Wednesday, December 30, 2009

Loan Modifications - the Underlying Truth for December 2009

I think everyone would like to know just 'how' to obtain a loan modification, whether they are underwater or not. For the majority of Americans, they don't qualify for many reasons including the fact that they reside in relatively stable areas and the real estate market is okay. For others who aren't so lucky and whom the government has extended relief through its proxies, the banks, there is a formula that was recently revealed.

Although this formula is nothing new and any B-school student understands it, for many it means the difference between a loan mod or foreclosure. Here is a recent post that gives a good overview:

What is a NPV test?

If you are trying to work your way through a loan modification you know what it is, if you are planning to get a loan modification you should find out soon.

NPV stands for Net Present Value. It is a financial concept that allows lenders to work out if it is profitable to make a certain financial choice. In the case we are currently considering banks and lenders use the NPV test to decide if it makes sound financial sense to approve a loan modification or not.

Passing the NPV test is paramount if you want to get a loan modification. Put simply if you fail this particular test there is no loan modification for you. The bank will simply foreclose your home and bite the bullet on any losses they have to deal with, you are not worth the risk of a loan modification.

Understanding how the NPV test works is therefore a priority for borrowers. The only problem is that many of the variables in the NPV formula are secret so that homeowners can’t rig the test. However there are some steps a homeowner can take to at least tip the scales in his favor.

The Net Present Value provides a way for lenders to quantify the current value of a property taking certain factors into account. These factors include the cost of foreclosing the property, the chances of the borrower defaulting in the future despite the loan modification, this is called the loan modification re-default rate, which unfortunately for borrowers is rather high.

What can you do to improve your chances of passing the NPV test?

As we mentioned above the exact formula and values of variables are secret to make it harder for delinquent borrowers to influence the test. The test calculates / guesses on various factors:

a) How many months you are likely to pay before re-defaulting.

b) What are the chances you can fix your own finances without the help of a loan modification.

c) The value of your home.

d) The estimated value of your home next year.

e) The cost of foreclosing your home.

f) What the house is likely to go for if it is foreclosed.

However there are three steps a borrower can make to improve his/her chances.

1) Make it clear that you really want to stay in your house. If you can prove that staying in your house is very important for you despite the financial investment you have vested in your home this will give added strength to your claim. You might want to stay in your home because you live near to your aging parents, or you don’t want to change your children’s school or it would be a huge embarrassment for you to go through a foreclosure. If you prove that you will do anything to avoid a foreclosure the lender might rate your risk of re-defaulting more positively.

2) The value of your home is critical for your NPV test. Banks expect homeowners that own underwater properties to default. After all why would someone keep paying for a house that is worth less than the mortgage? It is hard to influence the valuation of your home but the federal government’s home value projections change at the beginning of every quarter. Even if you were turned down one quarter there is a chance you could be accepted the next quarter.

3) Make a good case of your current inability to pay the mortgage but how you are very willing to pay if the monthly payments are reduced. Be prepared to back these claims with evidence. Prepare a budget and provide bills and other proof of your income and expenses.

Tuesday, December 22, 2009

Loan Modifications - Fact or Fiction

Several articles out this week about just how poorly the entire process is being handled. If you didn't know that, I must apologize for this harsh announcement.

In several recent stories, the number of loans actually being permanently converted are ridiculously small at less than 4%. Large banks like BoA haven't been able to convert very few, 'To illustrate, Bank of America, one of the U.S leading banks has only completed 98 loan modifications from the160,000 that have applied. That success rate is so low you need four decimal points to even see it on a calculator.'

Yet, the masquerade continues. Here is an article with some valuable pointers if you are so inclined. Cut and paste into your browser, please.

http://www.marketwatch.com/story/lenders-a-failure-at-mortgage-modification-2009-12-18?siteid=nwhreal

Monday, December 14, 2009

I must admit that even as a lender, I am woefully lost when it comes to loan mods, why? Truthfully, it seems to be a moving target that fluctuates with the daily political winds with no 'rhyme or reason' except expediency for politicians and bureaucrats. Also, I don't make any money doing them yet want people to know there is a possible solution for their problems. For the moment, here in two parts is the 'latest and greatest' guide to help you or someone you may know.


Loan Modifications Short Guide To Success Part 1 – The Problems

Obama’s loan modification program can be seen as a failure, if you focus on the millions upon millions that are benefiting, or as a modest success with over 650,000 borrowers on trials and 375,000 on the fast track to getting permanent modifications by January 2010.

As reported earlier the government is in the process of sending special task forces to win over, bully or cajole, depending on your point of view, the big lenders that decide how well the loan modification program goes.

The big question is why are loan modifications not working better with all the money, over $75 billion, being thrown at it. This article will look at some of the main problems that are creating the loan modification minefield borrowers are currently suffering.

Problem 1. Lack of information
Government firms like Freddie and Fannie are contracting the services of outside companies to go house to house providing accurate information on how to go about getting a loan modification.

This is a reply to lenders complaining that the main reason loan modifications are slow is that borrowers are really bad at filling in forms and providing the information required. Of course, the media is littered with counterexamples of model borrowers that provided all the information and battled with the conflicting instructions that lenders requested.

Problem 2. There is a lot of people that need Loan Modifications.
Around 7.5 million households in the U.S alone are delinquent on their mortgage payments. 25 percent of all borrowers are underwater in their mortgage, owning a home that is worth less than what the mortgage is worth.

Those figures are huge, to deal just with the paperwork, information and mechanics of dealing with so many people on a subject that so few of us understand is a big job that even if all the players wanted Loan Modifications to work it would be hard to do faster.

Problem 3. Banks are nearly as lost as the rest of us.
The simple truth is that even when lenders want to modify a loan it is not a smooth road because they are not used to dealing with this volume of modifications. Banks are already understaffed due to the recession and their mitigation departments are in no better shape. Add to this under-information about government programs, lost paperwork, changing fax and telephone numbers and you start to see why it is so difficult to process a loan modification.

Problem 4.The NPV test
The NPV test stands for Net present value. This test compares the money a loan is likely to generate if it is modified (and the borrower keeps the house and pays the mortgage at the modified rate) and what it is likely to generate if the modification is not carried out. The logic behind this test is not bad. Making loan modifications a profitable exercise for banks is good news, if you make it profitable your chances of making it happen grow exponentially.

However the actual formula to calculate the Net present value is according to many commentators unrealistic and allows lenders to shelve loans they should modify.

Problem 4. Banks often benefit from delinquency.
Banks often are not the actual lenders behind a loan but take on the job of loan servicers. Loan servicers collect payments and deal with borrowers but don’t own the mortgage. Loan servicers profit from delinquent borrowers and the late fees and higher interest rates they generate.

Many go as far as saying the loan modification trials are simply a trap loan servicers use to get three more monthly payments from borrowers that are beyond help and would not pay otherwise.

The problems that borrowers face when trying to work out their loan modification are pretty scary, our next post will deal on how we can face these problems and increase our chances of loan modification success.

Loan Modifications Short Guide To Success Part 2 – The Guide

Loan Modifications are not providing the help American homeowners need. Of the millions of troubled borrowers only a small percentage qualify for a loan modification trial and most of the lucky ones get stranded in the way.

Before we get into the practicalities of how to find your way through the maze of loan modifications it is worth spending a few words on the top reason why loan modifications are not working: They Don’t Address the Real Problem.

The real problem is unemployment and the Credit Crisis.

The fastest growing demographic for loan modification are prime mortgages. These are good mortgages, bought by borrowers with high credit scores that can’t pay their mortgage because of the increasing rate in unemployment. Unemployed borrowers struggle to get a loan modification because you can only qualify if you can prove you have nine months of unemployment benefits lined up. Most unemployed borrowers are unlikely to fulfill this requirement.

The other big reason loan modifications might not work for you is that your mortgage might be the least of your credit problems, you might be overstretched on your car loan, credit card loan, and other personal loans. Many commentators feel the government is trying to deal with a Mortgage Crisis when what they should be dealing with is the broader Credit Crisis.

First Step. Get the Information You Need.
Visit the government’s official website at www.makinghomeaffordable.gov . There you can find:
1) The current sponsored program the Government is touting.
2) Useful forms to help you compile the information you need to supply to lenders.
3) Find the closest government paid advisor that can provide you with personalized guidance.

Second Step. Decide what you can pay, and be realistic about it.
There is such a thing as a BAD LOAN MODIFICATION. After months of wasted time and resources some borrowers end up with a loan modification they still can’t pay.

