Wednesday, December 28, 2005

FB's with sub-500 fico scores

I know everybody loves the FB stories...but it IS the holidays, and the RE/mortgage industry is traditionally slower during this time of the year. Not to mention that mortgage applications are at a more than a 3 year low right now per this article from Bloomberg. I think because things are slow, that brokers are going back through their old files they couldn't place months ago, and trying again. Those of you in the industry know what I'm talking about...yup, that drawer. The place where the "these files are ugly" or the "I'm not going to waste my time on this file" sit until things get really s-l-o-w. Well, it's slow...and the beauties are resurfacing again looking for a loan.

That said, I did run across 2 FB's today. I know you like the stories where I can paint a pretty good picture of their situation, but these borrowers are so F'd, their only hope will be either to sell their properties. I don't think that a hard money would help them that much either.

In the first scenario, a refinance, the borrower had a FICO score in the 470ish range. Since a 500 FICO is the bare minimum that I require to get a loan done, I could not do this loan. But just because I can't do it, doesn't mean it can't be done. The problem you run into, is the rate that will be charged to get the loan done. In this case, the borrower had multiple 60 day lates (among other credit problems...I didn't pry) and a sub-500 credit score. The loan was full doc and the LTV was in the 60/70% range. In cases like this, I try to add value to the broker by pointing them in a direction where they might be able to get it done. I bet you didn't know there was a mortgage company called Sub500 Mortgage. The rates aren't pretty...lowest rate possible is in the high 10's...but they will do some ugly stuff as long as the LTV is in the 60 - 75 range. Maybe things will work out for this borrower...but selling the property, walking with a chunk of cash, and repairing your credit might be the best thing for them in the long turn.

On the second scenario, another refi, the borrower had a FICO barely over 500, but they were going stated, and needed a rather large loan amount. Since the loan amount was higher than our guidelines for credit that bad, and underwriting is REALLY looking hard at stated income deals right now, there is nothing I could do for these borrowers. Even if I could help them, the rate would NOT be pretty, and they would have to state an "unbelievable" amount to be able to afford to refi.

So that is about it for FB's for today. Hopefully things will pick up some after the first of the year.



Blogger Out at the peak said...

That Sub 500 Mortgage company is amazing. Are all their loans 2/28 ARMs? That's what I make out of it from their rate sheet.

Not only do they start 10-12%, but they adjust too? Since the borrowers are completely unreliable, they must look forward to taking control of the house at some point. Or if they do pay, they still make their 10%+.

How often does a low FICO borrower have 30% downpayment? It seems surreal. Thanks for sharing.

12/29/2005 1:17 AM  
Blogger Out at the peak said...

"Sub 500 Mortgage, Inc is a subsidiary of Investors Finance, Inc (IFI) OTC stock symbol IVFI established in 1960 and is a main provider to IFI Funds I, LLC."

Their stock is ice cold.

12/29/2005 1:22 AM  
Blogger tollhousecookies said...


what do you think of the 'no fico'=
500 or 520 policy that some b/c's
have u heard of this?

12/29/2005 7:36 AM  
Anonymous Anonymous said...

I've been lurking here for some time. Just wanted to say thanks! I really enjoy the stories and comments.

>How often does a low FICO borrower have 30% downpayment? It seems surreal.

I agree. I would hazard a guess that the only way this guy is at 70% LTV is because his house has appreciated 30% since his last refi.

It amazes me that someone with "multiple 60day lates" can even *get* financing. Or 1day out of BK. Guess I'm just a conservative curmudgeon.

12/29/2005 8:44 AM  
Blogger SoCalMtgGuy said...

Most of these borrowers are doing refinances. They may have fallen on hard times, and the 2-year loan I/O loan buys them the time the need to keep their house, and get squared away again.

The catch with these loans IS the lower LTV's. The thought process is hey, they have 30-40% equity in the house, and they don't want to lose that. If they do, we can take the house, and still sell it for a profit.

They would be fools for doing these loans at 90LTV.


I have heard of those "no fico" and other sub-500 programs, but they aren't my competition at all, so I don't worry about them too much. I mainly use those companies as "last resorts" to point a broker towards if they can't find a place for an ugly loan.

12/29/2005 9:40 AM  
Anonymous Anonymous said...


I have never taken an auto or student loan.

I have $500k+ in cash.

Have never taken a mortgage. I have bought my $100k co-op apt. with cash as well.

Will eventually be looking to buy a $600k home, with a large downpayment.

The ONE credit card I have has a $15k credit line. With an average monthly bill of $1000, that I pay in full.

Should I have more credit cards?
Should I increase my credit line?

