4 FICO Schre Myths Busted

Since I'm not a mortgage broker, and don't work at a bank, I rely on experts for financing information. One of my favorite recourses is Mint- an online money management website. I use it to follow my bank accounts, and I love their blog for the way it explaines complex financial rules and policies. This is today's post on FICO scores. You can also go to the website here.
"FICO scores have been around since 1989, but they weren’t thrust into the public’s eye until the mid 1990’s when Fannie Mae and Freddie Mac endorsed their use in the mortgage environment. And by “endorsed” I mean, “forced.”


Mortgage lenders had until the late 90’s to fully implement FICO scoring into their underwriting processes. I was at FICO (FICO) when this happened and one of my jobs was to criss cross the country speaking at mortgage broker and banker events teaching these really angry people about the new tool that just got shoved down their throats. Talk about being the least popular guy in the room.

This GSE “endorsement” also meant a whole lot of public scrutiny of a tool that had always remained a secret to consumers, albeit unintentionally. I mean, if you don’t sell something directly to consumers then why would consumers know about it? No, FICO’s entry into the mortgage market meant more press, more attention, more criticism, more work for me, and a whole lot of incorrect information being passed off as the truth.

So, here is a list of a few FICO score myths that I have run into over the past 12 years. And, the subsequent debunking. There are certainly many more, which I will address as time goes on.

FICO Scores Consider Income, Yes or No?

The answer is NO. The FICO scores that we’re all familiar with are credit bureau-based scoring models. That means they only consider information on your credit reports. And, guess what, your income is not on your credit reports. There are models that consider income, as listed on your credit applications, but these are not the FICO scores that we all know and love.

John’s Final Thought: Income is a measurement of capacity (whether or not you can afford your payment) not creditworthiness (whether or not you’ll choose to make your payment.)

Closing a Credit Card Will Improve Your FICO Scores, Yes or No?

The answer is NO. This makes common sense, less available credit means you can’t get into as much credit card debt and therefore you’re a better credit risk.

The problem with that hypothesis is that it’s incorrect. And, thankfully, credit score development isn’t a common sense exercise. The empirical evidence shows, and has shown for over two decades, that having a lot of “open to buy” (unused credit limits) equates to better credit risk. This is commonly referred to as “revolving utilization”, the percentage of your credit limits that you’re currently using. Closing cards can actually increase this utilization percentage and lower your scores.

There’s a secondary myth to this one that says keeping your utilization percentage at or below 30% is the best for your score. That’s also incorrect. Nothing magical happens at 30%. It’s better than 40% but not as good as 20%. In fact, according to FICO, consumers who have scores above 760 have an average utilization percentage of just 7%.

John’s Final Thought: Shoot for lowering your balances to $0 if you can but if you can’t, get them as low as you can and your FICO scores will benefit. NOTE: This only applies to credit cards, not installment loans.

Closing a Card Causes You to Lose the “Age” Benefit of That Account.

This is incorrect. One of the secondary factors in your FICO score is the average age of the accounts on your credit reports. The older the average, the better for your scores. There’s a myth that closing a credit card account will somehow remove that card from consideration in the average age calculation.

Here’s the real deal: FICO scoring considers open and closed cards when determining the average age of your accounts. Closing the card doesn’t remove it from your credit reports so it’s still going to be considered.

John’s Final Thought: Be careful when deciding to close credit card accounts. Re-read myth #2 above for the reason.

Spreading Balances Across Multiple Cards Helps Your Scores.

Incorrect. First off, there’s no hiding credit card debt by doing this. $10,000 on one card is still the same amount as $1,000 on 10 cards. The aggregate revolving utilization percentage (see #2 myth above) is that same either way so you gain nothing there. But, what you have just done is to increase the number of accounts you have with a balance greater than $0, which is going to lower your scores.

John’s Final Thought: Stop trying to beat the system. Do you think the folks at FICO are idiots? Pay off your credit card debt, stop trying to shuffle it around.

Keep your eyes open for episode #2 of FICO Mythbusters. Coming soon to a Mint near you.

John Ulzheimer is the President of Consumer Education of Credit.com and the author of the book “You’re Nothing But A Number.” He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO and Equifax, John is the only recognized credit expert who actually comes from the credit industry. He has served as a credit expert witness in more than 60 cases and has been qualified to testify in both Federal and State court on the topic of consumer credit."