You need to figure out what you can truly afford to pay on your mortgage every month. The government guideline is 31% of your monthly income but that might not work for you. Get some real figures together. How much do you spend on housing costs? What is your income, or average income if you’re self employed or work on commission. Put all this on paper, your lender will want a look at it.

Third Step. Tell the lender, giving you a loan modification is worth their effort.

Lenders are not charitable organizations. They lend for a profit not out of kindness. However if you can convince them that giving you a break is in their interest, that you are worth more as a borrower with a modified loan than as a foreclosure you are half way there. Explain the reason you are struggling to pay, illness, untimely death and losing your job are the reasons most likely to work.

Fourth Step. Put it in writing.

Send a written request for a loan modification. Make it short and to the point, one page should be enough, provide all the information you compiled in the earlier steps, why you need the loan modification, why it is a good investment for the bank, etc… Send all correspondence with your lender through certificate mail with return receipt requested, there are too many horror stories of lost forms.

Fifth Step. Call your lender.

Good idea to start with your loan servicer, the place you bought your mortgage from. Write down the name of everyone you talk to. Only talk to people who can help you and make decisions on your mortgage like officers in the mitigation department of your loan servicer. It is a good idea to send you letter with all your information to the person you have talked to over the phone.

Sixth Step. Be patient, follow up.

Unfortunately loan modifications can take as long as nine months (sometimes more) after you file in your application. So make a pain of yourself and follow up on the progress of your modification with calls, emails and faxes. Don’t underestimate the power of persistence, some officers might work faster just not to have to talk to you again on the phone.

Seventh Step. Get Help from the Professionals.

If you are not satisfied with how you are being treated contact the OCC. The OCC regulates all national banks. You can find a complaint form at www.occ.treas.gov/customer.htm

If you are having trouble working through any of the previous steps, like contacting your mitigation department, visit HOPENOW.org or call 888.995.HOPE and they will help you out.

You can also visit www.hug.gov for help in finding free certified housing counselors and www.loansafe.org for troubled borrower’s resources.

Wednesday, December 2, 2009

More on Credit...

Yessiree! There's more than meets the eye when it comes to loan modifications. A recent article pulls back the curtain just a tad. Check it out. By the way, I'm working with homeowners who are underwater, current and want to do something positive for their balance statement...just ask me!

Loan Modifications and Mortgage Modifications Can They Affect Your Credit Score

Loan Modifications and Mortgage Modifications are being sold like they are going out of fashion and both the Government and private banks are reporting successes in the number of loan modifications and mortgage modifications processed.

If you are desperate to keep your home and you are finding it difficult to pay for your mortgage payments a loan modification might be the option for you. However there is a question you must ask yourself. Is a loan modification or mortgage modification worth my trouble? There are a number of negative consequences that are attached to mortgage modifications.

Among them is the risk of paying more that the mortgage is already costing you in deferred and balloon payments.

Another issue related to mortgage modifications is the possibility your credit score could be affected. It might surprise you but taking a government sponsored loan modification could lower your credit score. The reason for this is that some banks and loan providers report loan modifications as partial payment plans. These plans include programs that reduce the debt of borrowers that can’t afford to pay their loan. FICO, one of the organizations that prepare credit scores from the information financial institutions quantify partial payment plans negatively.

This could make it harder for borrowers that take on a loan modification to buy a home in the future. Of course if you are happy where you live and you just want to save your home this should not be a problem.

First-time Homebuyers Tax Credit

A completely different type of credit that people are concerned about is how the mortgage crisis will affect previous government sponsored first time homebuyers tax credit programs.

These tax credit provide a tax break, a percentage discount or sometimes a dollar to dollar deduction from tax of any mortgage related expenses.

The government is as interested in promoting home purchases as it is to stop foreclosures so these programs have been extended. However the recession is affecting the U.S budget so it is wise to get on the first time homebuyers tax credit bandwagon while there is a wagon to ride. The deadline for applying for a tax credit has been extended so that purchase agreements must be signed before May 1st and closed by July 1st.

For more information on this matter visit www.federalhousingtaxcredit.com

The same applies for other tax credit programs like the HOPE scholarship tax credit, a sister program to the HOPE loan modification program. This tax credit program provides dollar for dollar tax breaks on college tuition, fees and course materials. This program will end next year so it pays to apply early. For more information visit www.finaid.org.

Tuesday, December 1, 2009

Take Caution When Using Debit Cards for Holiday Purchases

Tis' the Season of Joy and Wanton Spending! The following article has some pointers you may want to consider if you are also considering purchasing a house or refinancing an existing loan.

So "Ho...ho...ho! And enjoy it for the '...times, they are a-changin'!'

December 1, 2009—(MCT)—With the holiday shopping season in full swing, when consumers step up to the cash register to pay for their holiday purchases this year, a large percentage will pay with a debit card.

Debit cards have overtaken credit cards and other noncash methods as the payment of choice among consumers. Visa, the global payments technology company, said debit cards passed credit cards last December, representing a fundamental shift in consumer behavior. Gone are the days of cash and checks.

“In general, debit card use has been growing for many years, and we expect that trend to continue for the foreseeable future,” said Bob Whyte, head of consumer debit products, North America, at Visa. There are several reasons for the trend.

“There’s a perfect alignment of the product with the mood of the consumer today,” Whyte said. “There’s a recognition that debit cards provide a great sense of control,” he added. “There’s also a great appreciation for the safety of the product. It’s safer than carrying cash, which can be lost or stolen.”

Other reasons why debit cards have become increasingly popular include:
-Debt-laden consumers are trying to pay off their bills and don’t want to take on more debt. “A lot of consumers are using debit cards as a spending-control mechanism,” said Dennis Simmons, president and chief executive of SWACHA, the Dallas-based regional payments association whose members include financial institutions, businesses, government agencies and professionals. “Virtually all debit card transactions are deducted from someone’s checking account immediately.” In contrast, you typically have some time before you receive your credit card statement and the expenditure hits you in the face.

-Some consumers are using debit cards in a backlash against credit card companies, which have been raising annual percentage rates, slashing credit limits and instituting fees in response to new credit card regulations.

Card similaritiesOne of the main differences between debit and credit cards is that debit cards are linked directly to your bank account, while credit cards enable you to charge purchases against a preapproved credit limit.

But debit cards and credit cards are becoming more similar. Many financial institutions are starting to offer rewards on their debit cards, as they do with credit cards, Whyte said. Another similarity is cardholder liability. Federal regulations require financial institutions to cap your liability at $50 if you notify your financial institution within two business days from the moment you learn that your debit card has been lost or stolen. And many financial institutions have gone beyond federal regulations and adopted zero cardholder liability policies on unauthorized use of debit cards.

Take precautions- Despite the safeguards, debit card users should take certain precautions.-Protect your debit card as you would your credit card.-Pick a PIN or electronic password that can’t be guessed easily. Don’t use your birth date and personal names. Mix numbers and symbols in your PIN.-Memorize your PIN. Never write it on your card or store it with your card, and never let someone else enter your PIN for you.-Don’t disclose information about your card over the telephone.-Check your bank statements immediately to ensure that all payments are yours.-Periodically check your account balance and transactions, either online, by telephone, or by printing interim statements at the ATM.

Beware of overdrafts...a crucial concern for debit card holders is overdrawing their accounts. “Most overdrafts today are caused by debit cards,” said Carol Kaplan, spokeswoman for the American Bankers Association. Overdrafts have been a hot issue. The Federal Reserve recently imposed rules that will make it harder for banks to slap customers with overdraft fees, which one consumer group — the Center for Responsible Lending — said average $34 per transaction. The new rules will take effect July 1.

Consumer groups and lawmakers have chastised banks for using “courtesy overdrafts” to pay transactions even though customers don’t have the money in their accounts to cover them. The banks then charge account holders a high overdraft fee, consumer advocates say. Banks say they’re providing a service. The Fed’s new rules will prohibit banks from charging overdraft fees on automated teller machine and one-time debit card transactions unless the consumer opts in to the overdraft service for those types of transactions. “This new rule addresses the primary concerns that have been raised by consumers and policymakers and will help bring consistency and clarity to overdraft programs,” said Edward Yingling, president of the American Bankers Association.

Keep a cushionYou can avoid overdraft headaches with debit cards simply by keeping track of your transactions and recording them. Keep a cushion of money in your checking account and link your checking account to a savings account, so it covers you if you overdraw your account. If you use an overdraft line of credit, repay it as quickly as possible. Sign up for electronic alerts that automatically notify you when your checking account balance drops below a certain level.
Finally, know your limits. Many financial institutions limit daily withdrawals for your protection.

