There is one loophole that is easy to exploit in the new rules. 15-year mortgages are not affected by the fee hikes…
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that is a plus - we had 15 year mortgages and it was great to pay off so young!
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Since no one seems to have looked at the new LLPA tables, they still show higher cost for low credit scores than for higher credit scores, but the difference is not as great as in the old tables.
For high credit scores, the new ones have lower LLPA for 70% LTV, but higher for 80% LTV, compared to the old ones. The new ones (but not the old ones) oddly have declining LLPA for >80% LTV without obvious explanation – it seems unclear why or if that is mistake in the table.
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This looks very similar to the changes passed in DC last year. I didn’t realize they planned to escalate this stuff to the whole country.
Last year, I sold a piece of property under the new rules to a non-advantaged buyer and the deal almost fell apart right before settlement. It was the first deal that my realtor had done under these rules. The underwriters had to escalate approval up a level to get the deal done. They were only motivated to do this at the time because interest rates were about to start increasing. They rammed it through before the second hike. I’ve written about it in other threads.
I wonder if this is how they plan to put downward pressure on home prices nationally.
In my old neighborhood, it had the effect of drying up nearly all the inventory in the zip code. Zillow has priced in a 5% decline since that time. In the city, it was coupled with a grant program for minority buyers. I don’t have access to the data on whether it made a measurable difference with their goals of increasing minority homeownership.
I did find this:
This is nothing new to this generation. Credit ratings have never really reflected credit health. I now have no debt, which paradoxically gives me a lower rating than when I still had a mortgage and car payments.
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In your case, if you have paid off all of your debt and closed all of your credit accounts, your score will actually go to zero. That has always been true, not these rule changes. It’s a measure of how likely you are to pay back the money that you borrow, not ‘credit health’. Here’s an explanation of how credit scores are calculated.
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I haven’t had a mortgage in many years. My Fico report each month indicates as a negative “Lack of recent installment loan information”. However, with my credit cards (which I pay off completely each month), I have a 820 credit rating.
Same is true for my daughter (29). She has never had a loan of any kind (no student loan or mortgage.) Her monthly reports also say no loan information, but she is hovering around 825. (higher than mine by a few points, which I don’t understand)
I am not especially familiar with different types of mortgages as when we have had mortgages, we have always had directly from a bank (or credit union) mortgages rather than any government programs e.g. VA, FHA.
Are these pricing changes only affecting those borrowing through government programs or is it also for private mortgages? I tried to figure that out from both articles, but I suspect I don’t have the background knowledge to interpret some of the quotes directly. Sometimes they seem to be talking about only government programs, but other times they make it seem like it is going to affect everyone. Can anyone clarify for me? We have to move again directly after S23 graduates and sell this house, so it would be good to have an idea what this means for our potential buyers.
Thanks.
Then you do have revolving debt that you pay off each month. That does keep your credit score high. I do the same thing for the same reason. I’m glad to hear that paying off the mortgage doesn’t have much of an impact on that. I’m sitting a little higher than you with FICO but I have about 10% left on my mortgage.
The only reason I keep the revolving interest free debt is in case I decide to take out another conventional mortgage again when buying a single family house, which I hope to do one day.
We still have several credit cards open and have at all times. We pay them off every month which they treat as worse than carrying interest. Not sure why that makes us “less likely to pay back money that we borrow.”
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I do that, too, and have noticed that, but the drop is very low- like 15 points from the perfect score. It has no impact on your ability to use your credit to take out new loans. The cutoffs are usually in the 780-790 range for the traditionally best loan terms.
This rule change looks to have the most impact on people in the 680-760 neighborhood. Of course, like AOs, loan officers look at other things in addition to your credit score when determining whether or not to approve your loan.
About 60% of all mortgages in the US originate with Fannie Mae and Freddie Mac. They are considered federally-backed home mortgage companies. They are not technically government agencies but they originate all federal program home loans (not sure about VA). (According to the Urban Institute)
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My score varies from 774-810 depending on the month with no change in credit history. Presumably that simply reflects the intra-month balance before it is paid in full that month, and never is material.
Doesn’t worry me is I have no need for new credit, and could easily secure it if I did. I just don’t find it a particularly valid measure of anything. I understand its used, I just don’t think it actually is a valid measurement.
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Back to the housing topic, I did find an article (published by the Urban Institute) that defends this rule change by explaining that people who put more than 15% but less than 25% down on a home loan are at greater risk of defaulting and that the lenders have to assume that risk because borrowers can drop PMI at 80% LTV, which is true. Interesting.
US News is reporting (as of January 23) that foreclosures are down from 2019, so this line of reasoning does not obviously make sense from a risk management standpoint unless the fee increase is in anticipation of an increase in foreclosures in this group of borrowers in the near future.
Note that your credit report is also checked when you rent an apartment. They want to make sure you pay your monthly rent. In a competitive market, a higher credit score may win you an apartment over somebody with a lower one.
We recently rented in a 55+ apartment building. We have no income now to speak of (retired but not yet collecting SS). We supplied bank statements with our application and had no problem getting approved.
My daughter last year applied for an apartment. They did a hard credit search and denied her application (somebody had been there before her, not sure why they even did her report when they knew they already had an approved applicant). It dinged her FICO score by around 15 points.
That actually makes no sense.
Moreover, if the government was supposedly “redistributing wealth”, the income inequality of the USA would not be on an upwards trajectory since the 1970s. Since then, wealthy have been getting wealthier, and the poor are getting poorer, while the middle class is disappearing.
The only redistribution of wealth that is going pon, is taking the increased productivity of Americans who work for a salary, and siphoning all of that extra productivity into wealth for the very wealthiest Americans.
Since 1980, productivity has grown 64%, while median hourly pay has increased 17%. The gains of most of that increase in productivity have gone to the very wealthiest
So yes, the USA has been engaged in wealth redistribution for decades - the wealth created by the lower and middle classes has been redistributed into the pockets of the wealthiest.
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Are you talking about income inequality or wealth inequality? You seem to be using the terms interchangeably.
And, when you are talking about income equality, are you talking about inequality before or after taxes and transfers are taken into account?
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I was actually talking about both. High levels of income inequality increase wealth inequality and vice versa.
According to the Congressional budget office, income inequality has increased since 1979, and wealth inequality even more so.
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From the first link you posted:
The degree to which transfers and taxes reduced income inequality increased over that same period [1979 to 2019].
The government has at least been somewhat effective in its redistribution efforts.
Not very creative or very effective, IMO. If there were a Gini Coefficient of around 0.35, that would indicate that it was effective. A more effective estate tax would put the Gini coefficient for wealth at below 0.8, where is should be.
I would, however, like to point out that the major transfer that increased in those years was Medicaid. Medicaid cannot be used to pay rent or food, get your car repaired or anything. yet it now makes up 40% of the transfers to low income families (from 10% in 1979).
This is likely because healthcare costs have skyrocketed. So a low income family which is making $15,000 a year is getting another $12,000 from Governmental sources.
Except they are not.
They’re getting $7,200, while the rest is paying for the skyrocketing healthcare costs, driven by corporate greed, and even more by health insurance corporate greed.
So the Gini coefficient that is being calculated there, supposedly after transfers, is fake. It should be calculated after taking off most the money that goes into medicare.
Of course the increased healthcare costs have meant unbelievable profits for various pharma and medical equipment corporations, not to mention the health insurance companies, most of which goes for pay raises and bonuses for high executives, but hey, we are talking about wealth redistribution, right?
The very wealthy get their cut from everything, even the transfers…
https://www.axios.com/2023/03/01/medicare-advantage-returns-insurers
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