Saturday, January 19, 2013
Home Locked... under lock & key
Locked... under lock & keyThe markets were moving up, but I wasn't too worried about that. Instead I was worried about locking a rate on a good credit score. Nothing is worse than paying for something I think is fascist and oppressive kinda like federal taxes.
First, let me acknowledged a couple things before getting into the details.
- I negotiate in an adversarial manner, and rarely accept price as advertised
- A lot of information is exchanged during a negotiation, so it's unlikely I can fully capture or express it here
- NVR, or more specifically, Chris, my loan representative, did a great job and is worthy praise, but more on that later.
I'm approaching 30 days to settlement, which the lock rate is generally a little lower, but knowing rates are on a rise, albeit this could be temporary, I knew I would be eligible somewhere between 3.25 and 3.35%. I don't care for buying down points, or any of that funny business, instead I am interested in vanilla, and if I could get that rate, and the deal was at or better than the last Good Faith Estimate they provided me late Nov, then I'd be happy.
Back in August, when I first met with Chris, I was steamed about a couple things. The NVR rate was high, and the closing costs were high, which to me seemed hardly competitive. I was definitely on track to seek alternate lending. Into November, NVR sent me a revised GFE which was substantially better, and reasonably competitive. Based upon that, I abandoned my search, and communicated to NVR my intent to use their lending service.
What a relief!
With online rates, compared to the NVR incentive, it was true I'd be getting a better rate elsewhere, but I also noticed a lackadaisical attitude from other lender reps. It's quite clear, NVR has an obligatory interest in your loan, whereas other lenders may not. Is the additional cost worth the extra convenience? Right now, I say it is, and that's why ultimately I went with NVR. Also, when rates dropped since August, they seemed to compress with NVR's rates. So the difference ended up negligible.
Recently, I contacted NVR to get the lock underway. Part of my rate was predicated upon having a score greater than 740. In August, I was at 737, and we both thought I would naturally rise above this number after the 5 to 6 months, should no derogatory activity occur on my report. Well, I'm here to say, no derogatory information occurred, but my score actually fell to 722!
Here's my issue. The FICO score, the credit bureaus, are profit making machines. Their scoring algorithm is proprietary, like secret sauce. Intellectual property has its place, but if you have an entire nation of mortgage hungry folks, trying to survive, put a roof over their head, or even get a small bite of that American pie, then all that can radically change because some puppeteer alters the algorithm on a whim. The FICO score is a LIE! It's a device everyone uses, and has to use, yet nobody knows how it is actually calculated. If nobody knows, then how can you really believe the FAQ... "How do I increase my credit score?"
In my case, I followed the FAQ to a T, e.g. reduce my revolving credit, keep my credit inquires within a short period of time, yet I was surprised to find out, my score had actually fallen, and it fell a lot. How could this happen? Was it the result of having a mere two additional credit inquiries? In my opinion, shopping around for competitive lenders should increase your score, as it shows you are diligent about your financial picture, and also your aptitude for repayment.
Also, before speaking with NVR, I went out to check my report. I also purchased my score from TransUnion, and Experian. I was already paying Equifax monthly for their score. TransUnion shows I have a score of 840, while Experian shows my score is 864. OK, let me call back NVR and tell them we are good to go. Except, as it turns out, I wasn't good to go. NVR uses CredCo to pull credit scores. When you visit CredCo's site, you get the perception they sell services specifically to mortgage companies and state contradictory claims for their flagship CredScore product.
"The supplemental data featured in the CoreScore credit report is sourced exclusively from the CoreLogic proprietary information databases, the largest and most comprehensive collection of real estate, rental information and public records in the nation"
"Our databases contain nearly 1 billion consumer transaction records covering 99.9 percent of the U.S. population including county, municipal and special tax jurisdictions, landlord/tenant data, payday lending, installment and rent-to-own information, residential properties and liens and consumer-specific bankruptcies, liens and judgments"
"...generates the industry's first "composite” credit score for mortgage origination risk"
"Analysis conducted using a representative sample of loan applications demonstrates that the use of CoreScore can increase the number of loans accepted and new revenue generated"
"and increases new lending opportunities by identifying previously hidden credit behavior that could improve a consumer’s credit profile"
Is CredCo accessing more information about you that will help show you are a trustworthy borrower? Was it their 1 billion transactions that drove us over a cliff back in 2008? Perhaps no one will ever know.
My suspicion is that CredCo does indeed pull credit information from the three repositories, but the score provided is of their own concoction. I suspect it is in their interest to tarnish an average person's credit using a presumed (and bogus) calculated risk. In order to pass on the risk, and generate additional profit, the Fannie Mae LLPA requires adding an additional .25% to a lender's published rate. This effectively passes on the risk to the consumer. In my opinion, risky consumers should pay for their risky behavior. But I am appalled at a widely accepted system, that degrades the ability for consumers to rectify their behavior having no insight into the metrics we are being judged by.
This is fundamentally WRONG!
Even worse, is that when consumers like you, go out to get your credit score with which to make lifetime credit-based decisions, and pay for your score from presumably the same places CredCo gets its information, and then go out into the market to negotiate, you are at a tremendous disadvantage. The information you get from TransUnion, Experian, Equifax, is not the same as the score you get from CredCo. In my case it was radically different. It's impossible to negotiate on misinformation. Based upon claims from the three repositories, that the score they provide you accurately reflects the score lenders use, you should have an understanding of your credit purchasing power. Being deceived by this, and incurring a rather hefty rate increase, consumers like you may be liable for $15,000 or more over the life of the loan.
I'm 40 years old now. If I actually pay off this mortgage at 70, that life-threatening medical problem which might have been covered, may become a financial nightmare sourced at a misinformed decision made 30 years prior. How can anyone make an informed decision when the information is held under lock and key by credit/data collecting corporations who judge your integrity?
While I cannot speak for other people's experience, I've arrived at an awareness that NVR, or more specifically, Chris, is legit! The company operates against a set of rules that permits them to make a modicum profit base upon rates handed to them from the secondary market. They employ CredCo just the same as many other lenders probably do, build a cost/profit model against standards in the mortgage industry, and operate on that. A problem with taking the adversarial approach, something I still think is necessary, is that perceptions can get dinged up along the way. In a previous post, I grilled NVR for their business model, and targeted Chris to some extent. Now that the deal is done, or close to done, I feel I owe him an apology, or better yet, an acknowledgement of praise for doing an excellent job working with me and attending to my concerns. The result of this was that he demonstrated flexibility and a true appreciation for my needs, and as a result, I walked away completely satisfied with my rate, and closing costs. In spite of all that, he's quite a remarkable talent, a veritable walking mortgage calculator. Though I pushed him to the limit, he is one of NVR's finest and any prospective new home goer should be pleased to have him as their loan representative.