August 5, 2021

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Mortgage News

Credit scores are important — and valuable

Gary Sandler

According to a recent report from consumer credit reporting firm Experian, the average U.S. FICO score is 711. FICO is an acronym for Fair Isaac Corporation, the people who created the FICO score. The highlight of the report, however, was that a difference of just a few points can make a huge difference when it comes to getting credit.

Local mortgage loan lenders typically sell these loans to investors in the secondary mortgage market. These investors fall into three categories; Government-sponsored corporations, the US government, and private investors. Freddie Mac and Fannie Mae are both GSEs and together own around 46 percent of all mortgages. Ginnie Mae, 100% owned by the US government and buying VA loans, is responsible for another 15 percent. Private investors such as pension funds, insurance companies, large banking institutions and securities dealers buy the remaining 39 percent.

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It is the investors who set the minimum standards that buyers must meet in order for their loan to be purchased. Local lenders usually have relationships with a range of investors so that they can lend to the widest range of buyers. It is precisely for this reason that buyers should look around before choosing a lender. A typical example would be a buyer with a credit score of 630 who is told by Lender A that they will not qualify because the lender’s investor requires a minimum credit score of 640. The same buyer can easily qualify for the same loan from Lender B, whose investor only needs a minimum score of 620.