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Wells Fargo is raising minimum credit score requirements on Federal Housing Administration loans, part of the ongoing jockeying by large banks to limit lawsuits by the Justice Department for defective FHA loans.
John Shrewsberry, Wells Fargos CFO, said Wednesday that the San Francisco bank will not make loans to FHA borrowers with low credit scores because of their higher rates of default.
We will be adding back the credit overlays so we make fewer loans that are close to [the FHAs] most accommodative end of the credit spectrum, Shrewsberry said at the Barclays Global Financial Services Conference in New York. Those are the loans that are going to default and those are the defaults loans that were going to be arguing about 10 years from now and were not going to do that again.
Last year Wells lowered credit scores to a minimum of 600 on FHA purchase loans through its retail channel. This week, the minimum FICO score was raised back to a minimum of 640, the same requirement for the companys correspondent channels, said Tom Goyda, a Wells spokesman.
The change by Wells, the largest US home lender, was prompted by an FHA proposal earlier this month regarding loan-level certification. That proposal, which reiterates current policy and is open for public comment until Nov. 2, would require that lenders certify that loans backed by the FHA do not have any mistakes or material defects.
The proposal includes a provision that would require all lenders to certify that they have completed a review of all loans and that no deficiencies or defects were found to make the loans ineligible for FHA insurance. Such reviews must be conducted before FHA endorses the loans.
Banks have said the proposal lacks clarity and they want more assurances that they will not be sued by the Justice Department for minor defects in FHA loans. When a bank certifies that a loan is eligible for FHA insurance and the agency later finds a defect, a bank can be held liable for triple damages under the False Claims Act.
But many banks, including Wells Fargo, Quicken Loans, PNC Financial Services Group, Regions Financial and BBT all have outstanding investigations of FHA loans, according to company filings.
Most of the top banks including Bank of America, JPMorgan Chase, Citigroup and US Bancorp have already reached settlements with the FHA, a unit of the Department of Housing and Urban Development.
Raising credit scores in its retail channel will have limited impact on Wells overall mortgage production volume, Shrewsberry said. Most FHA loans are originated through its correspondent channel.
The FHA came out earlier in September and informed people that they didnt intend to make any meaningful changes to their loan-level certification, he said. They had gone out for comment, we gave them feedback, industry groups gave them feedback, consumer groups gave them feedback that they would need to do more and they chose not to.
Credit overlays are higher credit score requirements for FHA loans than the agencys own credit standards. Credit overlays have long been controversial. For many years, consumer advocates have lobbied banks to eliminate credit overlays claiming that requiring borrowers to a credit score of at least 640 may exclude about 15% of potential FHA borrowers.
The FHA provides mortgage insurance to approved lenders essentially protecting banks against losses when a homeowner defaults. Lenders have to indemnify the agency for possible losses for fraud, misrepresentation, or serious or material defects.
Wells originated $62 billion in home loans in the second quarter, up 32% from the previous quarter. Retail made up $36 billion of production, while correspondent purchases added $25 billion. Purchase loans were 54% of the total, up from 45% in the first quarter. Wells does not provide breakout numbers on FHA loans.
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Oooh, New York. If you can make it there, you can make it anywhere, that's what they say.
That's a little spin on Alicia Keys' "Empire State of Mind (Part II)" and its nod to Frank Sinatra. For job seekers in the Big Apple, those words will really hit home now because, effective Sept. 3, some of them will have a better chance to make it there. Employers, except in limited situations, are no longer allowed to check credit histories.
"Every New Yorker applying for a job deserves a fair shot -- and we are committed to protecting the rights of our workers and making sure that every New Yorker has the opportunity to succeed," Mayor Bill de Blasio said after signing the legislation into law.
The policy is being heralded nationwide as an example to follow. Federal law allows employment credit checks under the Fair Credit Reporting Act. The law requires employers to get an applicant's or employee's permission before pulling his or her history. But really, if you want the job, how likely are you to refuse such a request?
Still, you got to wonder: How does the fact that you once couldn't pay your credit card bill correlate to your job performance? Or let's say someone is a poor money manager. Does that mean that person is more likely to commit fraud?
