Best Mortgage Loan :how credit scores related with mortgage rates

admin — Thu, 28 Jan 2010 02:49:36 +0000

Each of the three major credit bureaus, Equifax, Experian and TransUnion, collects data from your lenders about your history of borrowing and paying back credit. They compile that information into your credit report, which any lender can access whenever you apply for a loan. The Fair

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Each of the three major credit bureaus, Equifax, Experian and TransUnion, collects data from your lenders about your history of borrowing and paying back credit. They compile that information into your credit report, which any lender can access whenever you apply for a loan. The Fair Isaac Corp. is the major producer of credit scores. They take the information from those credit reports, apply their own trade-secret formula and, based on the three credit reports, distill three credit scores for you into one score ranging from 300 to 850.A new credit scoring system has been developed by the three major credit bureaus — the VantageScore. Their VantageScore reports are available for .95 each, a fraction of the cost of the FICO score. However, the scores are not a direct substitute for each other and mortgage lenders continue to look at FICO scores when reviewing mortgage applications, so they are the scores a mortgage borrower should buy.Borrowers with high FICO scores — the top tier ranges between 760 and 850 — can expect lenders to offer them lower interest rates and more loan choices. Scores of 620 or lower usually place a borrower in the “subprime” category, and they can expect to be quoted significantly higher interest rates and may be offered fewer varieties of loans. A FICO score of about 500-520 is generally the minimum that will qualify for a mortgage.Fair Isaac’s consumer Web site offers a chart that is updated regularly and shows how your FICO score can affect your interest rate.For example, here’s what a borrower could have expected to be charged in interest for a 0,000 30-year fixed rate mortgage, based on his credit score, according to March 2007 interest rates:How FICO score affects mortgage rates760 to 850 tier5.780%620-659 tier7.096%700-759 tier6.002%580-619 tier8.583%660-699 tier6.286%500-579 tier9.494% advertisementSuch variations in interest rate can add hundreds of dollars to your monthly payment and can make a big difference in the amount of debt for which you can be qualified.Factors beyond credit scoresWhile scores are important, they are not the only thing lenders take into consideration when approving a mortgage. And low scores aren’t insurmountable obstacles, says David Reed, an Austin, Texas-based mortgage broker and author of “Mortgage Confidential: What You Need to Know That Your Lender Won’t Tell You.”"The FICO is one of the factors, not the only one.”

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Best Mortgage Loan :Financial institution debt levels and incentives

admin — Fri, 25 Dec 2009 02:23:11 +0000

Many financial institutions, investment banks in particular, issued large amounts of debt during 2004–2007, and invested the proceeds in mortgage-backed securities (MBS), essentially betting that house prices would continue to rise, and that households would continue to make their

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Many financial institutions, investment banks in particular, issued large amounts of debt during 2004–2007, and invested the proceeds in mortgage-backed securities (MBS), essentially betting that house prices would continue to rise, and that households would continue to make their mortgage payments. Borrowing at a lower interest rate and investing the proceeds at a higher interest rate is a form of financial leverage. This is analogous to an individual taking out a second mortgage on his residence to invest in the stock market. This strategy proved profitable during the housing boom, but resulted in large losses when house prices began to decline and mortgages began to default. Beginning in 2007, financial institutions and individual investors holding MBS also suffered significant losses from mortgage payment defaults and the resulting decline in the value of MBS.[25]A 2004 SEC ruling allowed USA investment banks to issue substantially more debt, which was then used to purchase MBS. Over 2004-07, the top five US investment banks each significantly increased their financial leverage (see diagram), which increased their vulnerability to the declining value of MBSs. These five institutions reported over .1 trillion in debt for fiscal year 2007, about 30% of USA nominal GDP for 2007. Further, the percentage of subprime mortgages originated to total originations increased from below 10% in 2001-2003 to between 18-20% from 2004-2006.[128][129]Three investment banks either went bankrupt (Lehman Brothers) or were sold at fire sale prices to other banks (Bear Stearns and Merrill Lynch) during September 2008. The failure of 3 of the 5 large USA investment banks augmented the instability in the global financial system. The remaining two investment banks, Morgan Stanley and Goldman Sachs, opted to become commercial banks, thereby subjecting themselves to more stringent regulation.[130]The New York State Comptroller’s Office has said that in 2006, Wall Street executives took home bonuses totaling .9 billion. “Wall Street traders were thinking of the bonus at the end of the year, not the long-term health of their firm. The whole system—from mortgage brokers to Wall Street risk managers—seemed tilted toward taking short-term risks while ignoring long-term obligations. The most damning evidence is that most of the people at the top of the banks didn’t really understand how those [investments] worked.”[40]Investment banker incentive compensation was focused on fees generated from assembling financial products, rather than the performance of those products and profits generated over time. Their bonuses were heavily skewed towards cash rather than stock and not subject to “claw-back” (recovery of the bonus from the employee by the firm) in the event the MBS or CDO created did not perform. In addition, the increased risk (in the form of financial leverage) taken by the major investment banks was not adequately factored into the compensation of senior executives.[131]

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Best Mortgage Loan :how credit scores related with mortgage rates

Best Mortgage Loan :Financial institution debt levels and incentives