Posted by Christine Baker on July 28, 1997 at 19:38:16:
In Reply to: Foreclosure removed from credit - Score goes down!!?? posted by Mortgage Broker on July 28, 1997 at 18:10:04:
1) Why lenders only look at Scores
Credit Scoring ONLY looks at credit data, as that's all that is available in a credit file. Underwriters are *supposed* to look at all the other criteria.
While FNMA and FHLMC claim to be encouraging the lenders to "manually" underwrite applicants with low Scores, I have received numerous E-mails from brokers complaining about lenders who decline conforming loans with low Scores without ever looking at supplemental documentation explaining the low Score.
The bottom line:
Lenders don't want underwriters to spend their time THINKING anymore! The cost of loan underwriting is substantially lower when the underwriter simply declines all applicants with low Scores.
Remember, this is all about PROFITS, this is the USA. Money is ALL that counts. Why SHOULD a lender pay underwriters and loan processors an extra $500 to read, analyze and verify 25 documents to ensure the applicant's ability and willingness to repay the loan? To prove that the low Score was the result of incorrect credit reporting?
Most lenders are publicly traded corporations and have a legal obligation to their shareholders to achieve the highest profits legally possible.
When business is slow, they'll look at low Score loans. When they're busy, they don't. As long as that's legal, that's a good business decision.
2) Why Score goes down AFTER removing foreclosure
There could be several reasons why the Score went down after the foreclosure was removed. Without seeing the actual credit reports, I can only guess.
a) Maybe the credit file is now rated by a different Model.
b) At the Fair, Isaac FICO seminar they told us that it didn't make any difference whether a file contained 1 or 5 public records. So if there is a judgment or BK on the credit, removing the foreclosure will have no impact. (I still find this hard to believe, it just makes no sense)
c) By checking the credit to see if the foreclosure was removed, you probably lowered the Score. At the time you obtained the new Score there may have been a number of changes that adversely affected the Score such as balances, new accounts, inquiries etc.
The fact that the Fair, Isaac employees couldn't explain it just proves that AI (Artificial Intelligence) is not always a good thing. At their seminar we got mostly "probably" and "I think so" and "it depends" answers. Credit Scoring is like the out of control Frankenstein monster. The creators can't control or explain the AI.
It's obvious that Fair, Isaac Credit Scoring is anything but fair. But Scoring is lowering the cost of underwriting, increasing the profits of the finance industry.
What are YOU doing to change that? *I* have spent literally thousands of hours researching and disputing credit problems and Scores. I created the BayHouse web site, and now the Forums. My day has only 24 hours.
So YOU please contact your legislators and those unreasonable lenders, PUBLISH the results, post here!