Last Week In Review...

WHAT'S THE BUZZ? Last week, it was all about housing...and the mixed news had home loan rates hopping around during the week, but ending up essentially unchanged from where they began.

It started with Federal Reserve Chairman Ben Bernanke speaking to the Economic Club of New York. He was asked about the health of the housing sector, and he replied that the Fed would be keeping a close eye on the issue, stating, "There are some risks there. We don't know for sure whether the housing market will be in a moderate slowdown as we currently expect...or whether it will be more significant."

But on Thursday, the latest Existing Home Sales numbers surprised to the upside with a 5.2% gain...6.91 million homes were sold during February, where economists were expecting sales of only 6.50 million! And remember, you need to keep a skeptical eye on the media - a newscaster actually reported the strong number was due to "significantly lower home loan rates during January." In reality, home loan rates were down only very slightly, and this certainly was not the reason for the increase in sales. Most likely, the increase in February Existing Home Sales was due to unseasonably warmer weather in January when sales were initiated.

Then Friday brought the latest New Home Sales figures, which disappointed to the downside at 1.08 million homes sold when the markets were expecting sales of 1.2 million homes. Plus the inventory of unsold homes on the market rose, representing a 6.3 month supply when being sold at the February sales pace. While this number does show a cooling off of the new home market, this is not unusual for the typically slow month of February...it's generally not a month people want to go mucking around in a construction site.

THERE'S A NEW CREDIT SCORING SYSTEM IN TOWN...WILL YOUR CREDIT "MAKE THE GRADE"? DON'T MISS THIS WEEK'S MORTGAGE MARKET VIEW, AND LEARN ALL ABOUT IT.

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The Mortgage Market View...

So...you thought the days of being given a "grade" were over after graduation? Think again.

Earlier this month, the three major credit bureaus - Equifax, Trans Union, and Experian - announced that they have created a new scoring model called "VantageScore", based on an academic grade system of A through F. The model was created to help provide a consistent credit score between all three bureaus, since under the present system, scores can vary widely between the three. And the credit bureaus also hope that this new model will result in a more simplified loan process for both consumers and lenders.

Presently, all consumers are given a credit score, being a three digit number that lenders use to evaluate the credit worthiness of borrowers. The scores are made up of many factors, including how much debt is being carried, how timely the debts are being paid, and overall length of credit history. And in general, the higher the score...the better the credit terms that will be offered to the borrower.

But one problem...each credit bureau has a slightly different formula and information gathering system, so the scores are often not consistent between the three bureaus.

And this can sometimes cause problems for lenders when working with consumers that have a large variance in scores...and therefore cause problems for the consumer when seeking credit. The credit bureaus researched 15 million anonymous consumer credit profiles, and found that the new scoring model is likely to reduce the variance between credit scores by as much as 30%. With the new model, the factors used to create a credit score will remain the same, but the overall model will look a bit different from what has been seen in the past.

Currently the range for a credit score is 300 - 850, with 300 being the very worst possible and 850 being the very best possible. A credit score over 700 is considered excellent, 660 to 700 is average, and below 660 usually means some work needs to be done. The new model for the credit bureaus will be 501-990.

Additionally, the new score model will be grouped and rated like the old familiar academic level. Scores will be grouped together and then rated from A through F, A being the highest level and F being the lowest level.

A - 901-990
B - 801-900
C - 701-800
D - 601-700
F - 501-600

Now although the new VantageScore is being introduced to banks, mortgage lenders, and credit card companies, it is not yet replacing the current model being used. VantageScore is being offered as an alternative method of determining creditworthiness, but it is a bit premature to determine whether or not the lending institutions will actually adopt this new model as a standard. Why? “If it ain't broke...don't fix it." Although there can be some variance between the three bureaus, the current model has been working well historically. Additionally, many lenders have created extensive lending guidelines around the present scoring system, so it may not be cost effective to change the scoring model any time in the near future.

The VantageScore system is not in wide use yet, but if you are interested in talking more about your credit, or learning what your own score is under the present system...just give me a call - I'm happy to help!

This Week's Economic Calendar ...

Remember, as a general rule, weaker than expected economic data is good for rates, while positive data causes rates to rise.

Economic Calendar for the Week of March 27, March 31, 2006

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