Loan Officer Leadership Podcast

038: Credit Strategies for Loan Officers

November 13, 2019
Loan Officer Leadership Podcast
038: Credit Strategies for Loan Officers
Chapters
Loan Officer Leadership Podcast
038: Credit Strategies for Loan Officers
Nov 13, 2019
Steve Kyles & Carl Stanley
Discuss all things credit and the difference between fico score and fako score.
Show Notes Transcript

In this episode, Carl Stanley with Rising Point Solutions shares strategies for bad credit situations. As Loan Originators, there are ways to help clients who are struggling with bad credit and get their scores back to a qualifying level. 
1. Credit Rehab Program
2. It's not no, it's not yet.
3. Pay on time, Low balance, Keep open positive credit.
4. FICO vs. FAKO

Find out how to apply these steps and more to help your clients! Make sure to SHARE and SUBSCRIBE.

Speaker 1:
0:02
Hey, welcome back to another episode of the loan officer leadership podcast. I'm your host, Steve Kyles, and for each of you who are listening this week, you're in for a treat because I've got my good friend Carl Stanley with rising point solutions with us and many of you may have heard in October we were talking about the podcast, one of our sponsors, one of the title people, core people that helped us put insanely tactical on was Carl Stanley with rising point solutions in so, so excited because you made the trip from Dallas to Houston and today we're going to put together a podcast really talking about what you do. So Carl, welcome to the party. Yeah, I appreciate it. And we're really excited to be a part of insanely tactical and it was insane what? It was great. It was crazy. It was insane. Well, and I got to tell you, for those of you who are listening and joined the journey and the story, we took it from idea to fruition or event in 56 days.
Speaker 1:
1:00
And I've got to tell you about day, probably 40 days until the event, 35 days until the event you and I got connected because I reached out. For those of you who are listening, I use rising point solutions. Matt brows is my account executive. He does a phenomenal job. And so when I was looking for support and people to be a part of what we were doing, I made a phone call, you and us, you and I ended up on a call on Saturday where we're talking and you literally, you've got experience of putting on big events and we've put on some pretty big ones, big ones in Texas, and you guys know everything is bigger in Texas. And so some of the events, and I just leaned into Carl for his advice and experience in what he has done to make events successful in Texas.
Speaker 1:
1:44
So man, I gotta tell you, uh, publicly on the podcast. I appreciate you. Plus we have a good mutual friend, Chris Blevins. Absolutely good guy. So he's over at CMG financial. He was over at movement for a long time. And just, it's interesting, Carl life moves at the speed of relationships. Absolutely thankful for that. So, Hey, today we're going to be talking about credit and, um, that is such a sticky subject in today's environment. You know, it's funny because either you got good credit or you don't, right. And, uh, you know, you're getting people qualified credit wise, you get a home loan is what we're all about. And uh, it's hard sometimes because, uh, you know, most people don't really know or understand what's going on with their credit. Well, they don't. And you know what's interesting, 36% of every home purchased this last year was completed by [inaudible] millennial and that number is actually going up, right? And Carl, the crazy thing is millennials, average credit score is in the low six hundreds. It's the lowest of any generation right now. It's crazy. Some of it's because they don't have credit and some of it's cause they don't understand the value of credit. So talk to us about that. What are you seeing? Well, it's odd because it's changed in the last couple of years. You know, a few years ago, millennials were known for having the lowest rate of credit card debt and that, you know, the highest rate of on time payments and the highest of savings and many
Speaker 2:
3:00
generations, and then something went sideways. I'm not sure what it is. Kardashians. I think a part of it is their, you know, their apprehension to use credit and apply for credit and be a part of credit. So, you know, a lot of it I think is due to thin credit files, not having enough credit and just trying to, you know, stay off the radar a little bit. So thus they don't have, you know, very good credit. So that's a great point. So do you think the, when you're seeing, and this is, I know it's an observation, but do you think it's because of thin credit or is it because of high balances or is it not paying bills on time? What are you seeing? I think it's because of thin credit student loans. Oh, that's just not understanding how to manage credit because there really is no education for this generation.
Speaker 2:
3:42
Um, you know, in high school, college, you know, parents aren't passing that information on maybe the way they should be, but for whatever reason, a lack of education, student loans are a big player in their credit scores. Hey, so how does, and that leads us to how does someone who has heavy student loan debt get their scores higher? Can they? Yeah. The student loan debt itself doesn't affect the scores that much. The reality though is about a third of all student loan holders are currently either in a default or a delinquency. So they just can't pay him. And you kidding? Yeah. One third of all student loan holders in the U S are currently not paying. And I'm not talking about deferment, I'm talking about they're either late or their fall in default. What? Yeah, that's crazy. Yeah it will. And it's going to get worse. They estimate in the next five years, over 50% of all student loan holders will be light, you know, not paying because of later delinquency.
