers can be employed by a lender or a mortgage broker. Working directly with a lender means that you are working with the company that has the authority to approve your loan. A direct lender loan officer is more likely to have a sound understanding of the guidelines and procedures of that specific lender, which can help the transaction process to move more smoothly. However, a loan officer employed by a mortgage broker -- who doesn't actually lend money but can work with many lenders -- usually has access to many different programs. If you are turned down by a direct lender, you will usually have no options. But with a mortgage broker, your loan package can be resubmitted to other lenders that may still approve your application. Because mortgage brokers acquire & service the customer and process much of the paperwork, lenders will give them wholesale pricing. For this reason, it is possible for a mortgage broker to provide terms as competitive as a direct lender. There are even some direct lenders that only accept applications from mortgage brokers and have no loan officers of their own.
In addition to points and fees, loan officers can earn income from yield spread premium. Basically, this means that an interest rate higher than the market rate will earn the loan officer additional fees (about 1 percent of the loan amount for each additional one-third percent in interest rate obtained). For instance, if the market interest rate for a particular day is 7.50 percent, but the loan officer convinces you to accept a rate of 7.875 percent, the loan officer will earn an additional 1 percent of your loan amount.
Mortgage loan applicants will often look to loan officers for guidance about where interest rates are heading. Mortgage rates are closely tied to Treasury securities and are impacted by movements in the bond market. A good loan officer won't necessarily try to predict whether mortgage rates will go up or down, but instead will inform you about your option to lock your interest rate or let it float, and about the risks associated with floating your rate. If you choose not to lock your rate, your loan officer -- knowing that you are unlikely to switch lenders near the closing date -- might have an opportunity to earn more yield spread premium.
Once you do lock your interest rate, you should be able to obtain a written confirmation of the rate lock, including the date it expires. In the case of a mortgage broker, you should obtain a copy of the lock they received from the lender.
Big producing real estate agents will usually only work with dependable, quality loan officers, so these referrals can be quite valuable. Some agents have in-house loan officers. A benefit to this situation is that the real estate broker carrying the license of your agent has a greater interest in seeing the transaction close and may offer some flexibility in commission rates or loan fees. However, a loan officer that is assured of getting the loan because of a strong referral may not always provide the most competitive terms; it is a good practice to compare the closing costs of at least three lenders by obtaining good faith estimates. Let each of the lenders review all of the competing estimates and point out problems they may see. This process will also help you begin to develop a relationship with the loan officer you eventually choose.
Builders often have their own in-house financing. It is not unusual for builders to provide less favorable terms if you use an outside lender. For instance, while some builders will pay for an owner's title policy if you use their in-house mortgage company (which is regularly paid by the sellers in most situations anyway), they won't pay for the policy if you go outside for your loan. You can still use the comparison of competing estimates to determine that the builder's deal is the best one.
A loan officer with many consecutive years' experience has likely been through many situations only encountered with the passage of time. This person also has been able to sustain a living in the mortgage profession, indicating a history of successful closings. While a new loan officer may have the best intentions, there are many variables involved in the mortgage process that can cause favorable terms to worsen or deals to fall through, and experience helps prevent this.
Most mortgage companies now offer instant automated approvals for borrowers with good credit and verifiable income. With an automated approval, not only do you immediately receive confirmation of your loan approval, but you will likely be required to provide far less documentation that traditionally required. Your loan officer should be familiar with these systems to ensure you are not needlessly rejected because of poor data input.
In summary, loan officers are salespeople that are compensated only when your mortgage loan successfully closes. There are advantages and disadvantages to working with a lender versus a broker, and both can provide competitive terms. Loan officers charge fees and earn yield spread premiums, and you should utilize good faith estimate comparisons to determine which mortgage company has the best terms for you, especially when considering a builder's or real estate agent's in-house mortgage company. Finally, much value can usually be associated with many years' experience in mortgage lending.
How To Raise Your Credit Score
How to Strengthen Your Credit Score
Secrets to keeping your credit score high
May 17, 2010
By JENNIFER WATERS
MarketWatch, (MCT)
CHICAGO -- A happy consequence of this Great Recession is that Americans are widely expected to be better consumers.
