Loan Officer Training - 10/30/24 - Unlocking Borrower Potential: Exploring Credit Rescore

In this insightful episode of Loan Officer Training, we delve into the powerful world of credit rescores and how they can unlock new opportunities for your borrowers. Credit scores play a vital role in loan approval, interest rates, and overall borrower qualification, but they’re not always set in stone. Join us as we explore when and how to use credit rescores to help your clients improve their scores, secure better rates, and increase their loan options.

We’ll cover everything from understanding the rescore process and identifying key factors that impact a borrower’s score, to strategies for working with credit bureaus and leveraging rapid rescore programs. Learn the dos and don’ts of advising clients on small financial adjustments that can make a big impact, while helping them avoid common credit pitfalls. Packed with practical tips, industry insights, and real-life success stories, this episode is designed to elevate your lending expertise and show your clients you’re committed to their financial success.

Whether you’re looking to improve your closing rates, attract new clients, or expand your knowledge of credit optimization, this episode will equip you with the tools you need to harness the potential of credit rescores. Don't miss this opportunity to become the go-to expert for helping borrowers achieve their financial goals and turn their homeownership dreams into reality.

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The Mortgage Calculator is a licensed Mortgage Lender (NMLS #2377459) that specializes in using technology to enable borrowers to access Conventional, FHA, VA, and USDA Programs, as well as over 5,000 Non-QM mortgage loan programs using alternative income documentation! 

Using The Mortgage Calculator proprietary technology, borrowers can instantly price and quote thousands of mortgage loan programs in just

Catch all the episodes of the Loan Officer Training Podcast at https://themortgagecalculator.com/Page/Loan-Officer-Training-Series-Podcast

Catch all the episodes of the Loan Officer Training Podcast at https://themortgagecalculator.com/Page/Loan-Officer-Training-Series-Podcast

Loan Officers for Unlimited Free Non-QM Leads & Trainings Join The Mortgage Calculator at https://themortgagecalculator.com/join

The Mortgage Calculator is a licensed Mortgage Lender (NMLS #2377459) that specializes in using technology to enable borrowers to access Conventional, FHA, VA, and USDA Programs, as well as thousands of Non-QM mortgage loan program variations using alternative income documentation!

Using The Mortgage Calculator proprietary technology, borrowers can instantly price and quote thousands of mortgage loan programs in just a few clicks. The Mortgage Calculator technology also enables borrowers to instantly complete a full loan application and upload documents to our AI powered software to get qualified in just minutes!

Our team of licensed Mortgage Loan Originators can assist our customers with Conventional, FHA, VA and USDA mortgages as well as acc...

