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Will new FICO scores set consumers up for a fall?

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Mortgage Professional America | 11 Aug 2014, 08:46 AM Agree 0
The announcement Friday that FICO would revamp the way it calculates credit scores was hailed by industry pros as good news for home ownership. But could the change actually be setting consumers up to fail?
  • Michael Llewellyn | | 11 Aug 2014, 09:43 AM Agree 0
    Somebody needs to introduce Ron Garver to the real world of mortgage lending. As a mortgage broker for 37 years, I can assure you that this is a great move. Until now consumers have been unfairly punished by the double whammy of an overly punitive credit rating system related to collection accounts and the GSE's LLPA structure. In almost every circumstance where we have dealt with collection accounts, the client was either unaware of the collection account and in most cases would have been willing to pay the account if they had been notified, or they had been sent to collection for money they did not owe. And we're not just talking a 25 point hit - a $50 medical collection account can lower someone's scores 85 points. The system is unfair and biased towards trying to extort people to pay collection accounts. The lower credit score didn't mean they couldn't get a mortgage, it just meant that they had to pay ridiculously higher rates or fees to get it, punishing them unfairly. Poor payment history on debts, high credit card balances, and unpaid installment accounts are all indicators of a poor credit risk - a $75 collection account from some long-ago utility company does not make one a high credit risk. So, here's the reality Ron - it's not clients with a whole bunch of collection accounts that present the problem, it's the consumer punished for having one or two small collection accounts that is.

    Great long overdue change!
  • kklovestheravens | | 11 Aug 2014, 11:01 AM Agree 0
    100% Agree Michael! Perfectly said!!
  • Gordon Schlicke | | 11 Aug 2014, 11:44 AM Agree 0
    This was a good move: Under most medical plans, a doctor has one year in which to send his bill to the insurer (this allows them to have greater control over their cash-flow). But a lot can happen in the lives of consumers over a one-year period. This has contributed to medical bill difficulties but the medics don't want it changed (can you blame them?). The other contributing factor was that medical codes are not transparent to consumers. If the office coder chooses the wrong billing code the bill won't get paid. And you may not know about this for months. Credit reporters don't drill down this far, thus the ratings suffer. The only way I could clear up my case was to challenge the insurer, prepare and attend a hearing; and get it resolved. The last to know is the credit reporter.
  • | | 11 Aug 2014, 12:41 PM Agree 0
    Fannie and Freddy have yet to upgrade even to FICO 8 and are still running on earlier versions. This is apparently why over half of all lenders haven't upgraded either. What are the odds of all or even most lenders switching up to FICO 9?
  • Michael Angel Giordani | | 15 Aug 2014, 11:06 AM Agree 0
    I agree with Michael someone should teach this guy some manners. The unfortunate lower fico public has been raped over the years and making some lenders real $ happy. It's about time for these folks be given an opportunity to be treated equal, and not be looked at, as points or deep pockets to mortgage sharks.
  • SBHarkness | | 25 Aug 2014, 06:39 PM Agree 0
    Who is Ron Garver? I ask this in all due respect ...because he is just flat wrong in this instance. He is embarrassing himself and the company he is representing. As a twenty one year plus licensed mortgage professional/NMLS # 140972 (yes, being licensed verses being just registered matters). Especially, if for example you want the correct information. I think it probably has something to do with all the educational requirements but that's a different story in itself. In addition there would be a far greater increase than the 25 points mentioned in this article. Numerous times I have seen a collection pop up at the last minute for something as small as $20.00. The consumers FICO score takes an immediate hit of up to eighty to one hundred points depending upon which of the three bureau's is being used. Please, check your facts before making these comments. Side note, I have enjoyed Gordon Schlickes writings over the years and even as long as I have been in the business I often learn something new as I did in his above comment.
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