That means we'll only take on loans that we can afford, pay off credit-card debt at the end of each month and sock money away. It also means our credit scores will reach what the industry calls super prime, the top score achievable.
Or will they?
Turns out our scores are not just a reflection of our ability, or lack thereof, to pay on time, but they tell a story of how we run our lives. If there's a blip in that story, say a 30-day late payment, the red flags pop up and all those years of paying dutifully can fall flat quickly.
Much attention has been focused on credit scores during this recession as consumers have struggled to keep up with their mortgage payments and revolving debt. Many consumers -- even those who have long had outstanding credit ratings -- have complained that their scores have fallen as credit-card companies slashed limits and closed inactive cards.
But people shouldn't worry so much about their scores, according to experts. "It's less about the score than it is about the information that's contained in the report," said Steve Katz, senior director of consumer education for TransUnion. "The score is only a reflection of what's in the report."
The most important information in your credit report is your bill-paying history. It bears repeating: Pay your bills on time every single month. A whopping 35 percent of your FICO credit score is tied to that payment history.
Another 30 percent of your score is based on your outstanding debt. Lenders expect you to use credit cards but to do so prudently. If you have three credit cards with a total of $30,000 in available credit, they will look at how much of that you're using. That's called your utilization rate. Don't max those cards out. In fact, don't even come close to it.
Figuring out your utilization rate is easy math. Add up all your outstanding balances and divide by your total credit limit, which should produce a number less than 1. If it hits 1, you're maxed out.
Most credit experts, including the credit bureaus, will advise you to keep your credit utilization under 30 percent of the total limit.
But here's a secret: Make sure you do it for each card. If you exceed that threshold on one card -- say you use 70 percent of that limit but only 10 percent on another card and nothing on a third card -- you're under 30 percent of the total limit, but you'll still get dinged for using so much of the limit on the first card.
How much of your limit you use in any given month can turn the tide on your card. If, for example, you max out your American Express card every month but pay it in full, you can still get slammed for hitting your limit. The credit card companies don't report if you've paid off your card; only how much you spent.
"Whether you pay in full or not is not relevant," said Maxine Sweet, vice president of public education at Experian. "If I charge $5,000 this month, the credit history is not going to know if that $5,000 is part of a longer-term bill or not.
"From a scoring standpoint, what's important is: How does my balance of $5,000 compare to my total credit limit?" she said.
Also, some 15 percent of your score is based on your credit history, which doesn't bode well for college graduates just getting on the bandwagon. But if you've been managing your credit well for a couple decades or more, chances are your numbers are pretty lofty.
But remember this: The higher you climb, the further and faster you fall. If you've been doing a stellar job of managing your credit for 20 or 30 years and one month you miss a payment -- say, you landed in the hospital with a bad leg break -- not only do the red flags go up but the warning sirens go off at full blast. You automatically get put into a much riskier credit category than the neighbor who tends to be a bit late on his monthly payments.
Seems unfair, you say? It's because you're exhibiting uncharacteristic behavior. The system reads that as something is wrong, so wrong that you now might not be able to pay your car loan and the department-store credit card on time.
Craig Watts, public affairs director at FICO, which produces credit scores, described it metaphorically as this: You're the perfect angel of a child during all of grade school and junior high, but then you get to high school and discover partying is not the bad thing your parents said it was. You become so good at it that your angelic history is now mud.
"Your reputation is suddenly skewed heavily to the left," Watts said. "It will take time to restore that pristine reputation. The same thing happens with credit risk and credit score."
The lesson here: Your credit score is your credit reputation.
Here's another thing you probably didn't know: Many banks rely on a proprietary statistic known as the odds-to-score ratio that has more to do with people like you than you alone. It tells lenders what the likelihood is of a 90-day delinquency based on what your score is.
For example, a FICO score of 780 tells a lender that for all the consumers in his marketplace with a score of 780, one out of every 400 will become 90 days late in the next two years, meaning your odds-to-score ratio is 400-to-1. The ratios fall in tandem with the scores.
Your credit scores are also affected, though less so, by your pursuit of new credit. And they are a catch-all of your history.
"Everything in your credit history will have an impact," Sweet said. "A credit score will have many factors and considers every element in the credit history."
