Author Archive for gerri

Q: My husband purchased our home one year before we were married. He refinanced it recently and told them that he was single, because our marriage has been rocky and didnt want my name on the house. Can he do that? What can happen? We are headed for divorce. I don’t want any part of the home but he wants to toss me out, before I can find a job and somewhere else to stay.

A: I am sorry to hear about the difficulties you are going through. Please talk with an attorney immediately. It sounds as if your husband may have committed loan fraud by telling the lender he was single when he was married. Some states have property laws that would require that the title be held jointly when he refinanced. At a minimum, if he had been truthful, he would not have been able to refinance without your involvement. You may not want anything to do with the house since he bought it before your marriage, but that should be part of your separation and divorce agreements.

In addition, I strongly recommend you sign up for online monitoring of your credit reports. If he is willing to commit fraud to get a mortgage loan, he may be willing to compromise your credit in other ways. I have seen it happen many, many times unfortunately. To protect yourself, I would also recommend you check out the book Divorce for Dummies by attorney John Ventura.

Good luck during this difficult time.

Q: I am interested in purchasing a FSBO (For Sale By Owner) home in my area. What steps must I absolutely not neglect in securing the best possible mortgage?

A: What a great question! The smartest homebuyers always think about the financing before they start home shopping. After all, while buying a home is expensive, by the time you pay off the home loan you may have paid twice that!

We have a number of articles on our site that should be helpful to you as you prepare to get a mortgage, but here are the most essential tips I can offer:

1. Get your three-bureau FICO credit scores from MyFICO.com. Lenders are becoming much stricter in their credit score requirements, and as a result, you want to make sure yours is as strong as possible. If you find any mistakes or incomplete information, give yourself plenty of time to straighten it out.

2. When you compare mortgage rates and fees, make sure you are comparing apples to apples. You always want to ask a lender to quote you the “par rate.” This is similar to the dealer invoice pricing, and allows you to accurately compare a rate against another. (Our mortgage rate search engine automatically does this for you so you.)

3. Get pre-approved from a lender in writing. This will give you negotiating leverage with the home seller, as they know you are good to go if all other details of the purchase work out.

And although these aren’t home mortgage tips, I’d also recommend you get a real estate attorney to write up or review your purchase contract, and that you get an independent home inspection from an ASHI certified inspector.

Good luck – I hope you find your dream home!

Q: I purchased a house in my name only several years before getting married. The title is in my name only. I expect to lose the house through foreclosure and my credit has been destroyed. Will my bad credit prevent my wife from being able to apply for a future mortgage in her name if she is the only person listed on the mortgage/title to the new home?

A: The fact that the mortgage and loan were in your name only means foreclosure should not appear on your wife’s credit report. If she has sufficient income, and meets the credit qualifications to support a new loan on her own, then she will be able to buy a home in her name only in the future. (She can get the loan herself and you both can still hold title jointly.) However, if your income is required to support the loan, then the lender will want to review your credit as part of the application.

Yesterday I happened to hear the NPR story describing how a Countrywide loan officer coached a prospective borrower to lie on her mortgage loan application. It’s a must-listen if you haven’t heard it.

If you think mortgage fraud problems — misrepresenting loan details, credit score manipulation, and overcharging — are a think of the past, this will remind you that you can’t be too careful when shopping for a home loan. Think about it. You have some loan officers who made a lot of money — a lot of money — over the past few years, who are now hurting for income. Do you think they all have just seen the light?

Honest loan officers had it more difficult during the heydey because they wouldn’t recommend inappropriate loans, or help their clients fudge facts. Now they find themselves telling some borrowers what they definitely don’t want to hear, “I can’t help you.” But that’s a lot better than telling someone to take out a loan that a couple of years down the line will only mean much bigger problems.

Can the government help homeowners avert the mortgage crisis? The CMPS Institute, which trains and certifies mortgage advisors, thinks so. It has just sent Congress a detailed proposal calling for government-backed loans to homeowners of up to 20% of the homeowner’s current mortgage balance. The consumer’s first mortgage would stay in place, and the homeowner could not borrow any additional funds until the first loan has been paid off. A homeowner could refinance the first mortgage, though, if a willing lender could be found.

In their press release, Gibran Nicholas, Chairman of the CMPS Institute, says: “If homeowners have no incentive to keep up their mortgage payments, the problems in the housing markets could continue to spread and plunge our country into a deep recession.”

It’s an interesting proposal, and one worth considering. However, two things concern me: 1. The loan would be full recourse, which means it survives even if the borrower must go into foreclosure. On one hand, that prevents this from becoming a government bailout, on the other it could turn homes into “debtor’s prisons” from which consumers cannot escape (much how I view student loans). 2. Is 20% enough to put lenders and investors fears of making mortgage loans at ease? In Florida, where I live, many homeowners are upside down to a much greater degree than that.

I personally believe that the bankruptcy reform proposal that would allow mortgages to be modified by a bankruptcy judge, is the most important and helpful measure that could — and should — be passed right now. The CMPS proposal could potentially compliment it but let’s put first things first and get homeowners the immediate relief they need.

What do you think about mortgage rate for April 2008. Which way would they be trending ??

