$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!

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.

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.

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.

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

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

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...