New Credit Scoring Model May Help Some Borrowers’ Credit Scores

FICO, formerly Fair, Isaac, & Co. and creators of the ubiquitous credit scoring system, has just released a new credit scoring model, FICO 08. Under the new system, borrowers are less likely to be penalized for one-time delinquencies than in the past. Minor collections (original balances less than $100) and one-time late payments two or more years old will no longer lower your credit scores.

Many borrowers see their credit scores hammered for a collection from a forgotten parking ticket or an uncharacteristic late payment on a credit card. The newest version of the FICO credit scoring model, which is available at all three credit bureaus (Experian, Equifax, and TransUnion), should help those who pose a low credit risk.

“There’s more flexibility with missing a payment,” said Careen Foster, director of global scoring management for FICO. “If you have a more habitual pattern of paying accounts late… you are more likely to get penalized for that.”

However, those consumers whose credit usage is high could see their credit scores drop. Many people who are near or at their credit limits, even though they may pay their bills on time, may see decreases in the credit score. Approaching your credit limit has negatively impacted your credit score with all FICO models, but with FICO 08 the impact may be greater.

FICO 08 will also deal with a practice called piggybacking, which was an attempt to misrepresent your credit history and increase your credit scores. With piggybacking, a person would pay someone who has good credit to allow them to become an authorized user on their credit accounts. By doing this, the other person's good credit would be taken into consideration in determining the credit score, thus falsely increasing their credit score. FICO 08 will determine which people are authorized users by deceptive means, but allow legitimate authorized users to be treated as they always have.

Even though FICO 08 has bee available since July, not all lenders are using the new model. Many lenders are already validating the scoring model within their own systems and some banks, credit unions, and credit card companies have begun using the new model. However, since Fannie Mae & Freddie Mac have not yet authorized use of the new model, many mortgage lenders are not yet using it. Fannie Mae & Freddie Mac are expected to approve the new model by the end of 2009.

Taking Care of Your Credit

Regardless of the scoring model used by the lenders, it is up to you to proactively take care of your credit. See my article from August 2006 about “Understanding Credit Scoring & Credit Repair” which gives tips to help maximize your credit scores and minimize the cost of your credit.

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Existing Home Sales up for 4th Straight Month

According to the National Association of Realtors (NAR), existing home sales increased 7.2% in July from the previous month – the first time home sales have been up for 4 consecutive months in over five years. This also marks the largest monthly increase since they began keeping track in 1999.

There have been several reports over the past 4 four months that suggest that the housing market is beginning to stabilize. Still, the amount of the increase was much higher than anticipated. And, it is the first time since November 2005 that existing home sales are higher than the previous year’s level.

The increase of home sales can be attributed to three main factors: 1) Housing prices are at their most affordable levels since 2003; 2) First-time homebuyers can receive an $8,000 tax credit for purchasing a home by November 30; and 3) mortgage rates remain at historically low levels. Lawrence Yun, NAR’s chief economist said, “The housing market has decisively turned for the better. A combination of first-time buyers taking advantage of the housing stimulus tax credit and greatly improved affordability conditions are contributing to higher sales.”

Even with the good news of the last several months, we are not out of the woods. First-time homebuyers accounted for almost one out of every three home sales in July leaving many people worried about what will happen when the tax credit expires December 1st. Also, nearly one third of home sale were distressed property – short sales, foreclosures, etc. which can continue to drive home prices lower. And, unemployment is still at all time highs which can keep a lid on home sales going forward.

Home Sales in Illinois up a Whopping 61.8%!

According to the Illinois Association of Realtors, home sales in Illinois grew by 61.8% in the 2nd Quarter (Q2) of 2009 from the 1st Quarter (Q1). With the combination of low interest rates, affordable home prices, first-time homebuyer tax credits and a pent-up demand, home sales increased from 17,017 homes in Q1 to 27,531 homes in Q2. These sales figure include single-family homes as wella s condominiums.