What to Look for in a Builder

New home construction is down right now, the market is already filled with newer homes that are short sales and bank owed, but if you are thinking about have a home custom built, here are some tips for vetting the builder.
   1.  Hire a good real estate attorney who has experience with new-construction contracts, knows state law, and is familiar with the issues unique to the area in which the property will be built.
   2.  Hire a Realtor who has experience with new home construction, and has worked with more than one builder.
   3.  Talk to other customers. Ask how satisfied they are with the builder and how his projects have held up over time.
   4.  Investigate. Search the builder’s name and company online and make sure that there aren’t lots of complaints about him.
   5.  Expect him to negotiate. In this market, a potential customer should be able to expect that a builder will be flexible.
 Source: Realtor.com

Facing Foreclosure in Oregon

As I said earlier this week, I went to a class on short sales and foreclosures that made my head swim, there was so much information. I got this great handout from real estate attorney Ben Knaupp, which I thought I'd pass on to you all.

TMI!

As in Too Much Information on Short Sales and Foreclosures. I just got back from a great, if challenging, class on the new mortgage relief, short sale, and foreclosure programs. Basically, the advise is: go see a real estate attorney! That's always been my motto, but now more than ever it is very important to have an attorney who know Oregon law, and a tax accountant, go over the options with you, and really figure out what is best for you. There are very few mortgage holders who will qualify for the alphabet soup that is the federal government's response to this mortgage crisis, but if you would like more info on HAFA, HAMP, HAUP, etc. check out www.knowyouroptions.com - a government site that will guide you through the preliminaries. One final note- if you can pay your mortgage, you will not get a short sale.

heading off to the morning meeting at Elephant's Deli, too bad they don't give us food for free!

Saw 6 new listings today on Eastside Tour- Prices are getting realistic! realestate pdx

41 Energy Saving Tips!

• 
  
  
  
  
  
  
  
  
  
  
  
  
  

  5 Tips for Saving Energy in the Family Room

  Reduce your electricity bills by systematically purging your family room of wasteful energy practices. Read
• 
  
  
  
  
  
  
  
  
  
  
  
  
  

  12 Tips for Saving Energy in Your Home Office

  Cut your power consumption, lighting, and heating and cooling costs when you work from home. Read
• 
  
  
  
  
  
  
  
  
  
  
  
  
  

  7 Tips for Saving Energy with Home Lighting

  Lighting eats up as much as 20% of your annual electric bill, but using energy-efficient bulbs and making other simple changes can cut lighting costs dramatically. Read
• 
  
  
  
  
  
  
  
  
  
  
  
  
  

  10 Tips for Saving Energy in the Kitchen

  Maintain your large kitchen appliances is part of a smart home energy efficiency plan. Read
• 
  
  
  
  
  
  
  
  
  
  
  
  
  

  7 Tips for Saving Energy in the Laundry Room

  Understanding your laundry room appliances is part of a smart plan to help you save energy in your home. Read

Visit houselogic.com for more articles like this.

Copyright 2010 NATIONAL ASSOCIATION OF REALTORS®

Location vs Price

I asked that question on Trulia.com last week- which is more important to first time buyers. A lot of other real estate agents answered. They didn't say anything, just blathered on about how both are important and people need to find the right location with the right price. Obviously. But I really want to know what others think about giving up on living in their favorite neighborhood because they can't afford it, and all that entails such as longer commutes to work, friends, family, not being in the preferred school district, or having access to amenities? And what about people that are willing to pay more than they would like to have those things- do they regret it? End up loosing the house? I know that when my husband and I bought our first house we ended up looking for over a year because we were unwilling to live in certain areas, and we ended up paying a little more that we had originally thought we would to be in a neighborhood of our choice. And we are still about 30 years away from being able to afford the kind of house we want in our dream neighborhood! Just as I was thinking about this issue I came across an article about this subject, below is an excerpt that I think looks at the issue logically, while not ignoring how people actually approach buying their first house (illogically).
"Although buying cheap housing may be a good strategy for some investors, buyers searching for a home they'll occupy should not let price be the primary factor influencing which home they buy.
A home that won't work for the long term is not a good deal even though it's cheap if you'll have to move again in a few years. In fact, you could lose money using this approach, particularly if home prices haven't stabilized by then.
It's also not a good idea to buy a home that's not quite right for you just to take advantage of today's low interest rates. The winning strategy for today's homebuyers is to buy and hold.
The homes with qualities that are in high demand are located near a major metropolitan center or have good public transportation to get there. They are close to shops, cultural venues, restaurants, parks, and have good public or private schools close by and good public services.
The location within a neighborhood, condominium complex or cooperative can make a big difference in value. A home on a quiet cul-de-sac will generally sell for more than one in the same neighborhood that's on a busy street. Premiums are paid for homes with views, leveled-out private backyards and good natural light.
Be wary of listings that appear to be underpriced. They could be priced low to generate multiple offers, so they might sell for more than the list price and more than you can afford to pay. Or, there could be other reasons why they are listed at a lower price.
Often the lower-priced homes in an area don't sell for more because they have incurable defects. An incurable defect is something you can't change like a shared driveway, close proximity to a freeway or an entry to the home that's two flights of stairs up from the garage.
These homes may sell well in a hot sellers' market when buyers overlook defects because prices are rising rapidly. But, these homes can be hard to sell in a down market when buyers are less forgiving and are willing to wait for the right house.
THE CLOSING: Ideally, you want to buy a home that will be in demand in any market. If you can't afford to buy one that's in move-in condition, it's better to buy a home you can afford and that needs only minor improvements than one that looks great but has an incurable defect like an unworkable floor plan." Source: Dian Hymer

