NextGEN Lenders Can Help Keep Credit Scores Up by 300 Points

It's no wonder that due to the recent Subprime and Alt-A implosion, credit is drying up and borrowers are falling behind on thier mortgage payments. By integrating NextGEN (aka Hard Money) lenders into your product mix can not only provide liquidity to the mortgage industry, but can help strengthen your borrower's credit. Below is a recent article published by the MBA discussion how foreclosures damages credit scores by up to 300 points.


Foreclosures Damage Credit Scores Up to 300 Points
MBA (6/27/2008 ) Murray, Michael
Some borrowers facing foreclosure—who decide to drop a property rather than attempt to work out mortgage repayments—could face credit issues that prevent them from purchasing a home within the next five years, industry experts said."I do believe that people, unfortunately, are making the very poor decision to simply walk from a home thinking that perhaps—maybe too soon—they would simply be able to buy a new home when that is absolutely not correct," said William DiPaolo, managing partner at Cogent Road, San Diego.

Industry experts said foreclosures could drop credit scores from 100-300 points, making it nearly impossible to obtain a mortgage from Fannie Mae, Freddie Mac or FHA anytime soon.
"It's kind of surprising, but it depends on the individual case as to how many points your score will actually drop," said Ron Litt, principal of Ron Litt Consulting, Houston.
Litt said, for example, a borrower with strong credit who was unable to sell an investment property purchased before home values fell, could decide to foreclose on the home rather than rent it out. That borrower could possibly purchase a home in two years, assuming other credit was not damaged during that time.

"There are very high standards for credit these days. As long as a [borrower's] credit is in decent shape, it is good enough to get the loan. The foreclosure is going to have an impact on the score, but as long as the rest of the credit is good enough, the borrower should be okay," Litt said. "Within a year or two, you could probably get a loan for a house depending on your credit. However, you can forget about an FHA loan for about five years."

Litt, however, also said the most damage on the score is not necessarily the foreclosure but the consistency of late payments. After a foreclosure, Litt said a former homeowner could take one to two years to fix up the credit report but, during that time, other losses impacting scores can include liens from second mortgages, unpaid homeowners association dues or unpaid property taxes placed on the credit report."The foreclosure itself, although it's a big thing, it's not an isolated action," Litt said. "It carries alot of subsequent consequences with it that can affect your credit."

DiPaolo said that in today's credit environment, a 60-day late borrower on a home "may as well forget" about receiving a Fannie Mae loan.

"The foreclosure of debt in someone's life is the greatest single indicator of risk a bank can ever have and because of the headlines, it's also now working on the banks—especially Fannie Mae—to look much, much more closely at that foreclosure event," DiPaolo said. "A foreclosure event in someone's life will affect their credit score 200-300 points, in effect blasting anybody—no matter how good your score was before that—out of the ability to qualify for a mortgage. Even at excessive rates, you're just going to have to rent."

DiPaolo said San Diego County represented the third or fourth highest region as an overall percentage of foreclosures, but the percentage of foreclosures compared to loans in the pool was under 1 percent.

"Let's always keep in mind that the vast majority of people are still paying their mortgages on time," DiPaolo said."If it is at all possible to avoid foreclosure, you want to do that," Litt said. "There are other ways to do [avoid it], and it will have an even lesser impact on the credit score than taking the foreclosure route."

As a mortgage broker bringing you this transaction, how do I get paid?

NextGEN financing (aka Hard Money) is no different than conventional financing. It is simple. You bring the company a borrower. They price the loan to you. (Think of yourself as a wholesale buyer.) You price the loan to your client, adding your fees as appropriate. You stay involved in the loan (or not) as you choose and prior to closing, you submit a fee demand to them and they include this in their lender documents for you to be paid directly from escrow. NextGEN (Real Estate Hard Money, Hard Money Lender) lending is on demand and is a great source for you to tap into as a broker.

How fast can private money loans (hard money loans) close?

NextGEN Loans (aka Hard Money) can be closed in as quickly as 3 days, but more typically, you should figure on 10 days. (Keep in mind that it is only with a complete loan submission.) Remember a NextGEN hard money lender will want to take the time to build a relationship with you, so that you can do repeat business and get to know how you work together. Take the time to build this relationship with your NextGEN Lender and you will see the benefits, which can include faster turn around time.

What is a complete loan submission for a Hard Money Lender?

A complete Hard Money Loan typically includes the following. However, it is always best to check directly with the NextGEN Lender (Hard Money Lender) that you are using.
Fax: Submission Form
Fax: 1008/1003
Fax: Credit Report
Fax: Broker Disclosures
Fax: Prelim/Title Commitment
Fax: Signed Borrower Authorization
Fax: Payoff Demands
Email: Appraisal (or current color pictures if no appraisal)
Email: FNMA 3.2 File

Take the time to build a relationship with your Hard Money Lender, NextGEN Lenders know the importance of this relationship and will work with you throughout the entire submission process.