Posted 07/07/2017

by Gina Pogol

Gina Pogol writes about personal finance, credit, mortgages and real estate. She loves helping consumers understand complex and intimidating topics. She can be reached on Twitter at @GinaPogol.

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Judgments? Liens? New Guidelines May Help You Qualify For A Home Loan

mortgage application judgments liens

Gina Pogol

The Mortgage Reports Contributor

You Might Qualify For A Home Loan, Even With Judgments Or Liens

Changes in the way the three major credit bureaus treat certain derogatory items can add points to your FICO score and help you qualify for a home loan.

Verify your new rate (Jun 21st, 2018)

Many Public Records Won’t Count Against You

Equifax, TransUnion and Experian will exclude many tax liens and civil judgments from credit reports. That is because there have been too many mistakes in public record data, hurting consumer’ ability to get mortgages and other credit.

To be included in your credit report and score, a public record must be complete. That means it must have:

  • Name
  • Address
  • Date of birth OR Social Security number

This change is the result of a suit against the Nationwide Credit Reporting Agencies (NCRA). The NCRA settled with over 30 state Attorneys General, agreeing to purge most of the public data currently on file.

Use Rapid Rescore To Qualify For A Mortgage

Purge Will Affect Nearly All Lawsuits

During July and August of 2017, the three major credit bureaus will eliminate about half of all tax lien data and 96 percent of civil judgments data from their credit reports.

The questionable validity of the data is behind the change. According to a Federal Trade Commission study, twenty percent of consumers have at least one mistake on one of their three credit reports.

That causes innocent people to pay more for financing or be denied credit altogether.

This change is great for those who would be denied loans because of incorrect public records. However, it could have unintended consequences.

5 Common Questions From FHA Borrowers With Credit Problems

Added Risk For Mortgage Lenders

The downside is that leaving out correctly-reported judgments and liens can make business riskier for mortgage lenders.

According to LexisNexis® Risk Solutions, borrowers with a legitimate lien or judgment are statistically twice as likely to default.

Hiding that information from mortgage lenders could cause more foreclosures and make home loans more expensive for all.

Boomerang Buyers Can Get A Mortgage After A Deed In Lieu Of Foreclosure

Millions Affected

About 11 percent of Americans (24,200,000 people) have liens or civil judgments against them. According to a study by credit rating firm Fair Isaac Corp. (FICO), removing a lien or judgment can add 20 points to a FICO score instantly.

That 20 points can be the difference between a 600 score that does not qualify for Fannie Mae or Freddie Mac mortgages to a 620 score, which does.

Mortgage Shopping With A 640 Credit Score

Lenders Fighting For Borrowers

When millions of homeowners are refinancing into lower rates, mortgage lenders can afford to be picky. But when mortgage rates rise, the flood of applicants dries up. Lenders have historically relaxed their guidelines to bring in business when this occurs.

A CNBC report says that the FICO change is not the only loan approval issue in play, and that mortgage lenders will probably remove other obstacles to loan approval.

How Mortgage Lenders Make Your Rate Quote

The latest Fannie Mae lender study backs this up. It concluded that easing credit standards might result from increased competition for fewer borrowers.

“For the third consecutive quarter, the share of lenders expecting a decrease in profit margin over the next three months exceeded the share with a positive profit margin outlook. For the former, the percentage citing competition from other lenders as a reason for their negative outlook reached a survey high,” wrote Doug Duncan, Fannie Mae’s Chief Economist.

What Are Today’s Mortgage Rates?

The changes, which will occur over the next two months, have not yet impacted mortgage rates. Home loans are still highly affordable, although they are trending upward. Add that to increasing home prices and you have some urgency here. It’s probably better to buy now than later.

Verify your new rate (Jun 21st, 2018)


Gina Pogol

The Mortgage Reports Contributor

Gina Pogol writes about personal finance, credit, mortgages and real estate. She loves helping consumers understand complex and intimidating topics. She can be reached on Twitter at @GinaPogol.

The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.

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2018 Conforming, FHA, & VA Loan Limits

Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)