Early in my mortgage career a sales veteran once told me that the best way to solve a customer problem was to throw money at it. I guess this is an even better solution when you’re the ones printing money.

Full story “Housing rescue plan passes key Senate test“.

My opinion:

Just to put things in perspective, I thought I’d put the faces of the folks who’ll be stuck with the bill:

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Tags: FHA, foreclosure rescue, spending
Categories: Congress and Government, Debt, Personal Finance
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I guess even folks in Congress are close to foreclosure on their homes. I really shouldn’t be surprised though. The guys on the Hill are so used to spending other people’s money like it grows on trees and I’m sure that mentality is bound to sink into their own personal finances at some point - at least if you’re a rookie which this Congresswoman seems to be. Here is the story from the LA Times this morning:

Update: California Rep. Laura Richardson today denied a published report that her $535,000 Sacramento home had slipped into foreclosure, saying she had renegotiated her loan to keep the home.

The house “… is not in foreclosure and has NOT been seized by the bank,” Richardson, a Democrat from Long Beach, said in a statement. “I have worked with my lender to complete a loan modification and have renegotiated the terms of the agreement — with no special provisions.” (Richardson’s entire statement is at the bottom of this article).

Earlier, Capitol Weekly reported that Richardson walked away from the mortgage on her $535,000 Sacramento home, letting the house slip into foreclosure and disrepair less than two years after she bought it with no money down.

“While being elevated to Congress in a 2007 special election, Richardson apparently stopped making payments on her new Sacramento home, and eventually walked away from it, leaving nearly $600,000 in unpaid loans and fees,” the publication reported.

Related post: Fed Chairman Bernake’s home loses value.

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Tags: congresswoman, foreclosure, Mortgages
Categories: Congress and Government, Mortgages, Personal Finance
2 Comments »

Recently, a past client contacted me to see if he could refinance his house. We looked at all the numbers and it seemed to make sense. The only problem was his credit. Not quite exactly his credit per se, but the co-signed loan on his credit. The infraction coming of course from his own daughter.

My client had co-signed for a vehicle purchase for his daughter a few years ago. This past year she has been having some problems making timely payments. He knew there were some issues but was really upset when he realized the extent of it and how it had wrecked his own credit. Now, the father and daughter are not speaking to each other.

However way you look at it, co-signing a loan is a bad idea. Even the Good Book advises us to stay away from putting up “security” for another man (Proverbs 27). It doesn’t matter if you’re related or in-love, at the end of the day relationships can be severely tested by this simple act of “compassion”.

From the bank’s perspective, if you co-sign, you’re telling them you’ll cover for the other party. That is why you have to understand why you’re being asked for this favor. Essentially, the bank has determined that the person in question is not credit worthy. They view this borrower to be too risky and do not believe will be able to pay the loan back. Banks usually know a little bit more about this kind of risk analysis than most.

Think of co-signing this way. When you co-sign you’re agreeing to take the loan and then hand the cash over to the person you’re singing for. In exchange you’re telling the bank that you’ll pay if that other person won’t. So, the bank lends the money based on your credit and also knowing the other person is too big of a risk. Basically, in the banks eyes, you’re the borrower.

I know of several situations where co-signed transaction have been led to very difficult situations. So, my advice to everyone is to never co-sign.

If this hasn’t been convincing enough, consider this. If the person you co-signed for declares bankruptcy, you’re still on the hook for the loan. Legally the other person is completely free from the debt. So, not only is your credit shot, legally, in a court of law you’ll be required to pay the bank back! Not quite what you had in mind when you extended a helping hand.

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Tags: co sign, debt, loans
Categories: Debt, Mortgages, Personal Finance
2 Comments »

I’m thinking out loud here. Since, the Canadian dollar is now at parity with the US greenback, I’ve been doing some number crunching. I’ve posted on what a 250,000 USD home in Arizona looks to a Canadian. It’s all good news for a Canadian seeking to purchase some Phoenix real estate.

What’s even better is looking at the 1972 to 1985 time period. After a period of parity in the 1970s, the Canadian dollar began to fall well into the mid-1980s. The increasing strength of the US dollar during that time period made instant profits for those holding US real estate.

I’m only showing this for pure historical reasons. I am not saying you should purchase real estate in Phoenix, and I am CERTINALY not giving you any kind of investment advice. I’m just looking at how currency fluctuations play a role in transnational investments.

In the above graph, the maximum was 349,600 CD reached on Dec. 18, 1985.  The minimum was 250,600 CD on Jan 1st, 1972 . Between Jan 1, 1972 and Dec. 31, 1985  the 250,000 USD home increased 39.6% based only on the currency exchange rate. I don’t have the numbers on the increase in the real estate price. I’m confident that the 250,000 USD home had increased some in that time frame. So, this increase is conservative.

