Though the "Great Recession" may be over, its shadow haunts thousands of consumers whose credit scores took a hit due to job loss, missed payments or even a strategic default.
Judy Dodier, SVP home financing for $544 million Align Credit Union in Lowell, Mass., said while mortgage activity is picking up in the greater Boston area, she sees a number of folks who had "bumps in the road" that are reflected in their low credit scores.
But, "there are a lot of creative programs out there that can help," according to Dodier.
With QM [the new Qualified Mortgage rule] debt-to-income ratio is more important; the person's credit score is just one factor. A portfolio lender can make decisions about lending to people with lower credit scores," she noted. "They can go down to 620 for certain programs."
Most Align members applying for a mortgage have credit scores at least in the high 600s. She uses the slogan of the American Credit Union Mortgage Association (ACUMA): "Not 'no,' just 'not now' " when dealing with members who don't qualify for loans — yet.
"There are challenges and people are trying to dig out," Dodier observed. "We teach people how to improve their credit scores in a few months."
In Las Vegas, Steve VanSickler is chief credit officer for $637 million Silver State Schools Credit Union, and president/CEO of Silver State Schools Mortgage Company. He noted credit unions consider all applicants, "so it is nothing unusual for them to consider all types of credit scores."
"Many institutions are considering if there was an isolated incident, such as a short sale, that dented the credit score," VanSickler said. "Banks have a tendency to cherry pick only the best credit scores."
When A Second Chance Makes Sense
He pointed out there are home owners who may have executed a strategic default because they could buy the house next door for 50 cents on the dollar. From a lender's perspective, if the member's income stream is solid, and there were no other problems in the credit report, it makes sense to give that borrower another chance, according to VanSickler.
"It is unlikely they would do the same thing again," he added.
Christine Schwarz, VP of real estate lending for $378 million-asset USC Credit Union in Los Angeles, said her credit union is fortunate to be seeing good credit scores from its members.
And, she noted, LA has not had to deal with the Polar Vortex and extended winter weather conditions that have plagued the Midwest and Northeast regions of the nation this year.
"I understand the seasonal issues that have driven the market down, and issues that have impacted credit scores," Schwarz said. "Many people typically pay their debts, but had hardships and their score got knocked down. We try to look at what happened to the people. We ask, was it an isolated situation, and can they pay the debt?"
At $307 million Southwest Airlines Federal Credit Union, Dallas, Curtis Cole, home loans manager, said the problem of lower credit scores is one for the banks.
"We are a small lender to a closed membership, so our pool to draw from is smaller but it is stable," Cole said. "These people have been on the job for a while and have good credit scores. I know the big players really tightened up their lending policies, which knocked a lot of people out of the market. Some have dropped their minimum credit scores because they tightened up too far. Fannie and Freddie are still requiring 620."
Silver State Schools CU's VanSickler said many credit unions in his neck of the woods are doing high loan-to-value home equity loans, or first mortgages, without mortgage insurance. To do so, he explained, CUs need to be well capitalized, and "well aware" of the members and their circumstances.
'Very Positive Inroads'
"In Nevada we have seen some very positive inroads, values coming back, and everybody is eager to lend," he said. "The home builders are back at it, putting new homes on the marketplace, especially with interest rates at a good level. For a while values were going up a little too rapidly, but in the last two quarters it has flattened out, which is good to see."
VanSickler recently was named chairman of the Nevada Mortgage Bankers Association. Other trends he is monitoring include the ongoing decline of the refi boom. He said SSS CU made a "concerted effort" a year and a half ago to switch to purchase money lending.
"We are finding members who are eligible for membership and are buying homes in our market area, and we are starting to see that pay off," he said. "Our mortgage originators are out there building relationships with Realtors throughout Nevada. That is the only tried and true way to do it. The falloff in refinance means the bulk of our production is external purchase loans."
