2008-03-28

790s Credit Score Barely Enough In Today’s Loan Market?

This was originally a guest post at Free Money Finance, one of the great and leading personal-finance blogs. Please check it out where and how it was originally published, on March 26, 2008, by clicking on this link: 790s Credit Score Barely Enough In Today’s Loan Market? The discussion in the comments there are well worth the click! Also, please do visit Free Money Finance, early, often, and repeatedly.

Banks are falling, the Fed is jumping in aggressively, and the bigger players are acquiring the most distressed ones for pennies on the dollar. And the rumor went something like this: some lending institutions are going to start pulling home-equity lines of credit (HELOCs). I understood this to mean not letting people draw down on their existing equity lines.

It’s just a rumor, though it was passed on to me by a mortgage broker. As rumors are prone to do, it’s probably evolved in my head, and I’ve probably misremembered some part of it. And at the end of the day, I have nothing at which to point that shows it’s anything but a rumor.

But I can tell you that it has been much harder for my wife and I to redo one of our HELOCs than I ever thought it would be. We’re undertaking a big landscaping project, and we wanted to increase the available credit—both to finance the project and to give ourselves some cushion for emergencies. So we asked our bank to increase the line by $80K.

Granted, that’s a chunk of change. But my wife’s and my credit is excellent. The last time we checked, our credit scores were in the high 790s. (She’s competitive about most everything, and her 799 or whatever was admittedly higher than mine....) We don’t have any non-mortgage debt, our income is strong, and we have a long history with this bank—maybe 18 years. And we have more assets with this bank (savings and brokerage) than the $80K we were requesting.

The first troubling sign was that the bank did not have its own act together. Apparently, it was changing its policies faster than its own people could keep up! The person who took our application on the phone said we could and should apply for credit up to 85% of the value of our house.

A day later, the online status said we’d been denied.

After some mild panic, and several telephone calls, I figured out that the bank was now only approving lines up to 80% of value. Lowering our request put us back in play. Still, the bank then made us put in a full application for a new HELOC, rather than an increase. This also meant we had to provide full back-up documentation on our income and finances—as if the bank knew nothing about us. Five weeks later, we’ve finally been “conditionally approved.” Hopefully, we’ll be able to close on this soon, but I’m not counting any chickens.

And this was just for an equity line. It sounds like it is that much harder to get a new jumbo mortgage. A recent CNN/Money article suggests as much:

“Even if you have good credit, you don't know if they are going to give you a loan or not,” said Joseph Mason, a senior fellow at the Wharton School of the University of Pennsylvania.

I have to think—or maybe just really want to think—that folks with good credit and financials will still be able to get mortgages and HELOCs at the end of the day. This may be true, but that same CNN/Money article reports borrowers will have to do more to get them:

Borrowers must also put more money down, especially if they don't have stellar credit. For instance, those with down payments of less than 5% need a credit score of at least 680, said Steven Plaisance, executive vice president of Arvest Mortgage Co. in Tulsa, Ok. Previously, he could make loans to people without big down payments if they had other strong points, such as stable employment.

Who is out there applying for mortgages, and what have your experiences been?


Thanks again to FMF and the
Free Money Finance blog!

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