Bad credit mortgage options remained non-existent for struggling homeowners seeking home refinancing with fixed rates and reduced monthly payments. Millions of homeowners have been turned down by mortgage lenders across the country, because of low credit scores, delinquent mortgages, negative equity or employment instability. Some homeowners may qualify for loan modification plans if they happen to have their mortgage collateralized by Fannie Mae and Freddie Mac. However, only conforming home mortgages qualify for the federal mortgage modification program. Jumbo mortgage loans do not qualify for the FHA mortgage, FDIC or federal foreclosure prevention plan, even if the homeowner resides in a high cost area like California, New York, Virginia or New Jersey.
Today the Minnesota-based credit score developer FICO released the results of a study measuring the breadth of credit card limit reductions as well as the subsequent impact to consumer’s FICO credit scores. The study is the first of its kind since credit card issuers began to heavily ramp up their credit limit reduction activity in early 2008. Here are some highlights of the FICO study: 16% of the U.S population had their overall available revolving credit reduced between April and October of 2008. With credit bureau databases holding 200+ million consumer credit files, this would seem to indicate that at least 32 million cardholders lost some of their credit limits during the study timeframe of April 2008 through October 2008.
11% of the U.S. population, or 22 million consumers, lost some of their credit limits for a reason other than risky credit activity such as making payments late, having accounts go to collections, or having a negative public record added to their credit report during the study time frame. Credit card inactivity or low balances likely caused the lowered credit limits for this group. The median FICO score in this group is 770, so the adverse changes to their credit limits are not a result of poor credit risk.
A recent Fair Isaac report indicated that 10 million consumers acknowledged that their credit limits were reduced by a credit card company or home equity lender. The financial companies that hold the debt on these credit cards claim that the maximum revolving debt for these accounts changes “because of some sort of risky credit activity including late payments, accounts in collections, or a negative public record added on their credit reports.” However thousands of consumers with good credit scores ( borrowers with no late payments and no increased risks) reported to have their credit lines cut or significantly reduced without any changes in the credit profile. Many of these consumers also claim that the reduction in credit limits caused their credit scores to drop on average of 40 points.
