Despite the fact that mortgage rates are at historic lows and prices have remained relatively stagnant throughout the year, the market hasn’t been where we had expected by this point in the year.
Why? Affordability continues to drive potential buyers out of the market. Just recently though, good news has emerged for agents and brokers nationwide, as a recent FICO changes could make it easier for millions of Americans with credit blemishes to get loans at lower rates, improving affordability and increasing the number of buyers on the market.
The nation’s dominant credit-scoring system is being revised in a way that could save consumers nationwide billions of dollars, especially in qualifying for mortgages, auto loans and credit cards at lower interest rates. The changes to FICO criteria are aimed at reducing the negative effect of overdue medical bills and at removing the penalties to consumers who pay off debts that had been assigned to collection agencies. The revisions, to take effect this fall, will alter the formulas used to generate the credit grades used in more than 90% of the decisions that lenders make about how much consumers can borrow and at what interest rates.
Experts cautioned that borrowers might have to wait a year or more to see the effect of changes because lenders will not quickly overhaul their systems to evaluate consumers and price loans for them. What’s more, the effect on the housing market, a major key to economic growth, is likely to be muted. Analysts said change would be seen more rapidly in auto loans and credit cards than in mortgages.
“These are not changes that are going to turn on a fire hose of new loan applications any time soon,” said Greg McBride, chief analyst at consumer financial website Bankrate.com. “For a lot of people, it’s not so much going to be the difference between being approved and denied as it is the terms on which you are approved.”
Regardless of the immediate impact, this will likely be a welcomed change for homebuyers.
Do you think this new FICO criteria will help boost the RE market here in California? What are your thoughts?
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