(c) 2009, The Dallas Morning News.

Monday, November 23, 2009

OK, the holidays are upon us and the deals are ever more attractive. Gotta buy...buy...buy! Without you the economy would fall into the black abyss of...well, nobody knows what. So, if you still have those credit cards and haven't shifted to a cash-based personal economy here are some tips to remember.

Top Tips to Improve your Credit

1. Review your current credit report for accuracy. Everyone is entitled to one free credit report per year from each of the three credit bureaus—Experian, Equifax, and TransUnion. Get a copy of your credit report and look at it for accuracy. First, make sure that the information in your file is about you and only you, not someone who has a similar name or a similar Social Security number. It is very common for your credit reports to have mistakes or incorrect information. At a minimum, make sure that the information you are being evaluated on is current and correct.

2. Repair credit report mistakes. If you find something on your credit report that is incorrect or missing, you should dispute the mistake by contacting the credit bureaus directly. All credit bureaus have their dispute procedures on their website. They are also required by law to investigate any disputed items and these investigations will usually be done within 30 days of your request.

3. Pay your bills on time. Sounds like a no-brainer, right? Payment history accounts for roughly 35% of your credit score. Paying bills on time is the most important thing to do. If you’re struggling to catch up, contact your creditors to work out a payment schedule.

4. Increase the length of your credit history. This accounts for about 15% of your score. Don’t cancel your old card or get a lot of new ones in a short time span because this can hurt your score.

5. Keep credit card balances low. It’s a good idea to keep the balances below 25% of your available credit. Even if you pay off your credit cards every month, a high average balance will impact your score. This accounts for about 30% of your credit score.

6. Keep new credit requests to a minimum. This accounts for 10% of your score. Every time a lender runs your credit, an inquiry is recorded. If you are trying to get a loan, don’t apply for new credit cards first.

7. Be aware that paying off a collection account will not remove it from your credit report. It will stay on your report for seven years.

8. Pay off debt rather than moving it around. The most effective way to improve your credit score in this area is by paying down your revolving credit. In fact, owing the same amount but having fewer open accounts may lower your score.

9. Beware credit-repair scams. By all means, don’t pay someone to wipe away the negative items in your file. If they don’t follow through, the damaging items will reappear in two or three months.

Sunday, November 8, 2009

'There's a change in them thar hills...' or so the quote goes. Yes indeed! Congress is passing all sorts of new rescue programs. If you are wondering about HARP and HAMP (I think HEMP is due in short order), read the following:

Loan Modifications Back To Basics

Loan Modifications can seem complicated to many of us. Especially when we are dealing with the stress of losing our home and we are presented with a seemingly endless list of requirements and forms to cope with. It is easy when writing many articles on a specialized subject to assume that everyone knows what you are talking about, that everybody is familiar with what HAMP, TARP, a servicing company, short sales and foreclosures are.

If you are an expert in loan modifications what on earth are you doing reading an article titled Back To Basics, if not this article is for you. This article will explain the big picture loan modifications are currently set in and the basic terms you must be comfortable with.

Who is the owner of your mortgage? Knowing who owns your mortgage is vital. This is not as easy as it sounds. Often the bank or institution you bought your mortgage from is just a handler, a servicing company that sells mortgages and collects payments on behalf of an investor. We will not go into detail with how mortgages are bundled and sold but it is enough to say that it is probably more complicated than you expect so it pays to approach your lender or mortgage servicer with large amounts of patience and an open mind. It is also a good idea to become somewhat of an expert on the subject so you can at least ask the right questions and know when you are being taken for a ride.

The Programs.
Facing mixed feelings and responses from the public the American administration has started many programs and measures to modify loans and make them more affordable for troubled homeowners. There are two main programs, the HARP program (Home Affordable Refinance Program) and HAMP (Home Affordable Modification Program).

HARP is for homeowners that are current on their payments but have not been able to take advantage of the current lower interest rates because the value of their home has dropped and they are not able to refinance their mortgage. In order to qualify for HARP applicants must have mortgages owned or insured by Fannie Mae or Freddie Mac.

HAMP is by far the most widely used program. Any servicing company is eligible. The government provides incentives to investors and borrowers if a loan modification is successful. The purpose of HAMP is to bring mortgage payments down to 31% or less of a family’s monthly income. This program requires homeowners to have a job and be able to pay for a reasonable mortgage payment. The first step you must make with HAMP is to qualify for a three month trial loan modification. Once you have gone throught the three months without missing a payment you can qualify for a full loan modification.

HAMP reduces loan payments with three main methods: 1) Reducing interest, 2) Extending the mortgage term up to a maximum of 40 years and 3) Forbearance of principal and allowing for a ballon payment at the end of the mortgage.

Don’t pay for help, it is free!
It is importance not to fall for loan modification scammers no matter how much you hate paperwork. The best advice comes from the government and they have a vested interest in your success. You can call HUD for approved housing counseling at 239 434-2397 or visit www.hud.gov.

Sunday, October 25, 2009

More Foreclosures on the Way - Take Advantage

The other day I wrote that more properties were headed to market in the not too distant future. Well, the other day one of the trade rags wrote the following:

Treasury Says Millions More in Foreclosures are Coming; Are You Ready?

RISMEDIA, September 17, 2009—According to recent announcements by the U.S. Treasury Department, another wave of foreclosures is on the way in 2010. For over a year, now, we’ve been digesting foreclosures and distressed properties and it looks like we’ll all be doing it for another year or so. It’s too large a market segment to ignore: in some parts of the country, distressed properties account for about 65% of sales these days.


With more properties coming online, perhaps you should consider how to participate. Broken down to its simplest truth, the foreclosure craze breaks down to this -everyone wants a bargain, and it is a fact that a great many people who rise to the bait of foreclosure properties are simply looking for a bargain. Nothing drives investors like smelling bargains, and there are bargains aplenty in most markets these days.

Government financing continues to be attractive and prices remain low. Give me a call to discuss your ability to purchase a property.

Saturday, October 17, 2009

Numbers, numbers everywhere but who to believe?

Just the other day, I heard that wise souls at USD devined there to be almost 7 million houses in default across the country in what has recently be termed 'shadow inventory'. This includes short sales, short sales pending, foreclosures, pre-foreclosures, foreclosures and short sales under contract, and 30-60-90 late payers on loans in addition to whatever the banks have been holding back from the marketplace. That number is 5.5 million more than is being bantered about by banking authorities.

Why such a large discreptancy? That is a tough question and although I don't have the answer I know that as I look around different mediums the reportage of numbers is astonding. Just like the deficit and all of the money being thrown hither and yon, it all just seems to flow with no meter on the open tap. Of course, banks are more than reluctant (see article below) to share numbers or be proactive out of shear fear or greed.

So, you might think that this newly redefined 'shadow inventory' of 7 million is ripe for the picking, and that good deals are 'just around the corner'. Yet, if the recent past is any indicator of the future it is my opinion that the banks will continue to be stingy in settling short sales, providing meaninful loan modifications, and miserly in doling out foreclosed properties to the marketplace because they can!

The following article gives a glimpse into the reason they can...



Creative Ways a Loan Modification Lowers Your Monthly Payments

Creative is probably not the first word that comes to mind when you think about loan modifications. There doesn’t seem to be many new ideas in the loan modification department.
The Government is definitely doing its best to reach the borrowers that need the help, especially those that reach those that can pay affordable mortgage payments. This helps “guarantee” the government is not throwing away good money after bad with borrowers that overstretched themselves and cannot afford any reasonably monthly payment.

However all signs show that these programs are not being as successful as they hoped. But how do loan modifications lower, or attempt to lower your monthly payments. The first and main way is by lowering your interest rate. Actually one of the main purposes of loan modifications is to allow homeowners whose homes have dropped drastically in price to still take advantage of the lower interest rates now available. The problems come when low interest rates are not enough. The government is currently trying to drop interest rates to around 2%. However if this level of interest rate is still too high to make your monthly payments affordable there are still some options open to you. You servicer or lender can still extend your payment term.

This means you will extend the amount of time you take to pay your loan. This idea is pretty intuitive if you owe $1,000 and you have to pay it in 10 months you have to pay around $100 plus interest. If you can pay it in twice the time your payments should be half as much plus interest. Servicers can extend the loan to up to 40 years which can have a drastic effect on your loan payments even though it keeps you in debt well into your eighties.