Living Somewhere Affordable vs. Living Somewhere Desirable

The age old real estate rule is "Location Location Location," which rings true not just within a town, but over the country as a whole. Let's say your requirement is that you must live in the United States- and get an average paying job. According to the CNNMoney Most (and Least) Affordable Cities you'll pick
1. Syracuse NY
2. Indianapolis IN
3. Detroit MI
4. Youngstown OH
5. Buffalo NY
Yes houses are cheap. Because so many banks own the houses because everyone lost their jobs and couldn't pay their mortgages. Not really a situation I would want to be moving into. Hopefully these towns will all see increases in their real estate values as jobs are created in industries that can adapt as times change.
Maybe I'm spoiled, but not all of their Least Affordable Cities seem that awesome!
1. New York NY
2. San Francisco CA
3. Santa Ana CA
4. Los Angeles CA
5. Honolulu HI
Okay, Honolulu would be nice. Houses in these locations are so expensive because there is little land to expand and build cheap houses on. Here in Portland with the firmly set Urban Growth Boundary we should expect to become more like San Francisco over the next 50 years- Yes you can move out of the city into a very nice suburb and commute, but do you really want to? Or will a large portion of the population pay more for less square footage and the convenience and pleasure of living in the city itself? I hope so! Portland does not make the ranking for Most or Least expensive, which is great!

3 Reasons to Buy Now- According to NAR

And it's not like they have any vested interest in having people buy houses. Oh wait, they do! Anyway, I agree with their reasons, especially it it's the right time for you to buy.
• Desperate sellers: Both home owners and lenders are eager to unload a flood of foreclosed and underwater properties. Buyers with the patience to push through these complex deals can save a bundle.

• Little competition. Because most people don’t have what it takes to negotiate their way through short sales and REOs, patient investors are winners.

• Low rates. Mortgage rates are at their lowest level in 40 years. If you believe inflation is inevitable, lock in now.

Source: MarketWatch, Michael Murphy (08/19/2010)

Median Sale Prices by Portland Metro Area

Once again, back by popular demand (of my own) is the RMLS Market Action Median Sales Price Map!
North Portland: $227,000
NE Portland: $251,500
SE Portland: $197,700
West Portland: $377,100
Gresham/Troutdale/Sandy/Corbett/Fairview: $185,500
Milwaukie/Gladstone/Boring/Clackamas/Estacada: $240,000
Lake Oswego/West Linn: $416,500
Beaverton/Aloha: 230,000
Tigard/Tualatin/Sherwood/Wilsonville: $301,000

Monthly Market Report from RMLS

July Residential Highlights
When comparing sales activity in the Portland metro area in July 2010 to the same time last year, July 2009, closed sales declined 29%. Pending sales also decreased 24.9% and new listings rose 3.1%. On a month-to-month basis, when comparing July 2010 to June 2010, closed sales fell 29.8% (1,412
v. 2,012), while pending sales grew 0.7% (1,629 v. 1,618). New listings also fell 0.5% (4,029 v. 4,049). At the month’s rate of sales, the 15,271 active residential listings would last approximately 10.8 months.
Sale Prices
The average sale price for July 2010 increased 2.9% compared to July 2009, while the median sale price went down 1.6%. When comparing July 2010 to the month prior, June 2010, the average sale price increased 2.5% ($297,000 v. $289,000) and the median sale price also went up 2.5% ($246,000 v. $240,000).
Year-to-Date
Inc re a s e s a re s e en when comparing January-July 2010 with the same period in 2009. Closed sales were up by 22.5%. Pending sales also went up 9.1% and new listings grew 6.8%.  RMLS Market Action Report

Repossessions are Up, Set Yourself Up for a Sluggish Recovery

As the numbers and statistics do not improve for the economy, banks are acting like any business and clearing out their inventory- in this case bad loans. Lenders repossessed 92,858 properties in July 2010, up 9% from June 2010 and up 6% from July 2009. This means that they are not just letting people sit in homes that the foreclosure process has begun on, they are going out and taking the houses back. Luckily, there are less homes this year than last year that are receiving the initial default notice, the first step in the foreclosure process. It rose just 1% from June to July of this, and is down at whopping 28% from 2009. The states most affected by foreclosures continue to be: Nevada, Arizona, Florida, California, Idaho, Michigan, Utah, Illinois, Georgia, and Maryland.