While year-over-year sales are still down (-16.4% from Q2 2008), these strong quarterly sales gains suggest that we may finally be working through the huge inventory of unsold homes on the market. The median price for homes was also up from Q1 – Q2. The median home sales price increased 9.6% from $146,000 in Q1 to $160,000 in Q2. Median sales prices are down 16.2% from $190,978 since Q2 2008.

Not only are we seeing monthly and quarterly gains in home sales and median home prices, but we are also seeing a decline in the year-over-year losses.

In the Chicago metropolitan area, which includes Cook; Will; DuPage; DeKalb; Grundy; Kane; Kendall; Lake and McHenry counties, total home sales increases 67.7% to 17,622 homes sold in Q2 from 10,507 homes in Q1. The median sales price increased 7.2% to $210,050 from $187,500. Year-over-year home sales and median home prices were down 15.4% and 19.6%, respectively.

This is another piece of great news for the housing market and the overall economy. But, there is still a long way to go. The First Time Home Buyer Tax Credit, which is responsible for some of the strength in home sales, is only good for first time homebuyers who close on their purchase on or before November 30, 2009. Many in the industry are calling on Congress to extend the FTHB Tax Credit program beyond December 1, 2009 to make sure these gains continue.

For information on home sales by county, click here.

To take advantage of the improving housing market please call me at 708.473.7688 or e-mail me at BarkerLoans@gmail.com!

Recession to End This Quarter?

Most economists and economic forecasters believe the economy will exit the recession this quarter (July – September, 2009). However, many caution that this may be a lackluster recovery.

A survey of 51 economists by Blue Chip Economic Indicators indicates that two-thirds of economists predict a U-Shaped recovery, meaning that while the economy will no longer be shrinking, economic growth will be marginal, if at all. One-sixth of the economists predict a V-shaped recovery (typical after a long, deep recession) with robust growth, and the other one-sixth of economist predict a W-shaped recovery meaning another period of retraction after some growth for the last six months of 2009.

The majority of economists predict that consumer spending will remain low with very low inflation with the Consumer Price Index expected to be up 1.9% for 2010. Unemployment will continue to be a problem through 2010, with many predicting an average unemployment rate of 9.9% for 2010.

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Illinois Home Buyers Can Get a Loan Against the First Time Home Buyer Tax Credit

The Illinois Housing Development Authority (IHDA) has just announced a new program called Home Start. The Home Start program will offer first-time homebuyers (FTHB) a 30-Year FHA Fixed Mortgage and the option to receive a second mortgage to pay for the down payment on the home. This second mortgage would then be repaid when the buyers receive the tax credit when they file their 2009 tax returns next year. Click here for more information on the FTHB Tax Credit.

While the FTHB Tax Credit, which was created by the American Recovery and Reinvestment Act of 2009, is a great program for first time homebuyers, many people were still unable to purchase a home because they lacked the required down payment and were unable to access the tax credit until after they filed their 2009 tax returns.

On May 29, 2009 The Department of Housing and Urban Development (HUD) gave guidance to state housing boards, like IHDA, as to how they could assist these borrowers, who are eligible for the FTHB tax credit, obtain funds for the down payment, closing costs and prepaid expenses. (See my blog post on the tax credit from this past February for more info.)

The Illinois Home Start Advance Loan is a zero-interest loan for up to 3.5% (Maximum $6,000) of the purchase price of the home to be used toward the down payment of the home. In addition to this loan, the buyer must contribute a minimum of 1.0% of the sales price toward the purchase of the home. And receive homebuyer education through a HUD-Certified counselor. Other terms of the loan are:

• Home purchase a mortgage loan must close prior to November 30, 2009.


• A $300 application fee must be paid at closing. Tax advance loan may be used.


• Tax advance loan must be repaid, in full, by June 30, 2010. If it is not repaid by then, the loan becomes a 10-year, fixed-rate, fully-amortizing loan at 0.5% about the rate on the 30-year fixed first mortgage.


• Veterans and active duty service personnel do not need to be first-time home buyers to qualify.

Homebuyers interested in applying for the Illinois Home Start Loan Program should contact me today at (708) 473-7688 or BarkerLoans@gmail.com

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