What if all this is not enough? What if you still can’t afford your monthly payments? Your lender or service provider can actually defer a portion of the principal (original) amount you owe until the maturity of the loan. We call this a principal forbearance. This does not mean the debt or part of it is forgiven just deferred or set aside until you sell your home or the rest of your mortgage has been paid. This option can be very effective in lowering your monthly payment but will create a balloon payment on your mortgage. This means that your payments will be lower monthly but you will have to make a very large payment at the end of the mortgage. This can be beneficial if you are planning to sell your home and cut short your mortgage anyway or if you want a break in your monthly payments now and expect your income to increase in the future.

Another option, not very popular with service providers is to simply forgive the principal owed. This is a long shot to say the least but still worth a try. Service providers are not required to do this so don’t keep your hopes too high.

Thursday, October 1, 2009

Loan Modification Primer

Ok, I've refrained from saying much about the loan mod program mostly because so few loans are being recast as to make the topic 'rarified'. However, in the past week or so I've met people who have accomplished the task and apparantly done well by it. They certainly think so, and they are the clients. On one hand the debt reductions sound impressive while on the other one must look at the current market value to see if they've truly been repositioned and are no longer 'under water'. That being said, for those of you curious as to the steps and procedures, please read the following;

Loan Modifications Eligibility Criteria, The Rules Explained.

Providing loan modifications to those that need them and are eligible according to the current criteria is the goal of the cash happy loan modification aid program.

The goal is to keep out scammers and those who wish to take advantage of the system while not letting the “deserving” fall through the cracks. This is an ambitious goal. As we have discussed in previous blogs making good rules that keep out the cheats and welcomes the eligible is very hard.

Here is the current ten point criteria for loan modifications:
1.) Loans must be conforming conventional loans or conforming jumbo mortgage loans and they must have been contracted before January 1, 2008. What is a “conforming” loan is changing all the time.
2.) You must be three payments past due. This requirement was happily dropped. You don’t need to be behind in your payments although you must be able to prove you can’t pay your mortgage payments but could afford those of a modified loan.
3.) The loan is secured by a one-unit property and must be the borrower’s primary residence.
4.) The current mark to market LTV must be of 80 per cent or more.
5.) Property must not be abandoned, vacant, condemned or in serious disrepair as well as being the borrowers primary residence.
6.) The goal of the loan modification is to reduce monthly payments to 33% of the homeowners monthly income. In order for this to occur, servicers may:
7.) Capitalize accrued interest, escrow advances and costs as far as state law allows.
8.) Extend the term of the mortgage (tenure) by up to 480 months (40 years).
9.) Reduce the mortgage loan interest rate in increments of .125% to a fixed rate of no less than 3%. If this causes the rate to be below market rate it will step up in annual increments to a market rate after 5 years have passed.
10.) As a last resort eligible borrowers will be provided principal forbearance which will result in balloon payment. This means payments will be kept low while the big money is paid when the house is sold or the loan matures.

Some of the points of this criterion are under their third or even fourth revision so checking for accuracy is wise. The key criteria is to be able to afford the reduced monthly payments. If you can’t afford a reasonable loan modification there is little hope. This does not mean unemployed borrowers are automatically barred from loan modifications but they must provide some proof of income or prove they are likely to find employment soon.

The methods the government suggests to reduce monthly payments are rather bold which explains why many banks are doing their best to drag their feet as in many cases it actually costs them money to provide the loan modification.

Tuesday, September 29, 2009

$8000 Tax Credit is Worth Going For!!

If you, or someone you know, is interested in buying a property as a 'first time homebuyer' - that is someone not owning property for the past 36 months- the following video is worth watching and passing along.

Now is definitely a very good time to buy because (1) interest rates are remarkably low (5% or less), (2) house prices are quite low, and (3) it's pretty easy to get qualified if you can put down at least 3.5%. Oh yes, and there is a tax credit of $8000 which is kinda like earning $40,000 and not paying taxes on it (for someone in the 20% tax bracket). Yes, it is pretty kewl!

The only drawback is that there isn't much time left, so call and let's get you or someone you know 'preapproved' for a loan to make the purchase. It really is THAT Easy!

Monday, September 21, 2009

When Banks Don't Play Fair

For the next few posts, I'm going to offer you some insight into the shambles the Loan Modification program has become...or actually how it began and is now ever worsening. Don't get me wrong, of the +800,000 proposed modifications under the Administration's current plan, there will be about 45,000 (U-T 9-20-09) getting modified this next year, or about 5%. Ouch!

Here is a recent article that does a good job of exposing the lenders for what they are...sharks!

Loan Modifications: What to Do When Banks Don’t Play Fair
Posted: 19 Sep 2009 03:16 PM PDT

They say that crisis bring out who we really are. If that is so, things are not looking that hot in the financial sector. As the credit crisis deepens banks are acting more and more conservatively when it comes to loan modifications and mortgage refinancing.

Some would say that bailing out homeowners is wrong. We should all be responsible for our decisions and there is nothing wrong in renting. I would have to agree with this. My parents have worked all their life, still rent a humble apartment and are probably the happiest couple I know.Having said that if the government have decided to provide breaks for families that are struggling to pay their mortgages and are willing to pay mortgage providers for the privilege the least banks and servicers can do is take the cash and help out as much as they can, especially as they have been recently recipients of bailouts themselves.

Instead of showing empathy to the situation of desperate homeowners that are scared of losing their homes they are acting as what they are, profit based organizations. No surprises there, a capitalist economy is based on the assumption that companies are going to do what is best for them, not for the greater good. However that does not mean they should be allowed to break the rules and stall procedures for their own advantage.

Banks that don’t seem to understand the rules of the game.

What is especially scary is when banks don’t seem to understand the requirements for a government sponsored loan modifications. As an example, a recent story was published that involved Citimortgage loan. After an arduous procedure the homeowner in question was able to qualify for a loan modification and enter the 3 month trial. His mortgage was reduced to $1503 from $1727 a great difference for a family with three kids under the age of 5.Just before final approval was achieved Cit changed the monthly payment to $1817, a $90 increase to cover an increase in the insurance, even though they had not been approved for the loan modification. If they had have been approved for the loan modification there would have been no grounds for increasing the insurance as both the taxes and insurance are included in the reduction of monthly mortgage payments to 31% of the monthly income.

The homeowner then contacted the bank and was told that because he had recently filed bankruptcy he was no longer eligible for a loan modification. However there is not information in the loan modification literature provided by the government on bankruptcy disqualifying a homeowner that can afford the modified payments.

Contacting the government programs and asking for their help and assistance is probably the best way forward in these circumstances when banks are unwilling to budge.

Stalling to the eleventh hour.Another practice that seems to be popular with mortgage providers is to stall proceeding until the last minute. That was the case with a homeowner whose mortgage was owned by Wells Fargo. Paperwork was lost twice (which seems to be a common happening with loan modifications) and resubmitted by FedEx at the homeowner’s expense. Once the homeowner contacted Wells Fargo they were required to fax further information even though they had been assured that they had all they needed. It does seem disturbing that the homeowner was the one that had to contact the bank to find out they needed to send further information.

After stalling a reply for months and when the mortgage was close to foreclosing the homeowner was told they did not qualify for a loan modification but that they could offer a $11,000 loan. Why a homeowner that is struggling to make payments on his mortgage would want another loan on which to make monthly payments, I don’t know. This does seem to be a bad way to carry business, dangerous to the economy and homeowners.

The only way to fight these abuses or mistakes is to arm yourself with information. Contacting government organizations is the best step. Explain your circumstances and ask what your best options are. In this case free advice is the best money can buy because it is unbiased which is much more than can be said of most loan modification companies.

Sunday, September 20, 2009

Over the past year, there has a 'hue and cry' coming from many of the homeowners who are upside down and searching for some relief through a loan modification. It confounds the average person as to why banks are not more eager to help, and are now actually part of the problem instead of the solution.

The article below was recently posted and I'm passing it along so that you can get a sense of the idiocy and frustration that is coming out of the current misguided program. Until there is some accountability added into the system, and the various silos inside the banks are better educated and empowered, we will continue to see a mishmash of results with the public being frustrated.

Loan Modifications, Judges Frustrated by Banks Nonchalant Attitude Posted: 19 Sep 2009 03:13 PM PDT

Nationwide Judges are receiving complaints against banks and mortgage providers for dragging their feet and not providing the customer service that is to be reasonably expected. Especially since the government is paying for mortgage providers to deal with loan modifications as fast as possible.Unfortunately Banks and service providers are not carrying out loan modifications as fast as was expected by the government or hoped by homeowners. I find this hardly surprising.