We don't really know the answers to those questions, yet many employers are allowed to screen folks on the assumption that their character is related to their credit history. As I've seen in my own work with people, a bad credit record can be the result of a host of problems not linked to irresponsible financial behavior. The think tank Demos and other advocates have found that many people have seen their credit brought down by periods of unemployment or medical debt. Some were the victims of predatory lending practices.
Consumer advocacy groups have long complained that there is no link between bad credit and job performance. They further argue that such checks disproportionately screen minorities out of jobs, leading to discriminatory hiring.
So what did New York do that's so special? The city's ban on considering an applicant's credit history is one of the toughest laws enacted on this issue, says Amy Traub, a senior policy analyst for Demos. States and local governments can make their own laws that can further restrict employers, except in cases where a credit check is required under federal law, she said.
There are efforts in Congress to prohibit employers from requiring potential employees to disclose their credit history as part of the job application process. Currently, 11 states now limit employers' access to or use of applicants' credit information -- California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont and Washington, according to National Conference of State Legislatures. And there are an additional 28 bills pending in statehouses across the nation.
"New York's law is the strongest in the country because it doesn't include most of the unjustified exemptions found in so many other state laws," Traub said.
Illinois' law permits credit checks in hiring for positions where job duties include having unsupervised access to $2,500 in cash or assets. That "would include virtually any position in retail, maintenance, tech support and, likely, food service," Traub said. "California's law allows credit checks for any position described as 'managerial,' putting a ceiling on how far anyone with flawed credit might be able to advance in their career."
Even the exceptions in the New York law such as with law enforcement aren't warranted, Traub argues. The implication that a police officer would be more likely to become crooked if he or she paid bills late is unfounded, she said.
In a 2013 Demos report "Discredited: How Employment Credit Checks Keep Qualified Workers Out of a Job," Traub makes a great case to cease using anyone's credit as a job-screening tool.
"Despite their prevalence, little is known about what credit checks actually reveal to employers, what the consequences are for job applicants, or employment credit checks' overall impact on our society," she wrote in the report. "Credit reports were not designed as an employment screening tool. Instead, they were developed as a means for lenders to evaluate whether a would-be borrower would be a good credit risk."
I hope what's happened in New York will create a precedent. Maybe it will inspire Congress to act so that there's one standard.
Even with its exceptions, the Empire City deserves a shout-out for removing an unnecessary barrier to employment.
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GOLDEN VALLEY, Minn.-- With disappearing pensions and job mobility, you know how important it is to save for your own retirement.
Did you know for some, Uncle Sam can help you do that ?
Dan Ament with Morgan Stanley stopped by Sunrise with more on a tax credit that often goes overlooked, the Savers Credit.
The Savers Credit Defined
The retirement savings contributions credit, also called the savers credit, is a tax credit up to $1,000 ($2,000 for eligible filers married filing jointly). It is designed to benefit lower-wage earners who are saving money for retirement. To claiming the credit refer to IRS Form 8880 filed with your tax return.
What types of retirement savings are eligible for credit?
The Savers Credit can be claimed for contributions up to $2,000 ($4,000 for those married filing jointly) to a traditional or Roth IRA; your 401(k), SIMPLE IRA, SARSEP, 403(b), 501(c)(18) or governmental 457(b) plan; and your voluntary after-tax employee contributions to your qualified retirement and 403(b) plans. (Source: IRS.gov) ** In addition, you must be Age 18 or older, not a full-time student and not claimed as a dependent on another persons return.
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Investigators believe the data from credit cards used at the Pentagon food court may have been stolen or compromised in some sort of fraud.
Its unclear whether the problem stems from a large-scale data breach or criminal activity by a small group of Pentagon food court employees, a defense official said.
On Friday, the Pentagon Force Protection Agency emailed the roughly 24,000 people who work at the Pentagon to notify them about numerous reports of fraudulent use of credit cards belonging to Pentagon personnel, defense officials said.
The email encouraged Pentagon personnel to check their credit card statements for any suspicious charges.
Pentagon investigators are working with local and federal law enforcement agencies to determine the scope and the source of this credit card compromise, according to a Defense Department statement.
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Questions and answers with Farm Credit Services of America executive Jim Knuth.