Speaker 2:
4:35
Well let me ask you this, and this is just out of curiosity. As an originator, do you, is there a way to help them and how long does that typically take? Is it easy for some money? Someone who's currently in default to get that ship righted and get their scores back to a qualifying level. So we have some student loan solutions at rising point. Um, you know, one of two things usually happens. Either the consumer is in default, a wage garnishment collection. They're really, the only thing you can do as a loan officer for that client is to get them to enter into a rehab program. And this is a government repad program through the department of education. Okay. We can do it for them and it's a system where they can do it on their own, but they'll have to get into a rehab program.
Speaker 2:
5:14
And if they do that and they make nine on time, monthly payments, then all the previous negative history will be removed from their credit report. And that's a government program. It's a really serious, yes, they'll start the loan over, they'll delete all the previous negative history, start with a fresh loan number, positive pay history. And this is, this is a basically a government second chance when you're in default to get that history off your credit and you can restore your scores. If you'll start paying your student loans. They will. That alone is worth listening to this podcast because as an originator, to be able to give somebody that advice and then say, Hey, I heard it from Matt or from Carl at rising point solutions. Let me get you to people we know, like, and trust right now. Do you help people outside of the state of Texas?
Speaker 2:
5:56
Sure, yeah. W well, we do business nationwide. There's a couple States where we don't really do business, but we can do business anywhere across the U S because mostly nowadays, you know how it is. Everything's done by a internet or screen-share or teleconference, whatever it is. Hey, and here's what I want to encourage to inside you get many of, you know, we've started a Facebook group at loan officer leadership, uh, inside of Facebook. Look for the group. Make sure you're a part of the group because Carl, you're in there. And so we can start a conversation. Even if you've got, you want to know how to get in touch with him, we're going to give you information at the end, but join the group because these are things we want to know about as originators that are huge tools. Yeah, I think I'll be the resident credit expert outbreak it and anytime anybody has a question about credit or they're looking for a resource for one of their clients, you can just ask in that group and we'll make sure that we get the get you the help you need.
Speaker 2:
6:48
I love it man. You're a great strategic partner and especially in helping you originate more loans. So talk to originators. How does rising point solutions help? Or how can you help originators close more loans? Well, I think at the end of the day for us it's what we want to do with our loan officer partners is provide them an opportunity to never have to say no. You know? And so it's not, no, it's just not yet. And every lead is valuable. Every lead is gold. And we want you to guys to view it that way and every leads and opportunity. So, rather than putting it in a dead file or sliding it off into the trashcan, you know, everybody deserves a helping hand. Not everybody's fixable. Yeah. Uh, but I, you know, we, you know, if you can focus on the loans, you can close and let us help you on the other ones.
Speaker 2:
7:32
Yeah. And we can help you close an extra three or five or seven deals a year. That's valuable. And that's what we tend to do. Yeah. Because at the end of the day, if, if, if we can help you make more money, that's, that's the value in our partnership. I love it. Weighs well. And you were saying, so really helping clients to qualify a with qualifying credit scores. So you do that now when you're working with clients, what does it look like? Is it a monthly, how are you helping them each month? Is it you, you review their credit and then you take and say over the next three to six months, here's what we think. You can get your scores, right? I, yeah. So when we work with our loan officer partners, our job is to help you close more loans. Yeah, for sure. Our only job is to get that client across the finish line.
Speaker 2:
8:12
Sometimes that includes our programs. Sometimes it doesn't. Sometimes we'll get on the phone with your customer and just give them free advice or we'll make one of our resources available to them or we'll reinforce something you say, um, if we can't help them or help you get around the corner and 45 60 days, then we'll do a consultation with them and we'll give them a, a more handhold E option that maybe takes four to six months and they'll get a, they'll get a blueprint, they'll get homework, they'll get a blueprint, exactly what they need to do over the next four to six months while we're working on their credit to become a homeowner. Hey, in Carl, what do you think? Or what are some of the keys? Like if you were to say, most people should know this, but here's the top two or three basics that help keep you at a higher or the highest credit score.
Speaker 2:
8:55
That's possible. So like I've heard things like in consumer debt, on credit card debt, if you're 30% or lower than the high balance, that's the best place you can be. What are some of those things? What are some of the, the basics we should be talking to clients about saying this is going to get your score higher. This is going to get your score higher. This is going to get your score higher. Right? Uh, and, and we have a document internally that I can maybe post on those. Now. I would love that. It's, it's, uh, it's, it's basically what we call it is a, it's like a loan ready document. It's like, Hey, these are the things you need to be doing with your credit before you apply for a mortgage. I love that. But you know, some of the basic stuff is this. And most loan officers do think the correct percentage is 30%, but it's really one to 19%.
