It is a very good question to ask how much your credit history was affected and by how much your credit score came down during the economic distress that followed housing slump. Whether the credit score didn’t come down at all or whether it came down by more than 100 points is a question that is potentially affecting millions of home buyers who are hoping that they would qualify for the mortgages. The same is the case with current home owners who are looking for refinancing. In fact, research from a company that evaluates credit risk shows that the drops in the credit scores of people is quite dramatic.
FICO, once known as Fair Isaac Corp. that developed eponymous scores dominating the mortgage arena discovered in 2008-2009 that close to 50 million people witnessed a slump in their scores by at least 20 points. Looking further, a whopping 21 million of these saw a drop of more than 50 points including millions who lost more than 100 points largely because of delinquencies. Around the same time, investors started getting stricter as far as acceptable scores are concerned, introducing preferential fees and lower rates for those applicants who have the best credit scores.
In fact, the credit scores have touched a record 760 for two of the most dominant home loan investors including Fannie Mae, the government run organisation. This works well for these companies but not for those who are looking for home loans but do not have such an impressive credit score. Even new mortgages which were traditionally the fail safe option for those purchasing a home for the first time need credit scores touching 700. This covers those with modest incomes and credit scores which are not as impressive.
This is drastically different from what was the case way back in 2004-2006 when a modest credit score of 620 – 640 was more than sufficient to get you a good rate for mortgage. In fact, FICO scores as low as in the mid-500 range were usually approved back then. Those home owners who were in the high 700s’ earlier but have lost more than 100 points are those who are suffering the most. The slump in scores is as a result of falling behind on the mortgage payments. A negotiation of short sale with the bank could have resulted in a drop as big as 160 points.