When you actively seek new or more credit, your rating gets what's called a "hard inquiry" that pares a few points off your score. When the banks check your credit -- most of them do it every 30 days -- that's considered a "soft inquiry" and won't affect your rating. Same is true for mailers with pre-approved credit lines.
"Don't apply for too much credit in a short period of time," Katz said. "You start to look credit-hungry, and each one of those applications triggers an inquiry. Three or four in a short period of time start to add up."
The type of history you have also shows up in your scores. Banks typically like to see that you have a good track record with revolving credit and installment loans.
"A good mix of credit can be useful to your score, but not so useful that you should open a credit card to get it," Watts cautioned.
Given all this, it might be hard to swallow that credit scores are actually a good thing for consumers. They're discriminatory for sure, but on risk, not on race, age or gender.
"It's the kind of tool that the courts and government have favored because by design it doesn't discriminate in an unpalatable manner," Watts said.
Finally, should you be checking your credit score regularly? The answer is: It depends. There are services you can sign up for that will track even the tiniest of changes to your score, for a fee.
TransUnion's Katz said everyone should know what their score is at all times. "Your accounts are being updated by your creditors every 30 days," he said. "You should know what they contain because it can change."
But Experian's Sweet, who has a regular check on her score, doesn't think it's necessary to be obsessive about it.
"People are chasing their score too much," she said, adding that consumers should spend more time understanding how their credit actions affect their scores. "You have to be educated enough to know what is in your credit report and how it is scored."
FICO's Watts said you should simply be financially fit. "Rather than micro-manage your FICO score, it's way easier to adopt careful management habits," he said.
"If you do that and your score is high, like the upper 700s, you don't have to worry about dings if you close an account and open another one. Who cares?" he said. "Don't worry about the little stuff."
And don't forget the good news: credit scores are salvageable.
"The worse the situation, the longer it's going to be to recover," Watts said. "A bankruptcy or foreclosure will take several years to fix. But the nice thing is your score can recover," he said.
"Bankers have come to respect the fact that people do learn new rules, and that many can go through difficult times and become good borrowers again."
Secrets to keeping your credit score high
May 17, 2010
By JENNIFER WATERS
MarketWatch, (MCT)
CHICAGO -- A happy consequence of this Great Recession is that Americans are widely expected to be better consumers.
That means we'll only take on loans that we can afford, pay off credit-card debt at the end of each month and sock money away. It also means our credit scores will reach what the industry calls super prime, the top score achievable.
Or will they?
Turns out our scores are not just a reflection of our ability, or lack thereof, to pay on time, but they tell a story of how we run our lives. If there's a blip in that story, say a 30-day late payment, the red flags pop up and all those years of paying dutifully can fall flat quickly.
Much attention has been focused on credit scores during this recession as consumers have struggled to keep up with their mortgage payments and revolving debt. Many consumers -- even those who have long had outstanding credit ratings -- have complained that their scores have fallen as credit-card companies slashed limits and closed inactive cards.
But people shouldn't worry so much about their scores, according to experts. "It's less about the score than it is about the information that's contained in the report," said Steve Katz, senior director of consumer education for TransUnion. "The score is only a reflection of what's in the report."
The most important information in your credit report is your bill-paying history. It bears repeating: Pay your bills on time every single month. A whopping 35 percent of your FICO credit score is tied to that payment history.
Another 30 percent of your score is based on your outstanding debt. Lenders expect you to use credit cards but to do so prudently. If you have three credit cards with a total of $30,000 in available credit, they will look at how much of that you're using. That's called your utilization rate. Don't max those cards out. In fact, don't even come close to it.
Figuring out your utilization rate is easy math. Add up all your outstanding balances and divide by your total credit limit, which should produce a number less than 1. If it hits 1, you're maxed out.
Most credit experts, including the credit bureaus, will advise you to keep your credit utilization under 30 percent of the total limit.
But here's a secret: Make sure you do it for each card. If you exceed that threshold on one card -- say you use 70 percent of that limit but only 10 percent on another card and nothing on a third card -- you're under 30 percent of the total limit, but you'll still get dinged for using so much of the limit on the first card.
How much of your limit you use in any given month can turn the tide on your card. If, for example, you max out your American Express card every month but pay it in full, you can still get slammed for hitting your limit. The credit card companies don't report if you've paid off your card; only how much you spent.
