Question about Credit Scores and Loan Approvals?

[XDCX]

This past weekend I was driving through an area that had an unfinished Auto Mall - they only had two dealerships open (Chevrolet and KIA) and lots of empty space.

The Auto Mall is located in an area of Phoenix that was red-hot during the housing boom but has been dead for the last three years. To the extent that most of the homes in the area were built and sold in 2006 - 2008 I'm guessing that almost 100% of the population has a serious negative equity problem with their home.

That's where my question comes from: Do credit scores or loan approval decisions factor in a customer's negative equity position in their home?

Said another way, if there were two customers who had identical credit qualifications but one of them had $100K in negative equity and the other didn't, would they both be approved? Would they get the same rate?

[birch3x]

Would those same two customers be applying for credit for an automobile, I assume, or other real estate? I think if it's real eastate an appraisal would be needed, and that would show the negative, but an auto loan would not find it.

[XDCX]

Originally Posted by birch3x

Would those same two customers be applying for credit for an automobile, I assume, or other real estate? I think if it's real eastate an appraisal would be needed, and that would show the negative, but an auto loan would not find it.

I'm thinking of an auto loan.

Based on what I know about the FICO scoring system I don't think there's a way for their system to factor in an individual's negative equity in their home into their credit score.

That said, I bet the banks are much more fearful of a customer who has $100K in negative equity in their home than someone who doesn't and I wonder if that affects their approval decisions.

Part of my suspicion is based on a comment one of our members made about Bank of America in another thread - essentially that he's seen BoA turn-down more 700+ FICOs than any other bank.

[crowe]

Originally Posted by XDCX

I'm thinking of an auto loan.

Based on what I know about the FICO scoring system I don't think there's a way for their system to factor in an individual's negative equity in their home into their credit score.

That said, I bet the banks are much more fearful of a customer who has $100K in negative equity in their home than someone who doesn't and I wonder if that affects their approval decisions.

Part of my suspicion is based on a comment one of our members made about Bank of America in another thread - essentially that he's seen BoA turn-down more 700+ FICOs than any other bank.

I’m often amazed in the difference in callbacks between lenders on the same customer/deal-structure. I see customers w/ perfect credit reports & low debt to income ratios turned down by one lender & approved by other lenders at their best terms.

Most lenders have internal scoring models. W/ some lenders if the customer doesn’t score well on their model it’s a TD or an approval w/ unfavorable terms.

I know some banks keep a list of old accounts that were charged off & will turn down a customer w/ a perfect current credit report if the customer is on the bank’s list.

The TDs I’ve seen w/ BOA were mostly w/ self-employed w/ high beacons or customers w/ high beacons & thin files or customers w/ high beacons & several open revolving accounts.
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I believe negative equity in a home could be determined from looking at a credit report & other information banks have access to.

[XDCX]

Originally Posted by crowe

I believe negative equity in a home could be determined from looking at a credit report & other information banks have access to.

That's exactly what I'm thinking too. (I'm not making a charge, just wondering out loud.)

The banks would never admit to it because it would be a PR nightmare but I've got to think the banks know there are certain Zip Codes where home values have fallen so much that anyone who bought between 2005 - 2008 is buried.

Essentially it would be like the "Red Lining" charges back in the 1960s when it was claimed the banks wouldn't loan money for homes in certain neighborhoods as a form of racial discrimination.

Again, I'm not suggesting this is happening, I'm just wondering if our members have seen a trend which would suggest the banks are factoring in negative home equity into their auto loan decisions?

[jadog1]

Based on our area which has high unemployment and of course dropping values for homes, the banks have all in all been pretty good. Never been a mention of negative equity in homes but they do want customer envolvement (cash). Score is a big factor as well as credit card useage.

[XDCX]

Originally Posted by jadog1

Based on our area which has high unemployment and of course dropping values for homes, the banks have all in all been pretty good. Never been a mention of negative equity in homes but they do want customer envolvement (cash). Score is a big factor as well as credit card useage.

Thanks for sharing your experience.

It's good to hear the banks in your area don't factor negative home equity into their auto loan decisions. Hopefully that's the case for all markets.