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Table of contents
- How FICO Credit Report Disputes Can Get Your Home Loan Denied or Delayed
- Do Unpaid Medical Bills Affect Buying a House?
- Navigation menu
- $10,000 Medical Collection: Can I Qualify For A Mortgage?
- Federal takeover of Fannie Mae and Freddie Mac
That introductory sentence includes three big ifs, which we explore in detail below. Some unpaid medical bills appear on your consumer credit report, and some do not. Naturally, your mortgage lender will be most concerned with the negative trade lines that display after they pull a copy of your file.
If one of these negative entries appears on your consumer report, your home loan lender may ask you to write a letter of explanation. Keep the message short, and explain in simple terms the extenuating circumstances behind why the medical debt remains unpaid. For example, you could state that your insurance company is still processing the claim or that you became suddenly ill or suffered a severe accident.
How FICO Credit Report Disputes Can Get Your Home Loan Denied or Delayed
Medical collection accounts can also affect the credit score that mortgage companies use to make approval and interest rate decisions. The scoring equations use data found on your consumer report to calculate a number that predicts future delinquency. Keep in mind that the industry uses many different scoring equations. Also, the companies who develop these algorithms update them periodically, and the lenders who use the formulas adopt the newer versions at different times. The general-purpose FICO and Vantage equations forecast delinquency on any obligation, which might include credit cards , auto loans, personal loans , and other contracts.
In contrast, a mortgage overlay predicts whether you are likely to be delinquent on home loan payments only. Unfortunately, it is difficult to determine how these overlays treat medical collection accounts. Finally, each mortgage lender will follow specific guidelines regarding medical collections that might appear on your consumer credit report. The guiding principles vary slightly depending on whether you are seeking a conventional, conforming, or government-backed loan.
However, the scoring equations remain the same and influence your qualifications, as noted above.
Do Unpaid Medical Bills Affect Buying a House?
Federal agencies back government mortgages and enable borrowers with marginal qualifications to improve their odds of a home loan approval. The Federal Housing Administration FHA insures loans so that mortgage companies can offer a better deal to first-time homebuyers and other consumers unable to make a sizable down payment.
The most recent FHA guidance excludes medical accounts in two underwriting areas. The VA guarantees a portion of loans originated by private finance companies, enabling the lender to provide you with more favorable terms.
The VA underwriting guidelines allow the lender to ignore a bankruptcy discharged less than two years ago unless the applicant meets two conditions. Conventional mortgages refer to home loans that a government agency does not issue or secure. The Federal Home Loan Mortgage Corporation Freddie Mac is a government-sponsored enterprise that buys loans from originators and sells them as mortgage-backed securities to other investors.
The Federal National Mortgage Association Fannie Mae is another government-sponsored enterprise and is a leading source of financing for mortgage lenders, providing access to affordable home loan financing in all markets at all times. Toggle navigation Growing Family Benefits. Toggle navigation. Explore several strategies to improve your eligibility in both areas. Click to Open Outline. When the program was overhauled late last year, Freddie retained more restrictions than Fannie, puzzling many housing experts. Still, after the HARP overhaul, refis have risen. Freddie Mac has done more than , HARP refis this year through August, compared with , for all of last year.
Fannie has done , in the same period, compared with , last year. In all, the two companies have done more than 1. The administration's initial goal was to help four to five million. Concerns about providing a stimulus were not the only reason for Freddie's restrictions. Several company executives and board members worried that doing mass refis would hurt Freddie Mac's bottom line.
To appreciate this concern, it's crucial to understand Freddie's and Fannie's business. The companies are two-headed beasts: One part is an insurance company with a public mission to help the housing market and the other is an investment fund that generates profits by trading mortgage investments.
The investment side existed originally to keep the mortgage securities markets flowing.
But as the portfolios grew in the years leading up to the financial crisis, the tail began to wag the dog. The huge profits from the portfolios inflated executives' pay packages and began to overshadow the public mission of helping homeowners, critics say.