"Whether you pay in full or not is not relevant," said Maxine Sweet, vice president of public education at Experian. "If I charge $5,000 this month, the credit history is not going to know if that $5,000 is part of a longer-term bill or not.
"From a scoring standpoint, what's important is: How does my balance of $5,000 compare to my total credit limit?" she said.
Also, some 15 percent of your score is based on your credit history, which doesn't bode well for college graduates just getting on the bandwagon. But if you've been managing your credit well for a couple decades or more, chances are your numbers are pretty lofty.
But remember this: The higher you climb, the further and faster you fall. If you've been doing a stellar job of managing your credit for 20 or 30 years and one month you miss a payment -- say, you landed in the hospital with a bad leg break -- not only do the red flags go up but the warning sirens go off at full blast. You automatically get put into a much riskier credit category than the neighbor who tends to be a bit late on his monthly payments.
Seems unfair, you say? It's because you're exhibiting uncharacteristic behavior. The system reads that as something is wrong, so wrong that you now might not be able to pay your car loan and the department-store credit card on time.
Craig Watts, public affairs director at FICO, which produces credit scores, described it metaphorically as this: You're the perfect angel of a child during all of grade school and junior high, but then you get to high school and discover partying is not the bad thing your parents said it was. You become so good at it that your angelic history is now mud.
"Your reputation is suddenly skewed heavily to the left," Watts said. "It will take time to restore that pristine reputation. The same thing happens with credit risk and credit score."
The lesson here: Your credit score is your credit reputation.
Here's another thing you probably didn't know: Many banks rely on a proprietary statistic known as the odds-to-score ratio that has more to do with people like you than you alone. It tells lenders what the likelihood is of a 90-day delinquency based on what your score is.
For example, a FICO score of 780 tells a lender that for all the consumers in his marketplace with a score of 780, one out of every 400 will become 90 days late in the next two years, meaning your odds-to-score ratio is 400-to-1. The ratios fall in tandem with the scores.
Your credit scores are also affected, though less so, by your pursuit of new credit. And they are a catch-all of your history.
"Everything in your credit history will have an impact," Sweet said. "A credit score will have many factors and considers every element in the credit history."
When you actively seek new or more credit, your rating gets what's called a "hard inquiry" that pares a few points off your score. When the banks check your credit -- most of them do it every 30 days -- that's considered a "soft inquiry" and won't affect your rating. Same is true for mailers with pre-approved credit lines.
"Don't apply for too much credit in a short period of time," Katz said. "You start to look credit-hungry, and each one of those applications triggers an inquiry. Three or four in a short period of time start to add up."
The type of history you have also shows up in your scores. Banks typically like to see that you have a good track record with revolving credit and installment loans.
"A good mix of credit can be useful to your score, but not so useful that you should open a credit card to get it," Watts cautioned.
Given all this, it might be hard to swallow that credit scores are actually a good thing for consumers. They're discriminatory for sure, but on risk, not on race, age or gender.
"It's the kind of tool that the courts and government have favored because by design it doesn't discriminate in an unpalatable manner," Watts said.
Finally, should you be checking your credit score regularly? The answer is: It depends. There are services you can sign up for that will track even the tiniest of changes to your score, for a fee.
TransUnion's Katz said everyone should know what their score is at all times. "Your accounts are being updated by your creditors every 30 days," he said. "You should know what they contain because it can change."
But Experian's Sweet, who has a regular check on her score, doesn't think it's necessary to be obsessive about it.
"People are chasing their score too much," she said, adding that consumers should spend more time understanding how their credit actions affect their scores. "You have to be educated enough to know what is in your credit report and how it is scored."
FICO's Watts said you should simply be financially fit. "Rather than micro-manage your FICO score, it's way easier to adopt careful management habits," he said.
"If you do that and your score is high, like the upper 700s, you don't have to worry about dings if you close an account and open another one. Who cares?" he said. "Don't worry about the little stuff."
And don't forget the good news: credit scores are salvageable.
"The worse the situation, the longer it's going to be to recover," Watts said. "A bankruptcy or foreclosure will take several years to fix. But the nice thing is your score can recover," he said.
"Bankers have come to respect the fact that people do learn new rules, and that many can go through difficult times and become good borrowers again."
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