If I had a business and was asked to spend money to reduce the monthly income I receive from a debtor I would make sure I was suitably compensated. The fact is that in some cases banks end up worse off when they modify a loan.What is not so easy to empathize with is when banks systematically stall procedures, lose paperwork and change their requirements systematically. This has been the story that has been told nationwide and some judges are starting to tire of it all.One case that has hit the news is that of Bobbi Giguere, initially published on the New York Times. Mrs Giguere submitted her paperwork three times to no avail.

Last Thursday an interesting turn of events occurred at Judge Randolph J. Haines courtroom. Judge Haines instructed Mrs Giguere to question a Wells Fargo high ranking executive on the bank’s lack of response towards her loan modification.Judge Haines explained the irregular procedure as a response to the growing concerns about Wells Fargo’s mortgage modifications practice.The problem is that this is not an isolated case. Consumers nationwide are complaining (that is certainly not new) about the difficulty of getting a response from their mortgage servicers. This is threatening the success of the Obama Administration’s loan modification plan.

While banks and mortgage servicers stall their response many homeowners foreclose on their mortgages and lose their homes which in many cases is good news, or the least of two evils for banks and loan providers.The questioning of Mr. Ohayon the Wells Fargo executive was carried dramatic enough to be part of any lawyer movie. Mr Ohayon initially stated that Mrs. Giguere had repeatedly failed to provide a financial worksheet, a critical document for the loan modification to be processed.Then came the fun part, what courtroom dramas are all about. Under cross examination Mrs. Giguere produced the letters Wells Fargo sent requesting the paperwork required for the loan modification. She asked Mr. Ohayon to read the letter and he was forced to concede that the letter did not ask for a financial worksheet.

This irregular procedure in which a Judge requires a large bank corporation like Wells Fargo to place an executive on the witness bench shows the federal frustration on the way loan modifications are being carried out throughout the United States.

Thursday, September 17, 2009

How FHA is Helping Rehab Some Communities

A lot of clients ask me about a program they've heard of for rehabilitating properties, of which there are two. One is a 'streamlined' version and allows for up to $35,000 in cosmetic improvements (but significantly less is actually available after closing the loan) and the more robust, 203(k) program.

If you are looking to buy a property that can use some modest and minor work, the streamlined loan will work just fine. For something more involved, you'll want to look into the other product. Here is an interesting article for your reading enjoyment:

FHA 203k Loans Today
Posted: 15 Sep 2009 08:09 AM PDT

Foreclosures have struck communities across the country in the wake of the subprime meltdown and ensuing housing slowdown.

While the FHA continues to garner headlines as an increasingly attractive lending option for prospective homebuyers, one of the agency’s lesser known programs may hold the key to helping to rebuild neighborhoods nationwide.

Government loans are headed for a record year in 2009. The FHA’s traditional home loan program has grabbed significant market share in the last fiscal year. But its unique program for purchasing and refurbishing rehab properties is gaining momentum.

The FHA 203(k) program provides qualified borrowers with fixed-rate and adjustable-rate mortgage options, which can be used for buildings anywhere from one- to four-family in size. Down payments, like the traditional FHA loan, are as low as 3.5 percent. Generally, the FHA will set the loan amount based on what the agency thinks the home will be worth upon completion of all rehab work – that includes the actual costs of repair.

Buyers can even use the 203(k) program on structures that were torn down, provided there’s some semblance of foundation at the site. A 203(k) loan can be used to cover rehabilitation costs such as room additions, painting, building decks, and a host of other alterations. Other acceptable refurbishing includes:
Roofs and gutters
HVAC systems
Plumbing and electrical
Flooring: carpet, tile, wood, etc.
New windows and doors
Weather stripping & insulation
Stabilizing or removing lead-based paint
Basement completion and waterproofing
Septic or well systems

Buyers can also take advantage of the FHA’s Energy Efficiency Mortgage program and finance into the mortgage the cost of significant efficiency improvements. There are specific values and dollar limits for the agency’s EEM program.

Underwriting standards can at times be stricter for 203(k) loans, although there are no income or credit score restrictions to qualify. In most cases, the rehab work must start within 30 days of closing, be complete within six months and be professional in nature.

The 203k program doesn’t cover things like luxury improvements, which homeowners have to pay for from their own pockets. To learn more about FHA 203k loans, visit the HUD website here.

Saturday, September 12, 2009

As the Credit World Turns

You may remember sometime back I predicted that the underlying algorithms for Fair Isaac's FICO would change to accommodate the millions of folks who have (or are) losing their homes as well as the many more millions (many of the same as above) who are in credit card default hell. In order to win the foreclosure battle the way the Government has chosen to fight it, there must be relief so that people can get back into a house.

I also predict that underwriting standards will be changing some time soon to allow people easier passage through the lending process. I'll keep you abreast of that as it happens. In the meantime, this article I read the other day clearly shows how and why new FICO modeling is needed:

Is the New Credit Score Model Helping Home Buyers?

Print Article Print Article

RISMEDIA, September 9, 2009—Credit Expert Eddie Johansson believes the improved FICO 08 credit scoring model will increase the credit scores of a significant segment of borrowers, but it’s not helping home buyers. According to Johansson, president of Credit Security Group, a leading nationwide credit analysis and rescoring firm, that’s because the largest sources of home financing, Fannie Mae and Freddie Mac, have not yet approved it.

“When Fannie and Freddie approve it, it has arrived- but not until then,” he said. Neither organization has provided its schedule or intentions for approving the FICO 08-based credit scores available from two major credit bureaus. Credit scores help lenders determine whether a mortgage loan is approved and the interest rate offered. In general, the higher the score, the easier it is to get a mortgage loan and the lower the interest rate.

Johansson said his analysis predicts the new model- if approved- will have the most impact on the current refinancing boom and mid-to-higher-end home sales. Speaking to 150 bank executives at the Independent Bankers Association of Texas Leadership Conference in San Antonio and to banking educators attending the Financial Literacy Summit at the Federal Reserve Bank of Dallas, Johansson said, “If it’s implemented as expected, it is a great opportunity to boost the housing market.” Johansson believes the new model will be a more accurate measure of credit risk. “It takes into account more of the borrower’s history and penalizes them less for a single unusual event,” he said. “It also has more score card levels, allowing finer adjustment of credit scores.” He said it will reduce the power of unscrupulous credit collectors too, since a single bad event- reported in error- will have less impact on scores.

FICO 08’s developer, Fair Isaac Corporation, predicts it will help lenders reduce default rates on consumer loans 5 to 15%.

Fannie Mae and Freddie Mac own or guarantee almost 31 million home loans worth about $5.4 trillion, which makes it all the more important that they approve the new score model.

For more information, visit www.creditsecuritygroup.com.


Read more: http://rismedia.com/2009-09-08/is-the-new-credit-score-model-helping-home-buyers/#ixzz0QwXxVZBx

Thursday, September 3, 2009

New Regulations, FICO Study Big News for Credit Card Holders

To take some attention away from the housing debacle, here's an update on what has become know as the 'credit card debacle' where major companies like American Express, Visa and the like have taken a terrible bath both in lost revenues and defaults.

New Regulations, FICO Study Big News for Credit Card Holders By Pamela Yip

RISMEDIA, August 31, 2009-(MCT)-Last week brought significant news to credit card holders. First, the initial phase of a landmark bill overhauling credit card laws took effect, and a new study shed light on the growing practice of credit card issuers’ slashing consumers’ credit limits.
The most significant aspects of the new legislation don’t go into effect until February 2010 though. Those provisions include restrictions on interest rate increases and marketing credit cards to people under 21.

Meanwhile, the rules that just kicked in mean that:
-Card issuers must mail credit card bills at least 21 days before their due dates. That’s up from 14 days. “Don’t look at this as an extra week to wait and pay your bill,” said Bill Hardekopf, chief executive of LowCards.com and author of The Credit Card Guidebook. “Keep your regular payment schedule and be appreciative for the extra cushion to make sure your issuer receives it on time.”
-Card issuers must give you the option to avoid future interest rate increases and pay off any outstanding balance under your current rate. If you take this option, you won’t be able to make additional charges on that card, and you must pay off the balance within five years. “If you opt out, you must let the issuer know in a timely manner by mailing an opt-out letter to your issuer declining the rate increase,” Hardekopf said. Be aware that you may have to pay more each month to make that five-year payoff deadline. “The bank can cancel the card and make you pay it off under your old terms, but with a higher minimum payment,” according to Consumers Union. “Your new payment could be double your old minimum payment, or higher, if needed, to pay off the card in five years.”

