You may have heard that FICO is releasing a new credit scoring model at some point this fall. The new 9.0 model has been hyped to have some major changes expected to help consumers in a big way. Read below to learn more; and specifically about what most aren’t considering.........
The newest FICO model has revised previous versions to now cease penalizing consumers for medical collection issues on their credit reports. This could mean big news for millions of consumers who are victim to the medical industries flawed reporting systems. Consumers caught in this medical collection web will often find their credit scores are significantly impacted in a negative way.
As a result, some aren’t able to qualify for home loans; and others who do qualify take a significant hit to their mortgage rates.
So it would seem this new model will be a Godsend for consumers. It would also appear Realtors and Lenders would benefit since there will be more consumers who can qualify for home purchases based on their new higher scores.
However, what the media hasn't shared with us is that most mortgage lenders don’t even utilize the most recent scoring model in their underwriting process. The fact is Fannie Mae, Freddie Mac and most other financing sources still use FICO scoring models developed almost 10 years ago. They haven’t even adopted the most recent FICO model that came out six years ago. Therefore, what makes us think they will jump to this new model?
There are several reasons why lenders don’t leap to adopt new systems. A change in their scoring model will result in a significant system overhaul, costing lenders a ton of money. The system changes also have to correlate with all the other disclosure requirements of the government. Therefore the cost and logistical nightmare likely won’t be worth the benefit of helping a few extra consumers. Unfortunately, banks have to be profitable, so their agenda would take precedence before the consumers’ needs.
HOW YOU CAN USE THIS:
Educate your buyers who are sitting on the fence, waiting for this prospective change to revolutionize their credit situation. It likely isn’t going to happen! So they might as well do whatever else they can to accomplish their dream of purchasing a new home.
We have spent over 10 years analyzing the credit scoring system. We may have other ways to bump up your clients’ credit scores to help them through the home buying process.
Every situation is unique...we’re happy to help!
NOTE: this new model is likely to take effect more immediately with consumer & revolving reports. These entities are faster to act with their adoption systems.