12/29/2005 11:42 AM  
Anonymous Anonymous said...

I just ordered by FICO score.

It's 791.
Do I need to make that any better?

12/29/2005 11:48 AM  
Anonymous Anonymous said...

You have too few accounts currently paid as agreed

The amount owed on your revolving/charge accounts is too high

There is a lack of recent (non-mortgage) installment loan information being reported on your credit file

12/29/2005 11:54 AM  
Blogger SoCalMtgGuy said...


I'm assuming all 3 posts are from the same person.

791 is a great fico. No financial benefit for making it higher. Not much difference once FICO's get over 700.

I would make sure that your balances are below 50%, and that you pay all of your bills as agreed.

Without seeing your credit, I don't know what else to tell you. I would NOT go open up credit just for the sake of doing so IF you plan on getting a mortgage in the near term. If you don't plan on getting a mortgage, then getting a "convenience" card and paying it off every month would be a good start. Use it for gas/groceries/etc. Start building a history of making payments.

Lack of credit can hurt you on the a-paper side if the loan amount is large enough.


12/29/2005 2:40 PM  
Anonymous Anonymous said...

Socal, can you explain why any 70%LTV would be so subprime, not matter how low the fico? Since
I doubt there is
any lending industry concensus of an
impending crash,
30% equity would
seem to be a huge safety margin itself, and would almost want loan defaults as a profit making opportunity. So why the almost loan-sharking rate?

12/29/2005 6:12 PM  
Blogger SoCalMtgGuy said...

The LTV does not make it subprime.

The low fico does.

The rates are high because the lender is taking a risk. Just because the equity is there, it is still a pain to go through the foreclosure process, and the process costs money as well. Besides, there is no guarantee it will sell at market prices. The bank wants it's money is in the money business, not the housing/rental/real estate business.

They will price the property for a quick sale, or "off it" at auction. There are lots of things that can eat up that 25-40% equity...especially depending on the market.


12/29/2005 6:27 PM  
Blogger Jim A said...

And of course in a foreclosure, the bank has NO interest in netting 1ยข more than what the borrower owes them and the costs of selling since they can't keep any of it. I suspect that it is almost always better to sell the house yourself than have the bank sell it.

12/29/2005 7:08 PM  
Anonymous Anonymous said...

I already have 1 credit card. I will leave it at that. 790 is fine, I agree. Thanks for the tip.

12/30/2005 8:41 PM  
Anonymous Anonymous said...

Being in the business, I think it's a shame when these lenders punish borrowers who are having credit issues. When you stick them with a high interest rate, all your doing is making sure they can't make the payment on time, or make the payment at all. I think these borrowers need to get help with fixing their credit first, then they can get a decent loan. Alot of times borrowers in this situation don't want to pay a little to fix thier credit, for long term savings and to avoid getting fucked! Some of these borrowers think they deserve everything, and when they don't get it, they will fuck you! I avoid working with these clients. I as a loan officer have been fucked to many times by these borrowers. It suckes to have a heart in this business, because it will get stepped on. As for these borrowers, get eduacated, and be open minded.

1/09/2006 2:20 PM  
Anonymous Anonymous said...

Sub 500 focuses on paying derogatory debt with equity, and raising borrowers credit score above 500 so they have a chance of being refi'd out of the high IO arm into a more reasonable sub prime loan. No one expects these borrowers, who have already proven reluctance to pay bills and mortgages on time, to stay in the high interest arm for 30 yrs.

4/19/2006 11:44 AM  
Anonymous Anonymous said...

Dear all, how can you have so high credit scores?? My credit score is 345 and has never been above this level. Although I am currently working really hard to get my credit cards pay off.

8/23/2007 1:57 AM  
Anonymous Anonymous said...

I've had my score drop 21 points when my balance exceeded $10k. The next month, after the $10k was paid in full, my balance was $7500. Back to 791.

Stick with your local banks. Transunion and Equifax are jokers, liars and beholding to the credit grantors. Credit grantors WANT you to have a lower score so they can F*ck you.

That being said, try sending a certified letter to the credit agency that forbids them from using in any fashion your SSI number as a means of identification.

It is - in fact - unauthorized and illegal.

4/02/2008 4:44 PM  
Anonymous Anonymous said...

Sub 500 Mortgage's website is now non-existent. Perhaps this SUB PRIME LENDER if you can call them that, is a fraud. Only three years in existence? Perhaps they felt that they needed to close up shop before the FEDS got a hold of them. Just another fraudulent lender gone belly up only to change their name to Monaco Finance.

7/29/2008 2:03 PM  

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