FHA continues push for expanded credit access

by Shelton on September 17th, 2015

filed under Credit Scores

The FHA said that having a more detailed view of the business will encourage lenders to serve eligible underserved borrowers.

This is one more tool to help FHA, lenders, and the public, know exactly who were serving, said Ed Golding, principal deputy assistant secretary for housing. By better understanding FHAs acceptable risk tolerance levels for a variety of credit scores, lenders will have the confidence to lend more broadly and FHA will have more data on how successful those lenders are.

In the announcement, the FHA said the new supplemental performance metric will help FHA lenders see the impact of their business at all ends of the credit spectrum, which will allow lenders to capitalize on the FHAs willingness to insure loans to eligible borrowers with lower credit scores.

According to the FHA, the new metric will be complementary and is available in FHAs Neighborhood Watch Early Warning System, which is now functioning again after being down for several weeks.

The new metric is designed to help mitigate adverse selection of borrowers with certain credit profiles and encourage the extension of homeownership opportunities to underserved segments of the market, the FHA said in an announcement.

When the FHA announced its Blueprint for Access last year, it proposed the Supplemental Performance Metric as a complement to the Compare Ratio, which the FHA currently calculates for all lenders.

The Compare Ratio is geographically based, comparing the rate of early defaults and claims for single-family loans in a geographic area to other mortgagees in the same area.

According to the FHA, the Supplemental Performance Metric responds to lender concerns about the Compare Ratio being a comparison to ones peers rather than to FHAs risk tolerance.

By measuring default rates and claims in three distinct credit bands, the metric compliments the Compare Ratio, providing a more granular, nuanced look at lender performance, with the added benefit of better understanding of who lenders are serving, the FHA said.

The Community Home Lenders Association heralded the FHAs announcement, saying the move should help lenders and borrowers alike.

The Community Home Lenders Association lauds the FHA for moving forward with its Supplemental Performance Metric, said Scott Olson, CHLAs executive director. We believe this will improve access to credit, by removing disincentives for lenders to originate mortgage loans to qualified FHA borrowers with lower FICO scores.

For an in-depth look at other measures lenders are taking to reach underserved borrowers, click here to read a feature on the subject from the August issue of HousingWire Magazine.

Sort out finances before you part

by Shelton on September 17th, 2015

filed under Finances

Most couples today are unaware of how to deal with matters that concern their credit worthiness post-separation.

For those going through a divorce, the legal formalities occupy so much of the mind space that they may easily overlook the implications of their joint financial obligations. For instance, if a couple decides to seek divorce, they will sign all the legal documents it takes to complete the official process.

However, if they overlook the loans they had taken together, it will result in a string of overdue payments, which will impact both their credit scores. This will make it difficult for them to take a new loan in the future.

Settling finances in a hurry can further complicate the situation. However, it is important to sort this out in order to ensure that there are no financial complications when it comes to obtaining credit for either of them in future. It is advisable to approach your lenders and explain the situation clearly. They will educate both the parties of their respective liabilities.

You will not be responsible for any credit obtained by your ex-spouse if it is solely in the latter’s name. However, you will be responsible for any credit or loan taken jointly by both you and your partner.

Managing liabilities, post-divorce, can pose problems. So, here are four things you need to keep in mind to manage your finances better during a divorce.

Evaluate all credit documents

Any action on the part of the ex-spouse can damage the partner’s ability to apply for a fresh loan; this can affect the credit score. This is why it is crucial to evaluate all credit documents, like credit reports and credit scores to check for loans that have been taken individually or jointly by both. The couple should then individually inform their lenders of the situation, and ensure all documents are updated.

Sometimes, the only solution to a joint loan could be to work together to pay off the debt. For instance, in the case of a joint home loan, it may be difficult for just one individual to refinance the entire loan.

Close joint accounts

Often couples overlook the importance of dissolving joint accounts. Even if joint loans have been paid off, future credit transactions of the partner will still be affected by those of the ex-spouse if the joint accounts aren’t closed. This is because lenders share all joint account information or mention the guarantors to the loan for all transactions associated with the person. For example, post-divorce, if the ex-spouse defaults on a loan, it will reflect in the partner’s credit report.

Aim for credit autonomy

Post-divorce, partners will pay their bills separately, which is why it is important to establish credit independence. While small bills can be paid out of your income, big payments will have to be made with the help of loans. It is recommended that individuals keep their credit limit low to ensure they don’t overspend. This will protect their credit health, while also helping to build a good credit history over a period of time.

Re-build credit reports

Post-divorce, it is important to maintain a good credit score through prudent borrowing and timely payments. Pay attention to your bill payments. The financial behaviour of divorced individuals two months after separation is crucial in determining the person’s credit risk and subsequently their credit score.

Along with making vital familial decisions, couples heading for a divorce must give serious thought to the financial issues on hand. While sorting out an individual’s financial profile is vital, it is even more important to pay attention to financial obligations where the couple have signed as joint applicants, or where one of the members has signed as a guarantor. This will ensure neither of the partner’s credit scores is affected.

The writer is Managing Director, Experian Credit Information Company of India Pvt Ltd and Country Manager, Experian India