FICO adjusted for poor credit?

[Anonymous]

Question for mortgage guys...  I found this as a part of post on mortgage originators (brokers) blog...  This broker  asserts  FICO  scores many lenders are now pulling are FICO formulas that are now adjusting for bad credit so many folks have today and stated most underwriters place the emphasis on the larger downpayment amount.  If that's the case, then folks like me who actually have seen credit score increases over the past year should see score increases...EX739 EQ 709 TU 751. Yet,  I find score improvement to be a slow creep - with no lates, no collections/derrogatories, no judgements/public liens, minimal inquiries and 8% util.  Here's what this east coast broker wrote...any truth here?  Geez, kinda slaps one in the face to have worked so hard to get those scores up there...

"You will find ridiculous differences in these scores compared to the MyFICO scoring. One of my borrower's bankruptcy discharged 4 years ago. He did not have any judgments, tax liens or short sale mortgages on his credit reports. I pulled his score at 725. What lenders are looking for is a big down payment. They realize too many people have poor past credit. Their FICO algorithms have been adjusted accordingly."

[Anonymous]

I think what you are referring to is the "buckets" that some speak of here.

[Lel]

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@Anonymous wrote:

Question for mortgage guys...  I found this as a part of post on mortgage originators (brokers) blog...  This broker  asserts  FICO  scores many lenders are now pulling are FICO formulas that are now adjusting for bad credit so many folks have today and stated most underwriters place the emphasis on the larger downpayment amount.  If that's the case, then folks like me who actually have seen credit score increases over the past year should see score increases...EX739 EQ 709 TU 751. Yet,  I find score improvement to be a slow creep - with no lates, no collections/derrogatories, no judgements/public liens, minimal inquiries and 8% util.  Here's what this east coast broker wrote...any truth here?  Geez, kinda slaps one in the face to have worked so hard to get those scores up there...

"You will find ridiculous differences in these scores compared to the MyFICO scoring. One of my borrower's bankruptcy discharged 4 years ago. He did not have any judgments, tax liens or short sale mortgages on his credit reports. I pulled his score at 725. What lenders are looking for is a big down payment. They realize too many people have poor past credit. Their FICO algorithms have been adjusted accordingly."

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I don't think the broker is saying that the FICO score formula has been modified, but rather that lenders are more willing to look past low FICO scores if the prospective borrower brings a large down payment to the table.  In the past, our resident mortgage experts have often said that large down payment can overcome FICO score shortcomings.

When he writes "their FICO algorithms have been adjusted accordingly", I think that means that the cutoff scores for various rates might not be so rigid for those who can make a sufficiently large down payment.

[Anonymous]

Respectfully, but this thread was not referencing "buckets" nor was it referencing cut offs.  Algorithm is not cut off.  Algorithm is a formula and when used in the brokers thread clearly meant the calculation takes prior poor factors in adjustment.  Clearly there is a FICO algorithm that is somehow adjusting for maybe medical bills or Chapter 13 or 11 or even foreclosure/shortsale.  This broker was not discussing how his mortgage underwriter "cuts off" scores for interest rate nor was he discussing merely overlooking previous items.  He clearly was talking about algorithms.  It's similar to how brokerage houses tier their large commercial investors for rate and expense.  those are not cut off points either...they are calculations with adjustments for that tierbased on volume, credit risk models and "quality" factors.

Forgive my cynicism here, but banking is always trying to find a way to identify risk yet identify profit and stay within the social engineering regulations.  This just may be a way to identify solid mortgagees with high income and large downpayments to justify to boards that may have had credit issues.  But that defeats the universality of FICO now doesn't it?  Perhaps a new mechanism to avoid HMDA defect?

This is an issue I'd appreciate mortgage guys to answer.  Thanks.

[203bravo]

Lel did answer your question.  The quote you posted clearly says that a lender's algorithm is adjusted for lower scores.  This has nothing to do with your actual FICO score but the other factors that the lender is willing to accept to underwrite the loan.

[Anonymous]

Sorry,the answers are "pro FICO" conjecture.  I still would like a couple mortgage guys who actually work with underwriters to weigh in. 

[203bravo]

The answers are not "pro FICO"

FICO scores have never been the Be All End All decision maker in mortgage lending. 

[Lel]

I'm not sure why my response would be necessarily interpreted as "pro FICO conjecture".  Just like I wasn't certain that an adjusted FICO algorithm would necessarily mean a change in the FICO scoring formula.  But this discussion isn't about semantics.

I went looking for the blog which you referenced, so I could read the entire entry in its original context.  I was unable to find this mortgage broker's blog, but I was able to find a more or less identical quote on a different site:

"The problem with FICO scores is well known. MyFICO offers credit scores, but these scores do NOT represent algorithms specific lending institutions use to determine their customized version FICO score. A mortgage FICO is not the same as an automobile loan FICO, a personal loan FICO, insurance rates FICO, etc.

You will find ridiculous differences in these scores compared to the MyFICO scoring. My younger brother's bankruptcy discharged 4 years ago. He did not have any judgments, tax liens or short sale mortgages on his credit reports. A local company pulled his score at 725. What lenders are looking for is a big down payment. They realize too many people have poor past credit. Their FICO algorithms have been adjusted accordingly."

http://money.usnews.com/money/blogs/my-money/2011/03/02/how-your-credit-score-affects-your-mortgage

This is a reader's comment - not the actual text written by the blog's author.  Perhaps this reader plagiarized the mortgage broker's blog when he made the comment.  He does make reference to a "customized version FICO score", but it's not clear what he means by this, because he then distinguishes the mortgage FICO from other industry-specific scores that do exist.  Virtually everyone here has reported that when mortgage lenders pull their FICO scores, they pull Equifax's Beacon 5.0 score, Transunion's Empirica 04, and Experian's v2 - the "generic" versions of FICO, not another specialized form of FICO.

Could you post the link to the blog that you read?  I know we generally discourage certain types of links, especially those of mortgage lenders, but in this case I think it would help lend clarity to this issue.  As long as the site isn't filled with egregious commercial solicitations or unethical credit repair advice, then it will hopefully be okay for the FICO Forums.  Thanks.

[ShanetheMortgageMan]

As a "mortgage guy", I haven't an idea what that means.  I know that some lenders can have customized automated underwriting decision engines, but I'm not aware if they can change the FICO scoring algorithms unless they are using their own scoring model.  If so, that may be a lender to avoid (or be attracted to), and it wouldn't surprise me if a bank did.  It's their money, as long as they treat everyone the same who applies with them, and doesn't change the "algorithm" depending on who is applying, then I don't recognize anything illegal happening either.

Lel, that is the only mention I found it as well.  And since solorider said it was part of a post on an mortgage originator's blog, I think that is what solorider meant too.  Perhaps responding to those comments will summon "Ryan of MN" to further clarify.