If your credit score is sagging, the sad truth is you probably won’t get a mortgage loan this year, or in the near future.
Lenders are running scared these days, facing huge losses as one in 171 households fell into foreclosure during the second quarter of this year. That’s up 121% from last year – a whopping 739,714 homes in all. And that’s just for the period from April through June of 2008.
And, while the President just signed a bill authorizing the Treasury department to rescue Fannie Mae and Freddie Mac, the original lenders will be taking a hit. The new legislation is aimed at refinancing loans that are in trouble, and giving Fannie Mae and Freddie Mac Federal insurance against future losses, but will require the original lenders to reduce the principal on those loans.
The outcome of this legislation remains to be seen, but taxpayers have a right to be outraged. This law retains the hybrid nature of the mortgage finance giants, which are private companies with publicly traded stock, but which now have an explicit guarantee of help from the government — an arrangement that critics say privatizes the profits but socializes the risk and any losses.
Many believe that the current crisis is the result of aggressive loan programs. When lenders qualified new homeowners based on deceptively low introductory rates, it was a recipe for failure. Some ethical mortgage lenders refused to take part, while others counted their commission checks and laughed all the way to the bank.
As those rates jumped from 1.99% – or even 0.99% – to 6 or 7or even 8 percent, payments doubled, or even tripled. Meanwhile, wages did not.
Add in the current fuel prices, and it’s no wonder that sub-prime borrowers are losing their homes – and no wonder that lenders have suddenly realized that giving credit to people who can’t pay isn’t such a good idea.
What all this means to you – aside from the fact that the national debt level has just been increased by $800 Billion – is that your credit score is more important than ever. If you plan to get a mortgage loan any time in the near future, your best plan is start working to raise that FICO score to the highest possible level.
Step one is to get your free credit report, right here at creditscorequick.com. Read it carefully so you know your starting point, and then get to work on making it as good as it can be.
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