How does the credit crunch affect Denver?

According to this article from the Post, it’s impact is quite severe on :

The meltdown and resulting credit crunch that have rocked the housing market nationwide are reaching their tentacles into .

In metro , several office transactions have fallen through because of the tightened credit markets. The World Trade Center downtown is back on the market after a contract with Broadway Capital Partners fell through; and International Capital Partners pulled out of a deal to buy Plaza Quebec in Englewood, according to people in the real-estate industry.

Read the full article: Credit crunch widens locally

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To merge or not to merge

PRIVATE INSURANCE: If your down payment is less than 20% of the price of the home, mortgage lenders require that you take out Private Mortgage Insurance (PMI). This insurance protects the lender in the event you default on your mortgage. PMI has fallen out of favor in recent years due to the 80/10/10 (80% first mortgage, 10% second mortgage, 10% down payment), 80/15/5 (80% , 15% , 5% down payment), and 80/20 (80% , 20% second , 0% down payment).

On the heels of the mortgage credit crisis comes word that the two bigger players in the industry may merge. However, after further deliberation, they decided against a merger.

MGIC drops bid for rival Radian
The insurers agree to end the deal and focus on how to survive in the industry.
By Emily Fredrix The Associated Press

Milwaukee - Mortgage insurer MGIC Investment Corp. abandoned its $5 billion bid to buy rival Radian Group Inc. on Wednesday, saying it was in each other’s best interest to concentrate on surviving in the faltering industry.

Radian had vowed to see the deal through when MGIC announced in August it wanted to back out. But chief executive S.A. Ibrahim said Wednesday that Radian didn’t want to fight and instead needed to weather what he called “an industrywide scramble to survive.”

Investors seemed hopeful for both companies after news of the agreement.

Though Radian’s shares tumbled as much as 9 percent after the market opened Wednesday, they closed up 16 cents at $18.27. MGIC shares fell 29 cents to end at $30.05.

MGIC, based in Milwaukee, had agreed in February to pay about $5 billion in stock for Radian, valuing its shares at $60.78. Shares of MGIC closed the day the deal was announced at $70.09.

As problems mounted in the market, both companies saw their shares tumble and the deal’s value sink.

MGIC said it did not believe it had to complete its of Philadelphia-based Radian because their joint interest in - investor C-Bass LLC could be worthless.

The decision to end the deal was mutual, both companies said.

Neither party paid the other to get out of the agreement, according to a news release. The original agreement said there would be no breakup fee if a decision was mutual.

Both companies’ shareholders had already approved the deal, which MGIC had said would close in early October.

But woes felt throughout the industry made the deal difficult to finish, said Michael Zimmerman, MGIC’s vice president of investor relations.

While this is akin to splitting up, it remains to be seen what this means to the borrower. There aren’t too many PMI companies left and when the two biggest PMI companies are more concerned about surviving, especially when in 2007 PMI is tax deductible, this can’t be a good sign.

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Mortgage Primer: Your credit score

The industry is imploding. High risk mortgages to high risk borrowers are becoming extinct. Credit scores will be more important than ever. There are five major factors that calculate your with each factor carrying a different percentage:

- 35% Payment History
- 30% Amounts Owed
- 15% Length of Credit History
- 10% New Credit
- 10% Types of credit

Notice the first 3, that’s 80%: How you pay, how much you owe, and how long you’ve been paying carries the most weight.

Having a good is a commitment. The FICO score is a solid indicator of your debt/payment habit. Rarely have I seen a borrower who takes their debts seriously with poor scores. On the other hand if a borrower has poor credit, they’ve developed poor /payment habits. A few years ago I worked with a couple that had poor credit. They were in a bind and relied on me to help them improve their scores. It took a few months but I helped them clean up their credit with one caveat, that the next time I pulled their credit, I would hope to see their scores improve. A year later I pulled their credit, their scores never improved. They went back to their old habit of signing up for credit cards and maxing them out.

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Why do I have different credit scores

Here are reasons why you have different credit scores:

There are 3 different credit reporting agencies. Each one gives you a score. They work independent of each other.