Transcript

Restream recording Oct 30, 2024 • 03:58:25 PM: 0:13

So, um, Today's training is on unlocking borrower potential, exploring credit re score opportunities. So let's get right into it. So, um, as you can see there, uh, from the, uh, charts on the FICO score, uh, components, right? You have, uh, 35% of the FICO score or credit score, let's call it that, is from the payment history. 30 percent is from the balances, referred to there as amounts owed. Uh, 15 percent is on the length of the credit history, right? How old is the credit, the depth? 10 percent is on the credit mix, right? Between installment revolving, right? You know, secured and unsecured. And the last 10 percent is on new credit because, um, now breaking. Uh, how these affect the borrower and then we're going to get into how we use the tool because it's all about, uh, the MLO understanding how the algorithms work and this is, you know, it may vary a little bit between, uh, Experian, Equifax, TransUnion. Right. There are a little bit difference in the algorithms, but it's more or less going to be the same. So payment history obviously has to do with, uh, if the accounts are paid. Time, uh, amount sold is the balances. So, um, uh, payment history, as far as the credit report, there's not much you can do there. They have derogatory accounts unless there's actual errors. Um, that can be resolved quickly, uh, for a rescore, like if they actually have a letter that says from the loan mortgage company or whoever is a servicer on that, uh, credit. That says, yeah, John Doe, you were not late on that payment that you made that that was marked late on your credit. So we have eliminated that late payment and we have sent notification to the credit bureaus that your payment was not late. You know, something to that effect that can be quickly, uh, remedied in a rescore. But they're disputing the account and starting to process at that point isn't going to help. So typically what ends up happening in the rescores is that the focus usually is going to be more on the amounts owed to see what you can do or what the borrower can do if some revolving accounts are paid down. Because installment account balances. Uh, paying those down does not improve the credit score and actually paying off an installment account may, um. Reduce the borrower's credit score because now you eliminate that installment account from the mix of credit line amount. And now you may have, uh, increased their overall utilization. So understand how that works when you're doing the credit simulations. So what exactly is a credit simulation or a credit simulator? It's basically a tool that allows the MLO or the borrower to simulate different credit scenarios and generates. A similar, a simulated credit score. So that's why we're talking about, um, going to the amounts owed and then, uh, reducing the amounts owed on the revolving accounts to see what can be done there as far as, um, increasing the credit score. Now you will know that, like I mentioned, uh, the three bureaus each have a little differences in the algorithms. So you're going to note that the same account. If you would analyze it in three different bureaus, you would probably see differences in the movement of the credit score between the three bureaus. So it's not usual that you're going to have to update the borrower on all three bureaus. What may end up happening most of the time is you got to update the borrower on two bureaus because your middle score and your high score are the same and you need to get to the next tier. Take care. Uh, so rapid rescore is a process used by mortgage lenders and brokers where a fee is paid to the credit reporting company to have recent account changes updated in an expedited timeframe. So basically we're looking at a turnaround time. On a rush scenario, maybe three days on a regular non rush scenarios, five days. That's all going to be dependent obviously on you providing, um, the documentation that is going to be needed to be able to even request the, uh, rescore and what you're talking about here is if it's a credit card account that's being paid down to whatever amount, let's say it's being paid down to 300 according to the, uh, simulation, then the borrower would need to pay the account down and then provide a letter given to them by the credit card company stating what the new balance is on, on some type of letterhead, uh, identifying the account and identifying the balance, right? It has to be actual letter PDF document. No, it can't be faxed is going to be the Quickest way for the borrower to get it. Some creditors will email it. Most will not. So the options would either be fax or send it via mail, which is going to take a while, you know, a week to two weeks to be received. So normally fax is the option. Borrower provides that. Now an alternative workaround to the letter is if your borrower is a little bit more savvy, um, they can go to the online account for the credit card company. And then they can take a screenshot of the page that clearly identifies the account number, or at least the last four of the account number, the URL on either the top or the bottom of the page showing that they're on the online account, uh, the borrower name somewhere and the balance, the current balance. And typically, if that is provided, um, with all of those components, we can provide that document as the proof of the new balance. And then, uh, the rapid rescore can be ordered, and then hopefully within three to five days, you will be getting your, uh, update that, you know, an email stating that the rescore is completed. So, Touching back on which one you would rescore in the scenario where, for example, we had a, a low score of six 30, a middle score of six 50, and a high score of 6 55, and we're trying to reach a six 60 middle score, let's say, for a lot of non QM loans. 6, 6 60 seems to be the mark at which a lot of the action starts happening. Good LTVs. So in this case, we would have to rescore the 650 and the 655 bureaus, whichever they are, to make sure that our middle score is a 660. If we do just, uh, the 650, then we're going to end up with a 655 middle score and vice versa. So, uh, You when when you're going to do the rescore, definitely make sure that you review all the information on the credit report for accuracy as well, because inaccurate information, including an incorrect address can affect the credit score in the accounts and actually get reported. So you want to have everything as accurate as possible. Please note that the cost is going to be anywhere from 40 to 50 per account per bureau, right? So if you're rescoring that account in two bureaus, Experian and Equifax, for example, it's going to be times two, the 40 or 50 times two, and then that for each additional account, depending how many are being rescored. And please note, very important, that the cost of the rescore can never be charged to the borrower. If you do attempt to submit the order with borrower credit information, like a credit card or something, they will reject it. And then you have to start all over and then make sure that you input the proper method of payment. It's going to be acceptable, but it cannot be from the borrower. Be aware and make sure you run this in the simulation that removing accounts from a dispute status may lower the credit score. So. Before you run and tell the customer, remove the dispute status, first see what happens to the credit score, because then there, if it goes down, then there may be some other additional activity like paying down an account or something, uh, for the, um, to try to, uh, offset that decrease that just occurred. From the account being taken out of dispute status. Um, I know that's something that we need to do for an FHA loan, for example, to try to get it out of dispute status so that, uh, automated underwriting picks it up so that your, uh, findings are valid. Uh, also for a, um, DU or LP for a