Delete Collection Accounts

Getting a home mortgage loan or refinancing an existing loan calls for a clean credit report. Banks simply will not give a mortgage to someone with collection accounts on their credit report. And, sometimes these collection accounts can be a big shock to the prospective home buyer. Who knew the account was even there?

In California, the statute of limitations for an unpaid collection account is four [4] years. It seems, though, that  creditors have come up with some creative ways to keep collection accounts going. Sometimes, the debt is sold to another credit company, thus re-activating it or sometimes it is simply transferred to another division of the same company with a different name. Both gambits are done with the hope of resurrecting these debts.

This can have a major impact on the consumer’s credit score, sometimes as much as 30 points. This is, of course, of major concern when applying for a home loan. All collections must be paid or the bank will not grant the mortgage. If collection agencies realize that a debtor is trying for a home loan, then they will definitely play hardball and expect to get the entire amount of the debt paid with additional fees added.

So, what to do?

Thanks to a recent court case, the 9th Circuit held that the Federal Debt Collection Practices Act requires substantial activity by the debt collector before a debt can be considered valid. Specifically, for a debt to be valid the collection agency must send a notice to the debtor within 5 days.This is true if it’s the first collection agency, one of many or a subsequent one.

Of course, people often don’t even realize they have collections because collection agencies rarely send out these “validation notices.” Now, the collection agency must inform the debtor of the total amount of the debt and to whom it is owed and this must be in writing within 5 days. Furthermore, the agency must inform the consumers they have 30 days in which to dispute the debt.

When the consumer disputes the debt or any part of it, the agency must supply a copy of the judgment or verification of the debt. Previously, knowing the consumer wanted to buy a house, the agencies would simply insist on payment until either the home buyer gave up the quest for a house or paid the loan.

Now, there is some protection for the home buyer with a collection account. If you discover a collection account on your credit report, it is only valid if you have received notice of it from the collection agency in writing and you may still dispute the account. If the collection agency refuses to back down, yes, you will have to hire an attorney, but a simple letter may do the trick.

Automatic Loan Mods?

Just Like The Lottery

Believe it or not, one bank has actually started offering automatic loan mods. No more reams of paperwork delving into intimate financial records of borrowers [treated more like beggars], no more waiting for six months, eight months and even more than a year to get an answer from the haughty banks. Finally, one bank, JP Morgan Chase, is automatically writing loan mod contracts for its underwater borrowers.

Chase Bank

Yes, it’s true. Some Chase customers are getting loans mods, offering rate reductions, principal reductions or both–all without having to file the onerous paperwork. In one case cited by CNN Money, Chase surprised a Darrington, Wash. couple, who had tried, without success, to effect a loan mod with the very same bank, with a loan mod reducing their interest rate from 6.5% to 2.8% for five years and then a fixed 3.19% for the remaining 18 years of their loan, saving them $229 a month. For this couple, still suffering with job loss as well as an underwater house, it was just like winning the lottery.

Why Would Chase Offer Automatic Loan Mods?

Bank Trick

Why would Chase be doing this? Is this a trick?

It’s not a trick. In fact, in accordance with the $25-billion mortgage settlement agreed to a few months ago by 49 out of 50 attorneys general, discussed in a previous post, Chase’s share of the payout burden is $4.2 billion.  Because banks get “extra credit” for acting quickly and making their mods during the first year, Chase  bit the bullet and decided to go ahead and make loan mod offers to thousands of underwater borrowers. In the past, contacting all these homeowners has proven difficult if not impossible. Many homeowners are so inundated with financial woes they no longer read their mail or answer the phone. Many underwater homeowners move out, anticipating a foreclosure.

Borrowers who receive the loan mod offers must, of course, sign the new contracts which typically would run for 5 years and then, most important, start making the new payments which are usually hundreds of dollars less than the previous amounts. Between March and June 2012, Chase claims that it has completed 3,086 loan mods,  $359 million’s  worth.

But, Isn’t The Housing Crisis Over By Now?

To understand how deep-seated this problem is despite the good news we’ve been hearing about home prices rising,  look at what Chase, just one of the five major banks involved, says it still has to do: another 11,500 loan mods. I say, “Bravo,” to Chase for undertaking to honor the settlement. It is too bad, though, that the banks had to be forced by litigation to treat their borrowers like human beings. Makes you wonder what else we could get the banks to cough up if the federal government would just hold their feet to the fire just a teensy, weensy bit?

My, How Mortgages Have Changed!

The horse has already bolted out the barn door, which the mortgage industry is now nailing firmly shut.   Due to the banks’ foolhardy loans during the “bubble years”, home prices and loan values are now at an all-time low, but few are able to benefit. The reason? Those who want a home loan today need pristine credit. That means a FICO score of 750 to 775.  Since the nation’s median score is 711, that means fully half the population would not qualify for a new home loan even if the 20% down payments were no problem.