Speaker 2:
9:37
So, uh, instructing all of your consumers to try to line up their credit card balances, their revolving debt in that one to 90% category is, uh, is important. Making sure they have enough open trade lines and they have each box checked. So, uh, before they apply for mortgage, they should make sure they have some installment credit and some revolving credit with good pay history. So what's some, how many, two or three weeks when a, when a client is referred to us by mortgage partner or they're coming through it through another channel and we know their goal is to buy a house, we're gonna make sure they have a minimum of three open trade lines. So we want to see three open trade lines, at least one installment account, and usually two revolving accounts. So three trade lines, one installment, two revolving. That's a baseline for us.
Speaker 2:
10:19
Uh, and that, that's gonna help raise the scores because having positive credit is just as important as the potential bad credit that might be on there. Yeah. Well it's interesting even when you're saying three, so one installment, two revolving, correct. Right. And that's a base line. That's a base line. You have too many accounts. Even if the balances are low. So officially in the scoring models, no, you can't have too many accounts. If you want to have 40 credit cards, you're not puts overwhelming and you're not getting penalized for having 40 credit cards. The caveat to that is there is a scoring factor called accounts with balances. So you have all 40 accounts have balances, then yeah, it's going to start helping you. But you know, you have to have a lot of credit with a lot of balances to have too much credit. That's kind of a myth.
Speaker 2:
11:01
Yeah. So in the key is you just gotta pay on time, keep your balances low based on the high credit limit. What else? What are some other tools? Uh, pay on time, keep your balances low and, and uh, uh, make sure you have enough hope and positive credits. There's thousands of scoring factors that go into the Faco scoring models, but they all roll up to one of those three categories. Yeah, good credit, bad credit and balances. So if you avoid bad credit, have enough open good credit and pay on time, keep your balances below 20% you'll always have a great credit score. But that's easier said than done sometimes. I will talk to me about this. Medical collections are a bigger deal in today's environment because with insurance the way it is, I know for me personally, you're like, I hope I remembered to pay that $50 that wasn't covered in my copay and right. Get it. And you see it in your clients and it becomes a nuisance. Well, but does it affect credit scores as, or is it, you know, talk to us about what medical collections look
Speaker 1:
11:54
like. Medical debt looks like, things like that.
Speaker 2:
11:58
There's a, there's a myth. There's always been a myth amongst consumers that medical bills don't hurt you or they don't hurt you as much. And a lot of that is perpetuated by the fact that most lenders don't care about medical bills. So while you don't care about it to underwrite a mortgage loan, it's, you know, they're not required to pay it. You don't really care that it's there. It's still affecting the score just as much as any other collections. So if you have a, you know, $100 medical bill, it's going to be affecting your score as much as you know. Any other bad debt on your credit report, so, so it does affect your medical bills, kill your credit score, just like anything else. That's interesting. In the newer score versions, a Faco eight Faco nine and and future versions, they're devaluing medical bills, but the reality is the mortgage industry still works on an old scoring version from 1999 the most harsh version. And that's
Speaker 1:
12:45
what you're still dealing with that. That's funny. Do you think that's gonna change anytime soon? I get that question all the time from loan officers, Hey, when are we going to move to the new scoring, to a modern model
Speaker 2:
12:54
Oh eight and Faco nine models came out in 2008 and 2015 respectively. You guys are working on a 1999 version. It's the strictest scoring model. And when they do move to a new model, the average mortgage applicants score is going to go about 30 40 points. Wow. By deal, you know, that's mostly going to be people who have damaged your bad credit. The people with good credit scores are pretty much going to be the same. But, um, yeah, it'll benefit everybody when they move to a new scoring model and medical bills are devalued and there's some other really positive changes in the new scoring model.
Speaker 1:
13:23
Well that's great. Hey, well listen, one of the interesting things, I hear it probably at least a couple of times a week. I've got a seven 50 credit score on credit karma. You know, we're joking a little while ago. That's your fake score, right? Talk about that Heiko versus FICO. Right. That's what, that's how we refer to it. So that's the funniest thing cause they'll, they'll say, Hey, I've got a seven 40 credit score based on what? Well, I just saw credit karma and I almost laugh and you know, it's like it's, it's always the objection in, in when that is said, nine times out of 10 I know I've got somebody coming in with back to credit. Right. Which is the funniest thing because I hold my breath, I'm like Ooh, but to pull that credit now.