-Card issuers must give you at least 45 days’ notice before making major changes in terms, such as changing your interest rate or the fees they charge. That’s up from 15 days. Other card changes that require at least 45 days’ notice include an increase in your minimum payment and switching your fixed rate to a variable rate.

The law doesn’t require advance notification if an issuer closes your account or cuts the credit limit on your card-as many readers report having happen to them. One reader had a $20,500 limit slashed to $5,100 – a 75% cut. Fortunately, she pays off her bill each month.

I have been intensely interested in how much credit scores would suffer from chopping the credit limit. The study released by FICO, the company that produces the most widely known credit score, shows the impact isn’t cut and dry.

Consumer who carry high balances and have their credit limits sliced too close to their balance could see their credit score suffer. For others, the impact may not be as acute as you’d think.
According to FICO’s study, card issuers sliced credit limits for an estimated 33 million U.S. card holders between October and April. An estimated 24 million consumers saw their credit limits reduced despite the absence of any new “risk triggers” during the study period. Those card holders generally had low balances, didn’t use up a lot of their available credit, had very few-if any-reports of missed payments, and had a long credit history. About one-third of the group, or 8.5 million, saw their credit scores drop after their limits were cut, typically less than 20 points, FICO said. The cuts had “negligible impact” on the scores of about 3.5 million people, and 12 million consumers saw score increases.

But the study also found that credit scores fare best when consumers keep credit card balances low. Credit counselors advise not using more than 30% of your available credit. “Consumers who use 70% or more of their available revolving credit were found to be 20 to 50 times more likely to become delinquent on a credit obligation within the next two years, compared to consumers who use less than 10% of their available credit,” FICO said.

The bottom line is, if you want a high credit score, pay your bills on time, keep your balance low and apply for credit only when you need it.

(c) 2009, The Dallas Morning News.Distributed by McClatchy-Tribune Information Services.

Stay tuned for more FICO changes...

Friday, August 28, 2009

New credit scoring model may boost some borrowers' scores

I have said for some time now that credit scores will be adjusted to reflect the current hard times for so many people. Although the article below is addressing small items under $100, it is probably the first in a series of algorithm changes that will eventually downplay late mortgage payments and perhaps even foreclosures. The times they are a-changin'!
Making the grade

By Amy Hoak, MarketWatch

CHICAGO (MarketWatch) -- Even the most responsible borrowers slip up sometimes.

Maybe a utility bill went unpaid after you moved and the missed payment went into collections. Or, perhaps there are unpaid library fines or parking tickets in collections that are hanging onto your credit history and affecting your FICO credit score, which is widely used by lenders to evaluate your ability to repay a debt.

With the newest version of the FICO credit-scoring system, however, minor delinquencies are now overlooked in calculating creditworthiness.

Under the updated scoring model, called FICO 08, small, missed payments lingering in collections with original amounts of $100 or less will no longer do damage to your credit score.

Consumers also are less likely to be penalized for any single delinquency if it occurred two or more years ago -- and if their credit history is otherwise unblemished, says FICO , formerly Fair Isaac Corp., which developed the FICO scoring system.

"There's more flexibility with missing a payment," said Careen Foster, director of global scoring product management for FICO. "If you have a more habitual pattern of paying accounts late...you're more likely to get penalized for that."

If a consumer's credit usage is high, that will be more likely to hurt his or her score with FICO 08. But getting close to your credit-card limits -- even if you always pay on time -- is penalized in some way in every FICO score, not only the recent edition, Foster said.

The new system has been available at all three credit bureaus -- Experian, TransUnion and Equifax -- since last month.

The changes were made to provide lenders with a better risk assessment of borrowers, said John Ulzheimer, president of consumer education for Credit.com, a consumer education and advocacy site. FICO decided that one small library fine didn't really predict whether a consumer was likely to default, for example.

With the changes, individuals who pose a low credit risk will probably see their scores rise a bit, and those who are high risk could see their scores drop, he adds.

FICO 08 also addresses "piggybacking," a practice used by credit-repair companies to help people improve their scores, Ulzheimer said. In piggybacking, an individual pays to become an authorized user on a stranger's account. The account holder gets paid for allowing the person to be associated with the account, and the new authorized user is able to improve his or her credit score.

"It was a practice to...misrepresent what your credit looks like to your bank," Foster said.

FICO 08 aims to single out individuals who are named as authorized sources through deceptive means, Ulzheimer said. Those people won't see their credit scores rise as a result. But the scores of legitimate authorized users will be treated as they always have been.
Adoption Rate

Borrowers shouldn't expect their credit to be graded by this new scale on every loan they now apply for. Not all lenders have adopted the new model, though more than 400 lenders are using or testing FICO 08, the company said.

In a statement, Equifax said, "Currently, many lenders and businesses are validating the new score within their systems, and adoption will vary by financial institution based on business requirements and market need."

Many credit-card companies, auto lenders, regional banks and credit unions may have already adopted FICO 08, Ulzheimer said. But for mortgages, lenders doing traditional conforming loans backed by Freddie Mac and Fannie Mae likely haven't made the move yet, he said. That's because they're waiting for Freddie and Fannie to approve its use. Freddie Mac and Fannie Mae "are essentially the lender... they're the ones that set the underwriting criteria," he said.

Ulzheimer said he expects Freddie and Fannie to adopt FICO 08 by the end of the year. Fannie declined to comment on FICO 08; Freddie wasn't able to provide a comment prior to publication.
Improve Your Credit

While FICO 08 will help consumers' credit scores in some cases, people still should take steps to improve their credit. Granted, it's impossible for consumers to calculate their FICO scores themselves, said Rodney Anderson, of Rodney Anderson Lending Services in Plano, Texas.

"It's almost like the Coca-Cola formula. No one has access to the Coca-Cola formula, no one has access to the FICO formula," he said.

But by being proactive, you can start to work toward a higher score, something that will serve you well every time you apply for a loan.

Some suggestions:

*

Monitor your credit reports and correct errors. Look not only for negative events on your record, but also examine the credit limits to make sure they're accurate. If the credit limits appear lower on the report than they actually are, that has the potential to hurt your score, Anderson said.
*

Pay bills on time and keep card balances low. Your payment history, and the amount you owe on your accounts as a ratio of the amount of credit you have access to, are important components of your score, Foster said. FICO 08 is more sensitive to high credit usage, and consumers may see a lower score if their reported balance on one or more cards is near the account's limit.
*

Take on new credit only when you need it. Some credit cards come with great offers, including a percentage off your bill if you sign up for one at the cash register. If you accept, make sure you're getting a big enough benefit to make it worthwhile -- taking on additional credit could end up dinging your score, Foster said

Wednesday, August 26, 2009

Delay and Pray

I'm back from burying Dad and helping Mom with her transition to a new reality. There is no way to delay the inevitable, and perhaps no way to prepare for it. Things kept rolling along in my absence with deals coming together and falling apart, all to the beat of giant juggernaut we call life.

Upon my return I spoke with Kelly, a longtime friend and client, about the current real estate market. When we began looking for a place for her to buy last April there were all of 67 properties along the 78 corridor. At the first of this week there were 57, most being short sales and in some state of negotiations presumably. In the end, nothing Kelly wants to buy.

So she asks me, 'What's going on? How long before the floodgates open?' A wonderful question, one that so many of us are pondering. My answer was along the lines of this great story from Marketplace radio on KPBS.org. Listen and learn:

http://marketplace.publicradio.org/display/web/2009/08/26/pm-banks-q/

My prediction is that as soon as the first time home buyer tax credit expires, there will be a flood of properties. The result of this I only dare to think.

Friday, August 7, 2009

Taxpayers Tax Breaks Do Have a Time Limit

The Clock is Ticking - Taxpayers Need to Act Fast to Take Advantage of Temporary Tax Breaks

clock_cnsmr_8_7 [1]RISMEDIA, August 7, 2009-If the first half of 2009 is any indication, taxpayers have their work cut out trying to keep up with available tax

Saturday, August 1, 2009

New Credit Card Rules Spells Good News For Debt Relief

One of the greatest culprits for serious debt problems are credit cards. Obviously it is our bad use or management of credit cards that causes the debt problems, you can’t blame a gun for what its owner does with it. Nevertheless some guns are more trigger sensitive than others, and it’s not the same to own an automatic machine gun than an air gun. It’s all about understanding the rules of the game and what the real cost of your credit is. The Obama administration have backed the implementation of new credit card rules that will help many of us to save money and stop paying so much of it to the banks in fees and penalties.