Who's in the Mood for Free? I am!

Free concerts are a great way to get out and about in PDX in the summer, and believe it or not but we do have several weeks left of summer.
These ones are all child-friendly, and I hope for my sake dog friendly too:
Kenton Park – N. Kilpatrick & Delaware, 6:00-8:00 PM

No food vendor: Bring your own picnic!
      Aug 17: Chata Addy & Susuma (Afro highlife)
      Aug 24: Portland International Raceway presents Hillstomp (bucket & stomp blues)
Ventura Park – SE 115 & Stark, 6:00-8:00 PM
Free art activities for children will begin at 6:00 PM each week.
Food vendors: Burgerville Nomad, Portland Ice Cream
      Aug 11: Joni Harms (country western)
      Aug 18: Aaron Meyer (rock violin)
      Aug 25: Conjunto Alegre (tropical dance party)
Couch Park – NW 20 & Glisan, 6:30-8:00 PM
Free art activities for children will begin at 6:00 PM each week.
Food vendors: Hot Dog Ernie’s, Island Daydream Natural Shave Ice
      Aug 5: Linda Hornbuckle & Friends (divas of soul)
      Aug 12: Freak Mountain Ramblers (Americana, bluegrass)

Free Portland Sunday Concert Series @ Rontoms- not child friendly, this laid back bar and concert venue is a great place to unwind. All concerts begin at 9pm.
8/08 :: Dat’r w/ Double Plus Good + Spain in the 70′s
8/15 :: Ramona Falls w/ Monarques + Dirty Mittens + Palmz
8/22 :: Portland Folk Fest w/ Celilo + Lee Corey Oswald + More
8/29 :: Iretsu w/ Yours, Sean Battles
9/05 :: Soundpool + Guests
9/12 :: Dolorean w/ Derby + Norman

I hope to see you all there!

Street of Dreams Part 2

Main Floor

                                 Lower Floor
It took me a little while to get around to it, but here is my second favorite house at the NW Natural Street of Dreams Portland 2010. Called Transitions (I know.) and built by Hearth & Home, this 2,800 square foot, 4 bedroom, 4.5 bathroom home is listed for $849,000. It's my second favorite house, behind Idea Box's Fortino, because the layout allows for so many different families to be comfortable. Each bedroom has it's own bathroom, and there are 2 each on the ends of the home, allowing privacy for older children, guests, or other family members to live with  out being on top of each other. The finishes were also superb. Understated colors, beautiful tiles and and modern, simple lines. There are eco-friendly systems and finishes, and the landscaping was designed with bioswales to reduce storm water runoff.

My Favorite House on the Street of Dreams

I went to the NW Natural Street of Dreams was the modular home by IdeaBox. The Fortino, pictured above, was built off-site, and installed in 2 weeks, which is a long time for them- usually installation is 3-4 days! Many people on the shuttle with me called it a "manufactured home," but this sleek, elegant, and high end small home is far from the parks you may be picturing. Think of a condo in the Pearl, but with your own lot. Think of a European boutique hotel, but your for all time.  At only 1,250 square feet, this 2 bedroom, 2 bathroom, home is a marvel for $148,000, lot not included. I can see myself, and many of my friends and clients, purchasing a home like this. The interior is customizable, and I think it could be easy upgraded as you grew into the home. Perfect for first time buyers, down-sizers, as a vacation home, or a primary residence. I can picture this house at the beach or in the mountains as a vacation home, or a great alternative to a mobile home on acreage. I enjoyed the whole Street of Dreams this year, and I will highlight my other favorite home tomorrow, but I think that IdeaBox's Fortino was the most innovative and creative out of the 6 homes.

I'm Moving Uptown!

I am pleased to announce that I have moved to the Uptown Office of Coldwell Banker Barbara Sue Seal Properties. I have been with Coldwell Banker Seal since I began my career, and I am thrilled to join this prestigious office. Located on the corner of W Burnside and NW 23rd Ave, the Uptown Office is known for it's urban feel, strong local history, and many know this office for the Seal on the roof. I am continuing to work in NE and SE Portland, as well as the greater Metro Area. If you or anyone you know would like to buy or sell a home, please call me at 503-367-1877, or visit my website at BethSilva.com.