Refinancings can hurt the value of those portfolios. When a new, lower rate mortgage is issued, the old loan is paid off. The ultimate backer of that original loan — in this case Freddie or Fannie — takes a loss because the loan was "pre-paid," meaning it was paid off earlier than expected.
Mortgage securities make money from interest rates paid over time, so they decline in value if the flow of interest payments gets cut off, such as when a refi allows the original loan to get paid off early.
$10,000 Medical Collection: Can I Qualify For A Mortgage?
Glauber was concerned about Freddie incurring such losses, because taxpayers were ultimately on the hook. Wisdom criticized the refi program, saying that it was "policy, not business," according to the executive. Board member Nicolas Retsinas, who served in various housing policy positions for the Clinton administration, argued consistently for an expansive refinancing policy, according to people familiar with the meetings.
He argued that in calculating the costs of the refi program, Freddie should take into account the benefit from lowering defaults and foreclosures and the improved housing market and stronger economy that would come from refinancings.
Koskinen, a Democrat who served in the Clinton administration, said it was prudent for the board to discuss the costs of a refi program. The intellectually honest thing was to say, 'How large was that cost? Early in the Great Recession, support for a mass refi program was bipartisan. Refis help borrowers who are current on their loans, scoring them prevailing rates.
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Columbia economist Glenn Hubbard, now an economic advisor to Republican presidential nominee Mitt Romney, co-authored op-eds in the Wall Street Journal and later in the New York Times with his colleague Mayer, proposing a mass refi program. Many congressional Republicans supported it.
Federal takeover of Fannie Mae and Freddie Mac
But the Wall Street Journal editorialized against it in February , arguing a mass refi program amounted to undue government interference with the marketplace and would cause huge losses for taxpayers. Republicans turned against it. Under conservatorship, the FHFA has the responsibility to regulate the companies and to approve their major business decisions.
Ed DeMarco, the acting head of the agency, has become a political lightning rod, criticized for having been too timid in helping the housing market.
Critics contend he underestimated how much such an overall improvement would eventually help Fannie and Freddie's bottom lines. At the same time, DeMarco has been frustrated by Freddie Mac, according to people who are familiar with his tenure. One example: Freddie was not going to allow certain well-situated borrowers into HARP, borrowers with a "loan-to-value" ratio of 80 or below. That wasn't the only restriction. Freddie sometimes required properties to be re-appraised, which added cost and delay. And it hindered the ability for borrowers to get a refi from a new bank rather than from the one that had given them the original loan.
Freddie's risk management operation, the division in charge of making sure Freddie doesn't take decisions likely to incur heavy losses, was particularly active in raising concerns over allowing more refis. For example, when Freddie insures a mortgage, it retains the right to void its guarantee and force the bank that made the loan to be responsible for it under certain circumstances, such as if the bank had done poor underwriting and the borrower's income was misrepresented.
Facilitating refis under HARP could require giving up those rights. Wisdom, the risk officer, argued that Freddie should not give up such rights lightly, because surrendering them could cost Freddie dearly. But since many borrowers on these Freddie-backed loans had been making regular payments for a number of years, others argued there would likely be only a relatively small number of cases in which Freddie would need to force banks to take back loans.
Thus, Freddie wouldn't be giving up anything of much value. Freddie Mac produced a memo in the fall of , which was described to ProPublica, estimating that HARP would cause hundreds of millions of dollars in losses. The memo estimated big losses on the portfolio as well as from giving up the rights to return the loans. It minimized the benefits to Freddie's insurance business from an improved housing market and improved economy. It also minimized the costs to the company of trapping homeowners in mortgages with interest rates so high they would eventually default.
That analysis appears to have been overly cautious. A recent New York Federal Reserve study estimated how much refinancings can help reduce future defaults and found that the benefits were greater than expected.
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DeMarco has said he instructed Freddie and Fannie not to take into consideration portfolio losses. In a letter to Sen. The existence of the memo raises a question of whether Freddie ignored that instruction from its regulator.