Because of the new, much tighter loan qualifying guidelines, the terrific bargains out there will have to remain a tantalizing, but forbidden  treat for potential buyers. In the past before the current crisis, a FICO score of 700-725 was considered “solid”, a good risk for the bank. FICO scores range from 300 to 850.  Freddie Mac and Fannie Mae, two government agencies, are now covering about 75% of the mortgage market and, according to data just released pursuant to the Dodd-Frank financial-services legislation,  have approved borrowers with 750 to 775 for 75% of their mortgages when in 2005 that high a FICO accounted for just 5% of approvals.

Paying close attention to credit reports is now, more than ever, of prime importance for would-be home owners.  Having a score below 750 does not make getting a mortgage approval impossible, just more expensive. Besides the 20% down payment required for conventional mortgages,  a 730, for instance, would cost an extra .125 percentage points per year.  Between 700 to 725, previously an un alloyed approval, the borrower will pay an extra quarter percentage point. Below 680, it gets harder to find an approval and, of course, costs more.

Those who already own their homes and are looking to tap into today’s great loan rates will face similar obstacles. The banks will look for the higher credit scores, adequate income and what is now increasingly difficult to come by–at least 20% equity in the property. The rules for refi really are little different from those for first-time buyers. Cash-out refis also are subject to stringent approval guidelines as home values are still dropping or wildly gyrating in many areas. And, unlike the past, no one seems to have much faith in the future any more.

 

How To Pay Off Your Mortgage Faster

These days with 30% of those with mortgages under water and foreclosures coming left and right, it’s easy to forget that 50% of all American homes have paid off mortgages. That’s right–50%. Though some may quibble that means huge amounts of untapped equity that could be used elsewhere more productively, for the average homeowner paying off the mortgage means peace of mind, safety and security in an unsafe and insecure economy.

Pay Off The Mortage Faster

Paying off the mortgage is a good thing, but how can a homeowners get it done faster than the 15 or 30 years of payments outlined in their mortgage documents? Many routes to mortgage-free living exist, most almost painless.

One simple method involves refinancing the property. Despite the millions suffering from plunging home values, others still have plenty of equity. If you estimate that you have at least 20% equity in your home, refinancing is a good options. It makes sense even if your present rate is 5% or 6% as current rates are hovering closer to 4%. A good rule of thumb is–if you can save 1% in mortgage interest than it is worthwhile to refinance. And, if you can afford it, it might make greater sense to refi into a 15-year mortgage which will save you more than half the interest costs of a 30-year mortgage.

Another simple method of paying off your mortgage faster is to make bi-weekly payments. That way if your payment on, say, a $300,000 mortgage at 5% over 30 years is $1610 per month, you could break this up into two payments a month of $805. Because a year has 26 weeks, paying biweekly will have you making 13 payments and by the end of the year, you will have made an extra payment. You could also, of course, make a whole extra payment any time during the year.  Or you could divide one payment of $1610 by 12 and pay an extra $134 per payment. The savings can be substantial. In the above example, according to this nifty calculator from bankrate.com, a homeowner could shave 5 years off his 30-year loan and over $50,000 in interest charges. Not bad.

Do Banks Charge A Fee?

Some banks are offering this biweekly mortgage payments as a service with a setup fee of several hundred dollars. Citibank, for instance, charges $375 for the “convenience” of taking this money out of your checking account and then dings you again when you make the payment. Most banks, including Citibank, will allow you to make extra payments for free.  It is possible to make this payment yourself, but it pays to check with the bank first as your bank may just deduct the payment from principal and then still expect the regular payment.

High-Interest Credit Cards First

Making this extra payment can save the homeowner in this example, for instance, 5% so it does not make sense to put the money into the mortgage if you have outstanding balances on credit cards charging interest rates of 6% or above and certainly not the 29% charged by some cards. Pay off those high-interest cards first and then start working on the mortgage.

Mortgage Rates Fall Again!

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Freddie Mac  released the results of its Primary Mortgage Market Survey (PMMS) in which the 30-year fixed-rate mortgage (FRM) averaged 4.78 percent with an average 0.7 point for the week ending April 2, 2009, down from last week when it averaged 4.85 percent. Last year at this time, the 30-year FRM averaged 5.88 percent. This is the lowest rate since1971 when Freddie first started the survey–that’s 38 years ago!!

The 15-year FRM this week averaged 4.52 percent with an average 0.7 point, down from last week when it averaged 4.58 percent. A year ago at this time, the 15-year FRM averaged 5.42 percent. This is the lowest rate since Freddie began keeping track of the 15-year rate in 1991.

Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) averaged 4.92 percent this week, with an average 0.7 point, down from last week when it averaged 4.96 percent. A year ago, the 5-year ARM averaged 5.59 percent. The 5-year ARM has never been lower in the life of Freddie Mac’s weekly survey, which dates back to 2005 for the 5-year ARM.

One-year Treasury-indexed ARMs averaged 4.75 percent this week with an average 0.6 point, down from last week when it averaged 4.85 percent. At this time last year, the 1-year ARM averaged 5.19 percent.