Speaker 2:
14:03
Yeah. And the thing about the, thinking about all those credit monitoring sites and credit karma and credit karma is just one of them. They get picked on a lot because everybody knows them, but right. There's 30 or 40 credit monitoring sites that are all owned by the bureaus. They're all pushing out, you know, consumer-based scores, not lender based scores. And it creates a lot of confusion for the, for the customer because they don't understand. It's basically just a fund score and it's, it's, and the reason they do that is, you know, there's, there's a lot of advertising that goes on with those credit monitoring sites. I think the Bureau, I mean if you think your credits better than it is, you're probably going to be more likely to apply for their products and, and maybe not hold them accountable when there's errors on your credit report. And there's a reason everybody on credit karma commercial has a seven 20
Speaker 1:
14:46
so it's reality. It's probably not true. The is a loan officer
Speaker 2:
14:52
is your consumers two levels away from a mortgage score. They're one level away because they're looking at a, at an online fake score, one score. But even within fiko, their auto score is not a mortgage score. I mean, they may say to you, Hey, I bought a car a couple months ago when my score was six 50. Yeah, well that's when you buy a car. There's a different scoring model for mortgage and it might be six 10. So then they're two levels away. They're there, they're, you know, they got to get to a real lender score if eco score. And then even within phaco mortgages, the harshest and they don't understand that,
Speaker 1:
15:24
Hey, well, you know why you're saying that? I'm actually, I tell people that um, credit scores were designed for mortgage and auto industry helped me rephrase that. So, you know, it's interesting because I'm trying to give an understanding or what I know, my limited knowledge about credit to a consumer who's looked at a fake fun score and then you're exactly right. Then somebody went in, bought a car and they say, well, Hey, four months ago I bought a car and I was at seven 80. Why is that even different from where the mortgages? So explain that a little bit. What FICO, so what were you going to talk about that?
Speaker 2:
15:59
I mean, you know a lot now a lot of days banks and credit card companies are offering credit reports and scores and those are fiko scores, but they're going to be a bank or credit card score or not.
Speaker 1:
16:08
That's so crazy. It on cap. So much confusion.
Speaker 2:
16:12
Right? And so the best way to explain it is you, we have different scores based on what we are purchasing. The risk for the lender is based on what we're purchasing and how we've serviced that type of debt in the past, right? So if, if, if I paid a mortgage on time for 10 years, but I've had four car repos, I'm sure my motor score is gonna be higher than mine and vice versa. Or I've always paid my mortgage and car on time, but I've, I've had 10 credit cards go bad, I'm going to have a low credit card score. So you're underwritten by lenders based on what your priorities are and how you service that type of debt in the past.
Speaker 1:
16:45
That's huge. That's a great point. Hey, we'll do this for our listeners who want to get connected with you. You'll be in the Facebook group. So loan officer, leadership group, check that out. Go to our Facebook. Really working hard to build a community there because we want the dialogue back and forth. So I do want you to post that document, Eli, we'll follow up on that. But tell them how they can get in touch with you.
Speaker 2:
17:07
Well you go to our website, a rising point solutions.com there we have a listing of our different account reps in different areas. So you know, wherever you are, there's probably an account rep at rising point that can help you. Um, you know, you can reach out directly to me and my email and you know, we can get acquainted that way and I can introduce you to somebody that can help you. My email is cStanley@risingpointsolutions.com. So it's CST a N L E y@risingpointsolutions.com. Um, and heck, I mean I can give my cell phone number if you want, but
Speaker 1:
17:40
uh, we'll just go to the group. So here's what I'd tell you. If you want to know more contact information. Yeah, please do. Well, and here's what we'll do too. When we send out the podcast, we'll tag you where you can click on social profiles, DMM, send him a message. Hey, and with that guys, thank you for listening each and every week to the podcast. Carl, thank you for coming on, man. It's great to have you here. Uh, not only is he becoming a fast friend, but they're a great strategic partner. You know, loan officers, if you're looking to grow your business, I know that personally I've struggled with in the past. Who do you refer that's reputable? I mean the credit, it's so saturated with crooks in Kahneman and you almost would say, I don't know anyone. But ever since I've been working with Matt, absolutely I've got someone that I can highly recommend it.
Speaker 1:
18:25
So start working with Carl. Start working with rising point solutions. Join us in the Facebook group. We want you guys to connect with us. And our commitment to each listener is we're going to help you get better. We're going to provide relevant content, relevant solutions, things, and tactics that are going to help you grow your business. So I'm asking you, join me. Join us on this journey to get better. Hey, make sure you're subscribing to iTunes. We released the podcast every Thursday. It is released on Thursday mornings. That way it comes right to you. And then make sure to share it with somebody else, you know, can benefit from what we're doing here at loan officer leadership. So with that hashtag grow and grind, be purposeful in your growth, relentless in your effort. Remember, anything worth doing is worth doing badly. Just get started. So you.
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