The subprime biz is over-reacting and so is everybody else.
Look at it this way. If the foreclosure rate for subprime loans is at 4.00 percent then that means four people out of 100 are in foreclosure. At least in some state of foreclosure. People who get behind in their mortgage and miss a couple of payments suddenly get a certified letter from some lawyers somewhere letting them know that they're in the process of being foreclosed upon.
When that letter comes, people sober up and get out of foreclosure by reinstating their note and getting back in good graces with their mortgage company.
But back to those four people. Or more correctly, back to those 96.
People that could have, and should have, qualified for a subprime loan just a couple of months ago now cannot. And it's first timers who are being hit the hardest.
I have a client, or more appropriately maybe "had" a client that had some credit scrapes five years ago. Not small scrapes, but a bankruptcy. A Chapter 7 discharge. Her credit score for purposes of loan approval stood at 618 mainly because of errors on her credit report. Big errors.
Such as she in fact did not have a Chapter 7 discharge but a dismissal. She had filed for a complete bankruptcy but changed her mind. Her filing was dismissed meaning there was no bankruptcy. She had taken care of all but one of her collection accounts and had re-established credit with a current car loan and a couple of credit cards.
But there it was on all three bureaus, a phantom Chapter 7 sure enough. I got a copy of her dismissal and sent it to my credit agency who corrected the error. But too late. At least for now.
First, 618 ain't low. At least it didn't used to be low. In fact, Fannie Mae's successful "My Community" loan program doesn't even have a minimum credit score for first time homebuyers and FHA and VA loans surely don't have a minimum score and they're both doing just fine, thank you very much.
So I called my account rep from a subprime lender I use and told her my story. But before I got too far she said, "Hold it right there, let me kill it before you go any further. Is she an FTB?"
(FTB in lending lingo means First Time Homebuyer.)
"Yes" I said.
"Then I can't do it. FTBs with a score below 640 we won't take."
"Are you nuts?!?" I said. (In a very polite voice, mind you.)
"Nope. The markets don't want first-timers" she said.
"But this is a mistake on her credit report and we're getting it fixed!" I said.
"Fine. Fix it. Call me back. But the market is so paranoid right now that hardly anything is getting approved. More down payment is required, lower debt ratios and better credit. Our guidelines now are probably more strict than government or conventional product."
Now, before all the loan officers out there reading this say "get the credit re-scored" or "run an AUS (Automated Underwriting System)" they should also remember that any AUS with a bankruptcy in the background won't get an automated approval. And a re-score didn't work because of the collection account still outstanding and with recent activity.
Okay, I got side-tracked. Sorry. But back to those four people out of 100 who get foreclosed on. Or more correctly, back to those 96 who don't get foreclosed on yet still take on subprime loans.
Out of 100 people, those four circumstances are keeping those other 96 from getting home loans they truly deserve.
And before you say, "But David, your client shouldn't have filed for bankruptcy or shouldn't have run up her credit cards or shouldn't have gotten divorced and lost her job" then let me ask you these questions:
- "If you are a Realtor and this was your client what would you say/do?"
- "If you are a first time homebuyer and this was you and you lost a chance at your first home, what would you say?"
Hmmm?
I say 96 people are getting screwed because of bad loan decisions by 4 people. I'm still working with this client and by God I'm going to get her a good loan because she wants it, she deserves it and she certainly can afford it.
There. So sue me.