What are the new rules?

Raise interest rates on existing balance. This is a great victory for consumers. This is a little known tool banks had in their arsenal of money making methods. In fact most of us probably didn’t know the bank could increase the rate of interest on our credit card without asking. If you think of it that is pretty crazy because the interest rates on credit cards are already huge.

Payments will pay off your most expensive debts first. Borrowers using credit cards, especially when transferring balance from one card to another, can find themselves with different rates of interest for debts on the same card. Previously there was not guideline or rule on which part of the debt banks must use your monthly payments to cover. Obviously banks had an incentive to pay the cheaper interest rates first and leave the most expensive rates to last. With this new credit card rule that will not be a legal course of action for banks that must allow borrowers to pay off their most expensive credit card debt first.

Other cards can’t penalize you for missing a deadline on another cards. We all know that banks are a closed knit community. They might compete against each other but when they are dealing with borrowers data, credit record and payment history they are happy to share their knowledge. They can still share information on delinquent credit card payers but can’t hold it against them.

None of these measures will stop the banking industry from making more and more money on our misuse of credit cards but it has plugged some holes banks will no longer abuse.

(by Andrew on July 29, 2009)

In order to take advantage of current, low mortgage rates and home buying opportunities, let's discuss your current debt and how to make it work for you. Give me a call at 760.740.5111

Thursday, July 23, 2009

Housing in a nutshell: Foreclosures up. Sales up. Prices down.

Housing in a nutshell: Foreclosures up. Sales up. Prices down.

New research by Paola Sapienza of Northwestern University and Luigi Zingales from the University of Chicago, provide interesting insight into the foreclosure tsunami.

In the 1990-91 recession the study found that very few people who could afford their mortgage walked away from their homes. The magic number was 10. When equity declines exceeded 10% of the value of the home, owners started to waiver. A 10% loss and the default rate begins to rise. A 50% loss of home value and 17% of all owners preferred default to staying in the game.

The study concludes that in this cycle, a large segment of foreclosures were driven by a different metric. One in four recent mortgage defaults are strategic. Buyers of property make a business decision to walk away because they no longer like the deal. For 25% of all foreclosures, today, its not inability but unwillingness to make payments.

The study makes an interesting observation. The Obama administration is focused on cash flow to owners to keep them in their homes. This study points to a different reason for a large segment of foreclosures. Many people wont stay in their homes when the value of their mortgage exceeds the value of their home by 10% or more.

If the study is correct, then writing down the loan would significantly stem the tide. Since lenders are unlikely to do so, Im betting we will continue to see foreclosures for quite a while.

Monday, July 13, 2009

7 Options to Avoid Foreclosure

Falling behind on your mortgage payments? Here are 7 options you need to know about to avoid foreclosure.

It is all too often these days that I am talking to people who are in a bind with their mortgage. They usually fall in to one of 3 groups:

* They have taken on too much mortgage debt with a large home or previous cash-out refinance
* They have fell on some hard times, either through a loss of a job, injury or loss of a spouse
* They have recently had their mortgage payment adjust and they can no longer afford the higher payment

The first option that they look for (and that we try to consider) is a refinance out of the existing mortgage and in to one that is more manageable in terms of the monthly payments needed to keep the debt in good standing. While this may not be the “best” option it is the one that people gravitate towards initially. Refinancing was easy over the last few years:

* Sky-rocketing property values ensured that consumers could count on home appreciation to help them pay off debt and pull cash out of their homes
* Interest rates continued to drop or remain low
* Credit guidelines became looser and made qualifying for loans easier than ever

However, today things are much different.

* Home prices are falling
* Interest rates are rising
* Equity is tapped out
* Credit guidelines are tougher

All of this means that refinancing is not always an option for homeowners who suddenly find themselves unable to handle their mortgage payments. If you are in a situation where you have missed-and are likely to miss future-mortgage payments, here are 7 options you need to know about and explore to avoid foreclosure and keep from losing your home.

1. Refinance - If you can. This may be the best chance you have to get a mortgage while rates are still reasonably low and programs are still available. If you are a subprime borrower in a short-term loan that is coming adjustable shortly you need to take advantage of this last window of opportunity. With Wall Street set to devalue billions of dollars in subprime loans you can bet that subprime lenders are going to become more strict in their guidelines and more expensive in terms of interest rate. Take advantage of the rates and programs today – they probably won’t be there tomorrow.

If you can’t refinance and are late on your mortgage here are 6 other options you have to help avoid foreclosure on your home.

2. Reinstatement – You may be able to have your loan reinstated by contacting the loan servicer and agreeing to repay the past due amount of mortgage payments plus any fees and penalties by a certain date. This will bring your loan current and stop the lender from initiating foreclosure proceedings. If you are having a hard time making your mortgage payment this option may be impossible for you; however if your inability to pay was based on a temporary situation or one-time expenses this may be viable.

3. Repayment plan – You may be able to stop foreclosure proceedings by establishing a repayment plan with your loan servicer which adds additional money to your currently monthly mortgage obligation to repay the amount of delinquent mortgage payments outstanding on your loan. Again, this will only work if you have a few mortgage payments delinquent as adding additional dollars to your monthly payment may make meeting these obligations impossible.

4. Forbearance - Forbearance is where your loan payments are either suspended temporarily or the amount of the monthly payment is drastically reduced for a short period of time. The length of time is negotiable between you and the loan servicer. The deferred portion of the payments can either be due upon completion of the forbearance period or they may be added to the outstanding balance of the loan. This depends on the loan servicer. Remember, the loan servicer is not going to agree to a forbearance agreement unless you can prove that the situation leading to your inability to pay is a temporary one that can be resolved shortly. If you can’t afford your home simply because the debt is too expensive there is little chance that the loan servicer will approve a forbearance request.

5. Loan Modification - A loan modification is a change to the terms of your loan to keep the loan affordable and to help you keep your payments current. A loan modification may reduce the long term interest rate, adjust the length of the fixed period of the loan, or adjust the loan balance to add missed payments on to the principal balance of the loan. Typical loan modifications include reducing the interest rate of loans that have recently adjusted out of their teaser rate period. This makes sense if you are able to remain current on your loan with slightly better terms than you are currently obligated to through the loan documents.

6. Selling Your Home – This may be the best option if none of the above solutions will work for you. While it may be painful to sell your home; it is far better than losing your home outright via a foreclosure sale. You may have to sell your home at a loss, called a “short sale,” in which your lender approves a sale amount that is less than the amount of your existing mortgage. If your lender approves a short sale you will be issued a 1099 for the difference between your mortgage amount and the sale amount. This amount is taxable as “debt relief” under existing laws. There is some pending legislation to change that tax that is working its way through Congress.

7. Bankruptcy – Bankruptcy is always a last resort; however, it may be the only thing that will let you keep your house out of foreclosure. If you are in foreclosure and the lender or servicer will not stop the proceedings for any of the above remedies consider filing bankruptcy. Once bankruptcy is filed foreclosure proceedings are halted immediately. While a bankruptcy will have a large negative impact on your credit for a long time to come, so will a foreclosure. But with a foreclosure you lose your house too. Talk to a bankruptcy attorney about specific pros and cons to filing bankruptcy if your lender or servicer will not consider any other options.

Remember, while your loan service collections department can be aggressive and downright unfriendly when trying to collect past-due mortgage debt their tune will change quickly if you inform them that you are unable to repay the debt. If you are late and need to consider one of the above options take the following steps immediately:

1. Talk to a trusted mortgage professional about refinancing options.
2. Talk to your loan servicer’s collections department and ask to be transferred to the “loss mitigation” department
3. Fully disclose to them your current situation and reasons for delinquency
4. Discuss your options to cure your debt and manage future mortgage payments
5. Become more informed about foreclosure prevention options
6. If you have a FHA or VA loan you may have other options – contact those entities directly (www.fha.gov)

For more information on staying out of foreclosure visit the Federal Trade Commission’s Facts for Consumers on the foreclosure process. Much of the information here is based off this valuable resource.

