Only a low credit score stood between Alipio Estruch and a mortgage to buy a $449,000 Spanish-style house in Weston, Fla., a few miles west of Fort Lauderdale... Instantcreditbuilders.com, or ICB, helped Estruch boost his score by arranging for him to be added as an authorized user on several credit cards of people with stellar credit who were paid to allow this coattailing. Parents also use this practice when they add their children to their credit cards to help them build solid credit. The pitch to those who are essentially renting their credit history for pay is seductive: You don't need to worry about users of this service receiving duplicate copies of your credit cards, account numbers or any of your personal information. It's essentially free money, they are told. Brian Kinney, 44, a retired Army officer in Glendale, Calif., pulls in more than $2,500 a month by lending out 19 credit card spots on two old Citibank cards with strong payment histories. Kinney, whose FICO score is above 800 on the scale of 300 to 850, quit his job working at a Farmers Insurance agency and uses the ICB income to tide him over until he starts his own insurance agency. Lenders are worried, however, that they're taking on greater default risks by unknowingly offering lower interest rates than they otherwise would to applicants who artificially boost their credit scores. Their trade group has complained to the Federal Trade Commission and is talking with the credit reporting bureaus in case the practice becomes more widespread. Estruch paid $1,800 in December for three credit card spots, and by January, his FICO score jumped from 550 to 715. In mid-March, he closed on his four-bedroom beige stucco house after obtaining a 30-year fixed-rate mortgage from a unit of American Home Mortgage Investment Corp. It carried a 7.5 percent interest rate and required no down payment.
And the punch line?:
"Everything now is score driven. I had a great mortgage history, but I got hurt because of my credit score," said Estruch, who also works as a mortgage broker, had bought and sold two houses previously, and currently owns another home in New York. Estruch said he's current on his mortgage payments.
HE'S A MORTGAGE BROKER!!!
So the mortgage industry is up in arms (pardon the pun) because they are issuing NINJA loans based on FICO scores and there may be people out there manipulating FICO scores? My heart bleeds for them.
Here's a question that I'll answer in a future post: Do mortgage brokers have a fiduciary responsibility to their clients? That is, when a mortgage broker is helping you find the financing for your house, whose needs are primary?
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