Mortgage lenders assure consumers that their FICO score is just one of several financial markers that will be used to determine whether or not they'll be approved for a mortgage loan. But the cold reality is that consumers with FICO scores that don't cut the mustard won't get a loan.
Few credit analysts would disagree that mortgage underwriting standards were almost criminally lax before the housing bubble burst. But in the post-recession economy, many people working in the credit industry, including a growing number of independent mortgage brokers, feel that banks and other major mortgage providers have overcompensated, becoming too restrictive and inflexible in evaluating mortgage loan applicants. At the crux of their complaint are charges that, despite assurances to the contrary, major players in the mortgage industry are basing loan decisions strictly on FICO credit scores, often unfairly.
A frustrated board member of the National Association of Mortgage Brokers complained to The New York Timesabout the practice, charging that over-reliance on FICO scores is disqualifying many mortgage applicants from obtaining loans. In a July 22, 2010 online article, Deb Killian, co-owner of Charter Oak Lending Group in Danbury, Connecticut, told the Times she receives daily notices from banks and lenders indicating that a customer's credit score has been the primary determining factor in the approval or denial of a mortgage loan.
With 15 years experience as a mortgage broker, Killian has noticed not only an increase in the minimum FICO score needed to obtain a mortgage but a disturbing trend among mortgage lenders to consider a certain FICO score a line in the sand that can't be crossed. In other words, mortgage applicants who don't exhibit the proper FICO score - generally a minimum of 700 these days - are categorically refused. Other factors that might present a more accurate picture of an applicant's ability to repay a loan, such as amount of home equity, ratio of debt to income, job stability and cash reserves, are ignored if the applicant's FICO score comes up short.
Critics call the mortgage industry's over-reliance on FICO scores shortsighted and charge it with slowing economic recovery. The bottom line is that consumers pay the price. When their FICO score doesn't meet lending standards, nothing short of expert help from a credit repair professionalcan help a consumer cross that arbitary line in the sand.
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