Let me preface this by saying that I’m someone who believes the concept of credit scores and their use in America today are pretty much worthless. The idea behind credit scores is that they are supposed to let creditors know how credit worthy all of us are supposed to be. They make determinations as to whether they are going to give us loans, what kind of interest rate they’re going to allow us to have based on our credit score, or deny us credit entirely. The idea is supposed to be that having a good credit score means that you will have no problem whatsoever in obtaining credit.
That doesn’t seem to be the case when applying for a mortgage these days. Many people who applied to have the interest rates changed on their home loans actually found themselves being denied even though they had good credit scores. Some of the explanations they were given were really bizarre, and it was happening often. Through July, it was estimated that less than 7% of homeowners who try to change their mortgage rates had been approved. At least half of those people had good credit scores of 750 or higher and recent changes by the Federal Housing Administration aren’t going to make things any easier either.
It would seem that having a lot of money in the bank doesn’t mean anything to many of these creditors either. In a recent news story on CNN Money, it was reported that the wealthy, that being people with at least $1 million or more in the bank, are finding that they have new criteria for obtaining credit as well. They are finding that when they try to purchase either an expensive new home or a second home, they are requested to pay as much as 40% to 60% as a down payment. One of the people highlighted in the story had a credit score over 800 and was turned down because she wanted to buy a second home.
Creditors are stating that even rich people have been falling behind on their mortgage payments, and when it comes to a second home they are noticing that the rich seem to have a way of knowing how to unload a second house without getting another buyer and without paying for it. Therefore, in states such as Florida and Arizona, they’ve been less hesitant to give loans to anyone looking for a second home, including the rich, unless they put down a large amount for the down payment.
If there was any question that the rules to obtaining loans on both new homes and existing homes had changed, that’s pretty much the type of proof you needed. If people with substantial funds can’t get loans, and these are people who, if they wanted to, could probably just pay for the home out of their bank account, and what can the rest of us expect from lenders as we move forward? To me, it’s just something else that’s going to hinder the recovery of the housing market.
Mitch Mitchell is a consultant who writes and participates in many different fields, including real estate finance issues. 
@Mitch – I agree whole heartedly that creditors are starting to get silly about who they give an approval to. In many cases it seems to me that the lenders are purposely trying to not approve loans. I have even had crazy things happen following a pre-approval that makes no logical sense unless you figure the lenders just do not have the funds to lend to everyone who is actually qualified. Once you look at things under that light it begins to make more sense.
And with the contraction of credit we are seeing it does not seem to be a far fetched idea either. The trouble with this is that as they tighten credit it leads to more tightening since we have a fractional reserve system. Knowing this it makes me a bit concerned as what will happen once the Fed. stops buying Mortgage Backed Securities in March.
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I think the industry is still in flux. It just doesn’t seem to have found its direction yet…
I have a lousy credit score right now. It’s never happened to me before, but we’ve had some rough times. My score is in the low 600s, but I was able to refinance my house and get a good rate last summer. Probably had something to do with both me and my wife being employed, but we had both been laid off in the past year, and had zero nest egg left.
We feel lucky, quite frankly.
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I agree that the whole FICO scoring system is a joke. I don’t say this because I have a bad score either.
I hear and see banks doing stupid things on a weekly basis. This is a new one to me. They just continue to dig their own graves.
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I have to agree. It seems that they keep shooting themselves in the foot thinking that the next time they do it, things will get better. What happened to using common sense?
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I think it has more to do which branch the people are working in. I didn’t want to give any mortgage to people in the -finance, -banks, -real estate, -building branch ect… Job today, but what tomorrow?????
Thanks for the agreement, y’all. I understand that the banks are scared, but bad business practices and turning away people who easily can afford certain things doesn’t help their cause, and doesn’t help the economy.
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Looks like the creditors are taking the motto “once bitten twice shy” really seriously. If people with good credit score have problem with their mortgage rate then people with bad credit score have no hope!!
Well if even rich people are getting turned away things must be pretty bad now….. Actually many people with six figure income are now facing severe deficits, due to bad financial management.
.-= Bowler@Jumbo Mortgage Rates´s last blog ..Looking for Jumbo Mortgage in 2010 =-.
I agree that banks clamping down on lending will really slow things up when we are trying to claw our way out of recession. The situation is exactly the same in the UK. If money does not flow there is no room for new growth. Who knows where we will end up if there is not more common sense used by the banks.
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