A few things not to do if you are facing foreclosure (we’ll cover these more in-depth in a future post):

1. Do not sign on with a foreclosure rescue firm
2. Do not add anyone to the title of your property who promises to bring you current or otherwise repay your loan
3. Do not agree to any impossible debt repayments such as borrowing $40,000 with a guarantee to repay $80,000 in 6 months.
4. Do not let anyone charge you an upfront fee for foreclosure advice and assistance (it’s illegal in California).

Feel free to email me if you have any questions or concerns about your existing mortgage. I am more than happy to help if I can. ronalpert@att.net

Reposted by Morgan on July 11, 2007

Some Good News about a Recent Post

I have been notified by several Title and Escrow companies that the State of CA has backed off its ruling to prevent lenders and agents from searching the public files through their services for comparable sales. This is Huge and allows the business of lending and selling to continue in a more efficient manner.

Give a toast to Reason...it won this round!

Tuesday, July 7, 2009

Interesting Thoughts for July 7th

There has been quite a bit of upset over the latest HUD and State of California rulings that are intended to place a barrier around appraisers from 'undue influences' by realtors and lenders. You've probably heard about this from friends and family who were unable to obtain financing because the property couldn't carry the value in today's marketplace, or may have experienced it yourself.

Realtors are particularly impacted, and as of July 1st lenders are also affected. The situation now is that in our efforts to know the market and what has sold, we have been denied access to the very information we use to compile CMA (Client Market Analysis) and provide BPO (Broker Price Opinion) which are the mainstay of property valuation to the market. The job of a realtor is to list a property 'at market value' and then conduct Marketing activities to get it sold. That has now been made ever more difficult...and that is undesirable for the consumer.

Below are two good articles you can link to that give some insight into the situation.

Letter to Change Current (New) Appraisal Act

How California is Screwing Up the Foreclosure Situation

Both of these actions by government and regulatory officials to 'protect' the public are a bit like closing the barn door after the horses got out. Perhaps it reflects more on their notion of CYA (you know...cover your arse) and placing themselves in the public's eye for future elections.

However, the practical applications are onerous at best, and at odds with the proclaimed intention of President Obama, FHA and HUD to clear up the foreclosure mess.

On a more positive note, interest rates have stayed level these past several days and it is a good time to refinance, or purchase a home. Take a look at the Ten Year Treasury's to get a sense of what the 30 yr. interest rate ebb-and-flow has been at www.bigcharts.com (Ten Year Treasury)

Wednesday, July 1, 2009

Mortgage Refis Extended

Here is a new announcement that is important to you if you have been told you are upside down on your mortgage. Again, this is from my favorite local news source, Voice of San Diego:

For San Diego, one of the big sticking points on the federal homeowner-help refinancing program has been a restriction on how far underwater borrowers can be.

The plan announced in February was initially offered to homeowners whose mortgages were worth 105 percent of their homes' current value.

Now the option to refinance will be extended to homeowners who are even further underwater.

Today, HUD Secretary Shaun Donovan announced in Las Vegas that the plan will expand to include those 125 percent underwater on their mortgage but still current on their payments.

(More than 30 percent of all homeowners in San Diego County who have mortgages are underwater. Note: We're not talking about the loan modification, payment-reducing part of the federal Making Home Affordable program here, but the option to refinance the loans if you're underwater.)

There is a catch: The borrowers' loans must be owned or guaranteed by Fannie Mae and Freddie Mac. Both agencies have loan lookup programs (Fannie Mae and Freddie Mac) to determine whether you qualify. I'm checking to find out what other restrictions might apply to the refinancing program and I'll let you know what I hear.

I called a couple of people for their takes on the new restrictions.

"That's good, that'll help a lot of people in San Diego -- that makes a lot of sense," said Mark Goldman, a local mortgage broker and SDSU real estate professor. "If somebody is upside-down, and can't refinance, they're more likely to walk away from their house."

Gary Laturno, a local real estate attorney and recent host of our Savvy & Sage series, said he'd heard many criticisms that the 105 percent guideline didn't do enough. "This will certainly make a lot more refis possible," Laturno said.

Here's more on the plan, from the HUD press release:

Making Home Affordable, a comprehensive plan to stabilize the U.S. housing market, was first announced by the Administration on February 18. In just a few months, more than 200,000 borrowers have received offers for trial loan modifications, tens of thousands of refinances and trial modifications are under way, and informational mailings about the program have been sent to more than one million borrowers who may be eligible.

-- KELLY BENNETT

If you have any questions, or know someone who is looking to refinance or purchase a property, please let them know. My business comes from referrals and I have the best loan prices in town!

-- Ron

Tuesday, June 30, 2009

Back to Regular Shadow Inventory

Here is a very good article from Voice of San Diego about what might actually be happening with the local real estate market:

Frequent readers know I've spilled a lot of virtual ink on the concept of "shadow inventory" -- the fairly vast category of homes that are in foreclosure but not for sale. This overhang of potential but not-yet-actual inventory contrasts with the very low levels of inventory currently for sale.

The title of this post refers to a recent entry describing how current inventory is even lower than it seems. That prior article contained a graph showing that the amount of current inventory is unusually low compared to the number of sales, even before taking account of the reverse-shadow inventory effect.

But while sales are numerous in comparison to available inventory, homes in foreclosure are quite numerous in comparison to sales. The following chart, which measures the number of single family home sales divided by the number of monthly default notices (the first official stage of foreclosure), makes this clear:

See the entire story with neat graphs at: http://www.voiceofsandiego.org/

Sunday, June 21, 2009

Water Conservation Measures

At a Boy Scout campout the other night, I was chatting with my friend Tom who is 'in the know' about what goes on in the County and most municipalities. He is always one to cut right to the quick and let me know what's happening in a way my friends and clients would appreciate. On this night, I asked what he thought the San Diego area would look like in five years of water rationing.

To the point, he said 'There'll be a lot less grass!" and we continued down that vein. It turns out, I discovered that the County has a very rigorous conservation program that includes heavy fines for violators and the use of wireless 'point to source' water meters that report the amount of water usage. If someone violates the watering restrictions, the water companies and districts can literally shut down the water.

This is reminiscent of growing up in Denver under water restrictions. Further, neighbors and visitors will be encouraged (does that mean 'bribed' with incentives?) to turn in law breakers. And, there will be water cops on patrol.

Water restrictions are a long time in coming to the area, and I believe these will serve us well if properly introduced and enforced. The local populace will come to have a better appreciation of our precarious position in a desert, and there will be plenty of water for us in the end. My purpose here is to let you know that messing with the 'Water Man' is no joke, live and act responsibly.

Friday, May 8, 2009

HOA Defaults Rising in California

Here is something from my favorite local source of news:

HOA Defaults Rising in California


Defaults on homeowners association payments in California have risen sharply, according to this post The Wall Street Journal's real estate blog today.

Reporter Nick Timiraos saw the increase as a potential indicator that foreclosures in the state will increase, too:

The homeowner association delinquency rate can serve as a leading indicator of sorts because homeowners usually stop paying dues before they stop paying their mortgage. The 90-day delinquency rate on dues for the 260 homeowner associations in California managed by Merit Property Management jumped to 5.3% in March from 2.8% last June. Delinquencies first spiked to 2.6% in December 2007 from 0.8% in March 2007.


(Timiraos and many other bloggers and reporters have recently pointed out that foreclosures in the state are set to rise sharply, due to another indicator -- an increase in the number of notices of defaults that have been filed on homes that haven't yet been repossessed and resold as foreclosures. That indicator's known as "shadow inventory.")

More from the WSJ:

Rising delinquencies for homeowners associations, which function like municipalities, are forcing cutbacks on services like landscaping, security and community services. About 60 million Americans live in one of 300,000 community associations.
I wrote a story a few months ago about what happens to HOAs when they are burdened by short sales and foreclosures. Here's more from that story:

When banks foreclose on properties in default, they are required to pay back fees to the homeowners association. But a gap exists between when homeowners stop making payments and when the bank repossesses the house, enough time for several months' fees to be lost. ...

Real estate broker Joseph Galascione of ERA Metro Realty said he's steered clients away from certain buildings because of looming special assessments -- the onetime fees levied to make up for shortfalls -- or underfunded reserves.

"It's more common that we find HOAs that are OK -- most of the HOAs are financially stable," he said. "But there are enough out there that it warrants us spending more time researching the health of a building."
-- KELLY BENNETT

Saturday, April 25, 2009

A recent story for anyone keeping tabs on mortgage rates because of a need to refinance, or simple desire to buy property at a very good value, read the following: Rates to Remain Low