Again, as I said before, I am only thinking out loud. There are so many other factors to consider, such as mortgage interest rates etc. However, I can only imagine the kinds of gains a Canadian could realize in today’s market if the USD started to gain in value again over the next several years.

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Tags: arizona, canadians, dollar
Categories: Arizona, Personal Finance, Real Estate
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If you are having trouble making payments on your home then the first thing you should do is call your lender/servicer. For many people this can be a frightening proposition. You might be afraid you’ll end up saying something that will put your home in jeopardy. Or, you might not understand the different options the lender offers. Or, you may simply just not know what to say.

The Mortgage Bankers Association has created a foreclosure avoidance center website. Under this page it has published a twelve-step guide on the things you need to know when you call your lender. This should ease your fears a bit. Additionally, as you go through this guide you’ll realize that a successful resolution is in the lenders best interest as well. Contrary to public perception the bank does not want to own your home and bank executives do not go to bed at night salivating at the prospect of foreclosing on your home.

Below is a quick run down of the twelve steps, but read the “12 Things You Should Know When You Call Your Lender” page on their webpage for complete information.

1. Contact your servicer immediately
2. Ask your servicer about alternatives to foreclosure
3. Provide any information requested by your servicer
4. Be prepared to provide detailed financial information
5. Be ready to change your spending habits
6. If you’re uncomfortable calling your servicer, then call a reputable third party (see HUD website)
7. Open all mail you receive from the servicer or it’s law firm
8. Do not hesitate to ask critical questions
9. Resolve any payment issues on your escrow accounts (taxes and insurance)
10. Stay in contact with your servicer and/or counselor at all times
11. Be realistic about your own financial condition
12. Understand that the servicer wants a positive outcome

Related entry: Kits to help you avoid foreclosure and payment defaults

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Tags: defaults, foreclosures, Mortgages, servicers
Categories: Banker, Mortgages, Personal Finance
1 Comment »

Not only can bad credit cost you big bucks, it could even cost you that new job you want or the promotion you’ve been working so hard to get.  It’s hard to believe, but it’s true, more and more employers are pulling credit and screening out job applicants.

I vaguely remember a conversation from a few months. The person I was talking to mentioned how he needs to get his credit in order so he could get a better job. I had to give my thumped look. You don’t often get to see my thumped look.

I know business owners and self-employed people may need to furnish credit reports for business loans or big contracts. Also I was aware of top level sales executives at large companies needing to furnish a credit report annually so the company feels comfortable with their money and debt management.  But I was not aware of how this practice had trickled down to include regular folks in regular jobs. 

At first I didn’t think employers could do this and I wasn’t sure it would prove to be terribly informative. But I found they could. I also did some research on how extensive this thing was and found that employers are increasingly relying on credit reports to screen out job applicants. Here is what I found on the Bankrate.com website:

More and more employers are using credit reports to screen employees. The use of credit checks has increased 55 percent since 2000, according to a 2006 national survey conducted by Harris Interactive for Spherion Corp., a leading recruiting and hiring firm.

So what are employers using your credit reports for?

… ”many companies use credit reports primarily for authentication of the name and address history of the applicant, perhaps paired with a separate search of criminal history, rather than for the credit performance of the individuals being considered, especially if there are no significant credit issues.”

Again, is this legal? According to the FTC, it is permitted as long as the employer receives a written permission to pull credit. I guess it’s part of the background check.

There is more at stake with the credit report, manage it well.

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Tags: credit check, credit report, credit score
Categories: Credit Bureaus, Credit Scores, Personal Finance
6 Comments »

There are lots of online tools available for homeowners facing foreclosure and/or those having difficulty with their mortgage payments. These tools might be helpful if you’re in an adjustable rate mortgage which is to reset to a higher interest rate, or even for those facing job loss or other financial hardships.Below are a few tools I’ve found which would help you understand your options and determine exactly what is available to you.

These are kits only, so don’t hesitate to contact me if you ‘d like me to take a look at your situation. As a qualified mortgage professional I’ve been working with lots of homeowners facing hardship. I have been helping them to understand their mortgage and find long term solutions. I don’t charge for this and would be more than willing to sit down with you for a consultation.

1. 13 Homeowner Solutions to Avoiding Default & Foreclosure™ - This is a public education and outreach service for borrowers distributed by HUD, VA, FHA, Fannie Mae, Freddie Mac, FBI, Congress and the industry.
2. Mortgage Reality Check - This tool will help you determine the type of situation you are and it recommends solutions. It is in a quiz format. It will take you a couple of minutes to answer all the questions.
3. Save Your Home Kit - TheMortgageMess.Com now has state specific kits to help you save your home and avoid foreclosure. The Arizona kit costs $47 and from what I can tell from its website, this looks like a legitimate business with a good product.

