Many Don’t Link Late Bill Payments to Mortgage Costs

NEW YORK — Paying an electric bill or car loan a few days late seems harmless to many Americans, who fail to realize that a history of late payments can cost them tens of thousands of dollars when they apply for a home mortgage loan, according to a recent survey.

The survey by Fannie Mae showed that half of adult Americans fail to realize that chronic failure to pay bills on time can hurt the credit rating that determines how much interest they will pay on a mortgage.

Fannie Mae, chartered by Congress to buy mortgages from banks and package them as securities for sale to investors, said its annual housing survey showed high levels of confidence among respondents about their credit ratings.

“But the high percentage of Americans who don’t connect paying bills late with the potential for problems later when they try qualifying for a mortgage is a new and very disturbing trend, and we must find ways of reversing it,” Franklin Raines, chief executive of Fannie Mae, said in a statement released with the survey Monday.

Nearly a third of Americans polled told Fannie Mae that three late utility bill payments in the last year would pose no problem in qualifying for a mortgage.

Bankers agreed that many consumers don’t appreciate the importance of paying bills on time. Mortgage executives noted that a poor credit rating can wind up costing a borrower an extra $150 per month on a $100,000 loan. That’s $1,800 per month, or $54,000 over the course of a 30-year loan.

“We are looking for a good, stable pattern of payments,” especially for installment credits like car loans and previous mortgages, said Carolyn Hart, senior vice president of mortgage underwriting at Fleet Financial Group Inc.

Most applicants with chronic delinquent problems would fail to qualify for the most inexpensive mortgages, so-called A-paper loans.

Currently, the 30-year fixed rate for an A-paper loan is, on average, 2 percentage points lower than a sub-prime mortgage. On a $100,000 loan, the monthly payment on an A-paper mortgage would be roughly $150 cheaper than a sub-prime mortgage.

Alfred King, a Fannie Mae spokesman, said the company was preparing a consumer education initiative with other mortgage industry participants. He declined to elaborate.

The survey also found that:

* Only one in four respondents said that having enough money for a down payment and closing costs was a major obstacle for them, compared with an average 47% in surveys between 1992 and 1997.

* Use of the Internet to finance or refinance homes has stayed about the same since 1996, with 21% of respondents saying they definitely or probably would try it, compared with 20% in 1996.