Mortgage lenders typically look at your middle score as your qualifying score. there are some lenders that will take the high score into consideration as well. But as a general rule when applying for a always give the mortgage broker your middle score if you know it.

Usually a lender will use the middle of the three scores to qualify a borrower and to chose .

One creditor may report to only to bureaus A and B, another creditor may report to bureaus B and C, and yet another creditor may only report to bureau B. For this reason, the exact information that each of the credit bureaus has on file about you varies, and therefore so does your score with each bureau.

The primary reason for discrepancies in the three different credit scores is that each credit bureau uses a different scoring module. The scoring system used by Experian is the Fair, Isaac module, the one used by Trans Union is called Empirica and Equifax uses a scoring system called Beacon.

You have three different scores because each bureau has a different system for placing a numerical value on your credit quality. Another reason these scores can vary so much is that some creditors only report to certain bureaus and therefore the other bureaus may not be scoring that particular credit file which can cause a difference in actual scoring.

There are nonconforming lenders that will use average your scores or even use the highest score. Your professional’s job is to place you with the lender that would be most advantageous to you.

The information that the credit bureaus have on file about you is provided by the creditors who you currently have credit with, as well as the ones you’ve dealt with in the past several years.

When disputing incorrect information on your credit report, be sure to write to all three credit repositories. If only one is notified of the erroneous item, your scores from the other two bureaus would not improve.

Credit score differ because of the credit items that are being reported to each credit bureau, all 3 credit repositories are independent of each other, and because their are different credit scoring modules. Some creditors only report to 1 or 2 credit repositories while others may report to all 3. Trans Union is different from Equifax and they are both different from Experian. By all 3 being independent they all have their own individual credit scoring systems. Lastly, just like there are Windows 98, Windows 2000, Windows XP, etc… as operating systems for a computer, there are different versions of credit generation also. Some lenders may use an older credit operating system simply because it is cheaper to obtain credit reports than the latest credit operating system out available.

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Got FICO?

I haven’t posted anything related to mortgages in a while so this week I decided to talk about the credit scoring model. First and foremost, FICO is the Fair Issac Corporation model. It’s used exclusively by Experian. The are five main categories of information that the FICO score evaluates:

Credit Payment History: 35%
At 35% Credit Payment History weighs the most. While events such as a bankruptcy, or tax liens will have the greatest negative impact on your score, multiple and/or recent late payments have a tremendous impact as well.

Credit Balances: 30%
What is your credit balance to your credit limit? The Outstanding Credit Balance ratio has the second highest weight on your . High balances on your credit cards can be viewed as a red flag since it’s an indication that you may be overextended. If you have multiple credit cards, you may want to spread the wealth to keep the credit balances to credit limit ratio low.

Credit History: 15%
Credit History is a reflection the length of time that you’ve had accounts open. You’re rewarded for keeping long term . Older credit accounts that have been used more frequently will have more weight than those that are newly opened or used with less frequency.

Credit Inquiries: 10%
Opening a new credit account doesn’t harm your dramatically especially after you make the first payment. However, credit inquiries can negatively impact your score. Generating many credit inquiries exudes that you are trying to secure a large amount of credit or you are being turned down by lenders and have to apply elsewhere.

Credit Types: 10%
This percentage of your FICO score is based on your mix of credit. Do you have a good mix of credit cards, retail accounts, installment loans, finance company accounts or loans? It looks at the whole picture and totals how much of each type of account that you have.

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Free Credit Reports

Whenever I speak to potential borrowers one of the questions I typically ask is “What’s your credit like?”. Most of responses I get are excellent, good, fair, poor. However, excellent, good, fair, and poor are meaningless in the world. The Fair Isaac (FICO) scoring algorithm is used to determine your ability to repay regardless of your gender, religion, race, creed, height, weight, etc. The highest score you can get is 850. The avergage score is around 680. Scores above 720 are considered excellent. Scores below 620 are considered poor.

To find out where you rank, you can get a free copy of your credit report now at www.annualcreditreport.com

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