What does all this mean to you the homeowner or potential home buyer? That’s easy…Run, run to your nearest mortgage lender and grab these rates while you can…If you’ve thought of refinancing, now’s the time. If you’ve thought of home buying, now’s the time..

freddie-mac


Obama’s Plan: My View

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Finally, in Obama’s plan the federal government is doing something to stem the tsunami of foreclsoures and short sales. It’s trying to keep property values from decreasing further. It’s trying to keep families in their homes.

Even as President Obama was announcing his plan, he acknowledged that it would be just a drop in the bucket. Think about this: the plan offers $75 billion in federal money to help homewoners, mainly by providing incentives to lenders.

Today,   one in 10, that’s 10%  of all home loans are  right now facing foreclosure. It’s estimated that by the end of 2010 at this rate fully 25% of all homeowners will be underwater. That’s closer to $500 to $600 trillion in home loans.

The refis will not be too much help in California because we’ve lost too much value, though they may help in other areas. The loan modifications may help and the Obama team has said that any bank which has accepted TARP or any bailout money MUST do loan mods and good ones.

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Still homeowners must have income to do a loan mod.  So, if a homeowner  has lost a job or has been unemployed for more than a short time, I don’t see lenders offering anything–short sale.

Lately, I’ve been seeing an ad on TV featuring a women who says she gave up her job so she could take care of her mother when she realized she was “failing”. She says she talked to her bank and “worked it out”. This would be  laughable if it weren’t so villanous.  Calling your bank and telling them you can’t pay your mortgage or only part of it will accomplish only one thing–a faster foreclosure notice. They will definitely tell you to pay whatever you have and to pay the bank first before other items in your budget, probably even food. That’s what I’ve been seeing out in the field. Despite all the bailout money, as we’ve all noticed, banks have gotten more hard-nosed, vicious even, not less.

Wow, I’m glad I got that off my chest. I didn’t realize how much I despise banks, especially the big ones. It seems  Obama and his team have already learned the banks will have to be forced to do anything at all to help homeowners.Reblog this post [with Zemanta]

Loan Modifications: Obama’s Plan

Called the Home Ownership Stability Initiative the heart of Obama’s plan really is the loan modification. As we have all heard, some homeowners are facing payments jumping thousands of dollars a month as adjustable loans readjust. Many homeowners are paying 50% or 60% or more of their income in mortgage payments while the value of their proerties is tumbling.

This plan aims to modify loans for those who qualify at 31% of income. Notice, that just like refinances, modifications require income. That’s the first qualification: income sufficient to pay the modified mortgage.

Until now, banks have been reluctant to offer loan modifications to homeowners who, whatever struggles they were having, remained current on their mortgages. Most banks refused outright to help such borrowers. This plan changes that and makes loan mods available to those who are current in their home loans as well as those who are behind in their payments.

This is important because it allows those who have not missed a payment to maintain their credit. As we all know, often a few dings on the credit and a missed mortgage payment is a major ding, have a cascade effect. Credit card companies find out and jump up rates on credit card debt. It becomes much harder to get any credit at a decent rate, etc.

Let’s say, for instance, that the borrower is paying 43% of his income for his mortgage. He applies for a loan mod and the lender brings the payment down to 38% of his income. Then, the government [Freddie and Fannie] and the lender bring the loan down by equal contributions [3.5% and 3.5%] to 31% of the borrower’s income. That mod stays in place for 5 years. At the end of that time, the rate would be gradually increased to the rate at the time of the loan mod.

Also, and this is important, the government would reinburse the lenders who agree to bring down the principal. Bringing down the principal: all underwater borrowers’ dream and their lenders’ nightmare. Until now, it’s been the rare lender who would touch that principal.

Now, lenders have incentives. If they modify a current loan,servicers receive $500 and lenders [investors] $1500. Borrowers have incentives, too. Every year a borrower stays current in the new mod, he receives $1,000 for up to 5 years. This is clear incentive to help those “good” borrowers who have made tremendous efforts to pay their mortgages during this current crisis and by dint of great sacrifice maintain their credit. Obama’s plan clearly tries to help these people while at least partially answering the persistent critique that responsible homeowners received no help while the irresponsible were being bailed out. Obama’s plan specifically says speculators or flippers cannot particpate.

This, of course, brings up another issue: small investors who own rental properties, especially single family homes or condos, are suffering, too, but seem to be eliminated from this program. Apparently, that is the case except for rental property that was originally a principal residence. So, if you are renting out the condo or 2-bedroom house you bought as your first home before you bought your current residence, then you may be able to participate.

Final details of this plan are supposed to be released this week. The Treasury Department says it will issue clear guidelines for all lenders to follow in doing loan modifications. That would be a relief. At the moment, it’s a free-for-all out there. Some lenders are very cooperative; others refuse to do anything. There’s no doubt we need to do something even if it means helping those who have not, shall we say, been the most prudent in their financial choices. If we don’t the fallout is just too terrible to contemplate.