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Tags: default, foreclosure, Mortgages, tool kits
Categories: Interest Rate, Personal Finance, Subprime Mortgages
1 Comment »

Suze Orman describes herself as a personal finance expert. Most of the time I agree with the advice she dispenses. However, there are times when I scratch my head and wonder where she gets her information. What worries me about a recent article she wrote is the confidence with which she dispenses advice based on false information.

Last Friday on Yahoo! Finance she had a column titled “Subprime Woes Lead to Credit Score Blues“. The goal of the article makes sense but there are a few things that are misleading. For example she wrote the following:

… before the subprime mess, a FICO credit score in the range of 620 was considered on the low-end of loanability. But in the wake of the meltdown, the low end has been raised to 680 or so by some lenders. In other words, you need to have a higher score just to have a shot at getting a deal on a mortgage or car loan.

This isn’t entirely true. Before the subprime mess 580 was the low point, furthermore, 680 is not the minimum today. You might think I’m splitting hairs but there are a lot of folks in that narrow band of credit scores and this kind of disinformation just scares them away from homeownership. To compound the issue she later makes this claim:

In the world of credit scores, 760 is the new 720

This isn’t true either. If you’re doing a Fannie Mae or Freddie Mac loan and you receive an approval on their automated underwriting system, you’ll get their best rate whether you have a 720 or 760.

Suze falls into the same trap that a lot of consumers fall into. They think that the loan decision process is purely credit score driven. It simply isn’t. The credit score is the starting point but not the deal killer. As I’ve written before the loan decision is made based on four factors:

1. Credit Score
2. Employment/Income History
3. Available Liquid Assets
4. Property Type

So, even if you could have a 780 credit score but don’t have any money in the bank and are self-employed you’re not going to qualify for the best loan program. Inversely, if you have a poor score but a solid employment history and six months of living expenses saved up, you will qualify for a mortgage.

I’m not making this up. Last month I closed a loan for a borrower who had a 583 FICO score but a solid work history and some money saved. We went 100% for this borrower and he received the best mortgage rate on the market. I am glad he didn’t have the opportunity to read Orman’s column because if he had he might still be in his apartment.

Suze also needs to take a look at the FHA loan program, especially now with all the changes being made to the program. For starters the FHA program is not credit driven at all. FHA takes a holistic approach to the borrower and makes a decision based on the big picture (the four corners I mentioned earlier). So, even if you do not have any credit, by using traditional credit lines we are able to obtain an approval and ultimately a loan for you.

The bottom line is, while the premise of Suze’s article is relevant, the specifics are simply not true. I want to assure the vast majority of borrowers with low FICO scores that you do not need to despair. Obtaining a mortgage is not out of the realm of possibility and the climate is certainly not as dire as you might think.

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Tags: FHA, FICO Score, Mortgages
Categories: Credit Scores, FICO, Mortgages, Personal Finance
5 Comments »

The East Vally Tribune published a very informative article yesterday on the top five credit (and debt) misconceptions. According to the EVT (citing Transunion), the top five credit misconceptions are:

1. Co-signing a loan doesn’t make you responsible for the account.
2. Paying off a negative record will get it removed from your credit report.
3. Paying off a debt will make your credit score jump 50 points right away.
4. Checking your credit reports will lower your credit score.
5. Closing old accounts will improve your credit score.

The co-signing part is the most controversial of the five becuase it oftentimes involves people you love and know. I talk to so many people who have co-signed for their brother, sister, son, daughter and sometimes friends. I know a level of compassion determines who you will co-sign for, but you need to be prudent. 

I suggest you do a type of credit check on your own. If the relative asking you to co-sign has had some serious money management problems in the past then you may want to stay away. However, if this is a one time situation where the person is in a jam, then you can consider doing something. This doesn’t mean there aren’t other ways of helping them besides co-signing.  I suggest looking into other avenues. It’s good to help, but you must be prudent.

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Categories: Credit Scores, Debt, Personal Finance
4 Comments »

From CNNMoney (August 28):

NEW YORK (CNNMoney.com) — American consumers are defaulting on their credit cards at a sharply higher rate compared to last year, in what could be another consequence of the recent subprime mortgage market crisis, according to a report published Tuesday.

In addition, late payments are also up, cardholders are showing signs they are less willing to pay and credit card companies have written off 30 percent more payments during the first half of this year versus a year ago, the Financial Times reported.

See full article here.

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Tags: cnnmoney, credit cards, personal finance
Categories: Personal Finance
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