conventional loan. When you have the disputed account and the system wasn't able to provide, um, the approval or stated that if you're in dispute, you know, you got a downgraded manual, which doesn't exist this, you know, you would have to do the rapid rescore to get those disputes taken off so that the system. AUS would pick it up again, if you were, if you were getting the denial or in the AUS on a conventional loan because of that. In an FHA loan, it's pre written verbiage in the findings that if you have a disputed amounts, accounts with the aggregate of a thousand or more, you got to downgrade to manual underwrite. So that's when you Embark on the mission to do a rescore in the disputed accounts, but be aware of what may happen to the credit score when you take it out of dispute status. Like I mentioned previously, paying down installment accounts also is not an option for a rapid rescore. Just mentioned about AUS approval to pick up the changes. Disputed accounts will need to be removed via rapid rescore. And five days is a turnaround time unless the rush fee is paid, which is like an extra, I think, 10, 15, 20 per account. Now be aware there is a no doc option, right? That sounds enticing. You know, you don't need the letter, any document or documentation from the borrower, but then do be aware of the risk that if, uh, you embark on the no doc option, And, uh, it's not readily accepted by the, uh, account servicer by the creditor, since there is not any documentation provided, then you run the risk of an extended review period of up to 30 days. So at that point, you probably would have to cancel, pay for another one, and then do it with the doc and do it with the documentation. So no doc option sounds enticing, but if you really want to be sure to have that three to five day turnaround time, provide the needed documentations. Now, it's very important to know that borrowers can never order a rapid rescore. That's, uh, that can only be ordered by the, uh, broker or the lender, but never the borrower. And a very important point here. Once you, uh, when you order the, the rescore, they will build in a cost for the additional or the new credit report that needs to be, uh, ordered at the end. So that you will receive the updated scores. That's the only way to receive the updated scores and actual new pool needs to be completed, uh, so that the new balances are reported and you get the new credit scores. So that will be included in the cost of the rescore, uh, when it does get billed to you. And again, that's the only way to get, uh, the new scores. Now, Couple of last points here. Very important tips because you want to make sure that after doing all this work and paying these fees, right? Which is usually going to be paid by the MLO, right? Cannot be paid by the borrower. Um, you want to make sure that it's actually going to work, right? You want to make sure that the borrower does not open any new accounts unless opening up new accounts is part of the Rescore action plan. Sometimes that's what they say, open up a new secured account, 500, and that could help your credit for somebody with credit. You want to make sure that they do not increase any balances on any installment, no revolving accounts. And what I mean by that is not the limit, not telling him, increase my limit. Just don't increase the balances. In other words, don't charge the credit cards, any to balances, any higher than the balances. that were on the simulation report, right? Because if any of those other balances change on the other revolving accounts and installment accounts, guess what? The rescore, the rescore will not work. The credit score will come in lower if the other credit account balances go up, sometimes even by a dollar, you never really know. And you want to make sure that the borrower does not close. Any accounts that have zero balances nor close any accounts that are being paid down to zero. They can, the, the, the idea is to, uh, decrease the credit utilization. In other words, the amounts owed. in the chart that we see there so that, uh, the credit score goes up. But if the other accounts increase, then the utilization is going to be, it's going to stay the same and the credit re score will not work. I actually had one that was a little frustrating. Um, it was, um, the borrower forgot that she had a very small bill of like 30 a month or 50 a month on auto debit. And she had it being paid by a credit card that only had like a 200 or 150 limit that she set up just for that auto debit. So in case the credit information was hacked for whatever reason, her liability would be limited to 150. But she forgot and the auto debit payment hit increased the utilization on that one card. And our rapid rescore came in short by one point and it was a rescore of like four accounts on two bureaus. So it was not cheap. And we were up by one point. Uh, we ended up doing the deal. Anyhow, the, we were just trying to better her rate scenario. So in the end she understood what happened and we had to close at the, uh, higher interest rate because of the, uh, That one account that came in on an auto debit. So, um, you know, just be on the lookout for that because you want to make sure that you give that guidance all the way through the process, get that repertory score. And let me explain when, you know, I always bring up credit simulations when I'm working with my borrowers, because I mentioned I like to add value, especially in a scenario where, you know, they're at a, you know, They need it, for example, right? It's one thing like they're at a 690. They need to be at a 700. That's one point, but also when it would make it a better deal, right? Where, okay, they're at a 700. They can get to a 740 with very minimal work on their part. You know, very little usage of funds, maybe rescoring one or two accounts and you add 20, 30, 40 points now their credit score, uh, is much better. And they're at a totally different tier, right? And maybe now that. You know, that's a higher LTV or maybe it's just a much lower interest rate. And let me tell you, sometimes you think, Oh, I'm not, I'm not going to go, I'm not going to do the rescore. I'm not going to, you know, go on that mission. And then all of a sudden something happens at the end of the loan and you're needing a couple of points to get to the next tier to save the loan. And you start thinking, man, wish I would have brought up the rescore to the customer to see if they wanted to do that because now you would have done it. You know, so it's always good never to, you know, it's not good to operate near the extremes. Always good to give yourself a little buffer. So, and it's always good to bring it up even if the customer says, no, I don't really want to do any of that. I'm fine the way it is. Okay, great. But you brought it up, you added value, uh, put yourself as a loan consultant, right? Not as a application taker, so that when the customer goes to refer a deal or do their next transaction, they're definitely going to think about you and you're going to get all that business. So hopefully, uh, you all will absorb some of this and put it to good use. I, we definitely need customers out there, uh, getting all this kind of information. So I do see a couple of questions. Um, okay. First one here I see is what about paying down, uh, the balances on your credit cards that should rise or raise score? Yeah. Yeah. We, we discussed that, uh, that's revolving accounts. The revolving accounts are the only, uh, accounts that, uh, that you can pay down that will improve your credit score. Okay. I don't think we have another question. Um, so I'm going to give it a minute. See if anyone has any questions on the rapid rescore process. Uh, definitely. You also the benefits here, uh, to everything. So, looks like we're good. So I thank everybody for being on today's training on, um, the fundamentals of rapid rescore and look forward to seeing you all tomorrow.