Thanks for your question! We can’t tell you where mortgage rates are headed this week or this month. It’s always risky to predict what will happen with mortgage rates, and even trickier in this volatile market where the normal rules don’t seem to apply.

What we can tell you is that over the past year, we’ve seen an unprecedented number of changes in lending standards. Loan programs that were around yesterday could be gone by tomorrow. If you are thinking of buying or refinancing, it’s our view that rates are good, and if you can find a good loan, take advantage of it while you can!

“Nate” asks:

Does it makes sense to refinance from a 6.28% rate to a 5.87% rate?

Nate:

There are a number of factors that go into figuring out whether it makes sense to refi, including how long you will likely stay in your home, and the amount of your closing costs.

To determine whether it makes sense to refinance, you’ll need to run a “break even” analysis to find out how long it will take you to recoup your closing costs. Then you will know how long you’ll have to keep your current loan before you start saving money. Your loan officer can do this for you, or you can try an online refinance break even calculator.

Of course, if your current interest rate is an adjustable rate, and you will stay in your house for a while, it may make sense to lock into a fixed rate anyway.

With the FreeRateSearch system, we use the same “rate sheets” that loan officers use to find out what loans are available to borrowers. We don’t have access to all the closing cost information, however. You’ll need to talk with your lender and ask him or her to provide you with a Good Faith Estimate, which includes closing costs, in order to run an accurate break even calculation.

Nearly a quarter of a million more families could be eligible this year to purchase or refinance their homes using FHA-insured mortgages, due to a temporary lifting of loan limits. The Economic Stimulus Act of 2008 will allow HUD’s Federal Housing Administration (FHA) to temporarily increase its loan limits and insure larger mortgages at a more affordable price in high cost areas of the country.

Beginning today, HUD will offer temporary FHA loan limits that will range from $271,050 to $729,750.The maximum amount of $729,750 will only be applicable to extremely high-cost metropolitan areas such as: New York, Los Angeles, San Francisco and Washington, D.C.

Will an FHA loan help you?

FHA loans aren’t government loans. Private lenders make these loans, but they are insured by the federal government. They feature low down payment requirements, but they will not work for you if you cannot document an adequate stable income or if you owe more than your home is worth.

Spouses with very different credit scores seems to be a popular topic for our Ask the Expert column. Here’s what “Marissa” writes:

I recently got married last year, and my husband and I are hoping to buy our first home this year. (We are currently renting.)

How will my past credit history effect my husband and I in getting a mortgage loan, and what are some ways I can improve my credit to help with this process?

First, Marissa, as you may have discovered you and your hubbie have different credit scores. Your credit reports are completely separate, except for any joint accounts which should appear on both your credit reports. It’s perfectly OK to keep your credit separate, especially while you work on rebuilding yours.

As far as the mortgage goes, if your husband is the primary wage earner, or can qualify for a loan based on his income and credit qualifications alone, he can buy the house and simply add you to the title. (In fact, in most cases, the house will be titled jointly anyway).

If you are the primary income earner, then your challenge is greater because the lender will want to qualify you based on your credit scores. Talk to your loan officer once you use FreeRateSearch to search, as you may find a program that fits your situation sooner than you realize.

You also said you want to clean up your credit. It’s great that you have settled everything, and it doesn’t sound like you have any outstanding issues. However, as you have learned, paying off collection accounts doesn’t help your credit score. Collection accounts are still negative as long as they are on your reports.

I assume you have your three-bureau credit reports. If not, get them from AnnualCreditReport.com. You should be focused on two things: 1. Making sure everything is accurate and complete and 2. Building positive new credit references to outweigh the old negatives.

If there is anything inaccurate or incomplete about the way your collection accounts are being reported, you have the right to dispute those errors with the credit reporting agencies. If the information cannot be confirmed with the source (and it may not be, given you settled these debts a couple of years ago), the listing must be removed.

Secondly, you should have at least two current, active, positive credit references on your credit report. If you don’t, you may want to ask your husband to add you on to one of his accounts as a joint accountholder. Choose a major credit card with a long positive payment history and a low balance. Once it reports to your credit, you’ll benefit from the entire history on the account.

For more strategies, please visit the FreeRateSearch.com Information Center where I have published several articles about credit and credit scores.

Let us know how it goes!

Credit repair companies have long been the enemies of the credit reporting agencies. Their tactics account for a significant amount of time and manpower investigating disputes.

In my world - as a consumer advocate and educator — credit repair companies make my job more challenging. So many people think that if they are willing to spend enough money they can erase their bad credit. Usually it’s not true, but there are exceptions.

One way that credit repair has flourished has been through “piggybacking” or “rented tradelines.” This scheme involves adding someone with bad credit to an account of someone with good credit. When done right, the person with bad credit will benefit from a “good account” listed on their credit reports. Piggybacking can quickly boost a credit score more than 30 points, depending on the borrower’s credit history.

But because it has been used to artificially improve credit scores so that borrowers can get mortgages, the credit agencies and Fair Isaac (FICO) have been working hard to eliminate this loophole. It’s not completely gone as a score-enhancing tactic, but it is dying. A recent New York Times article reports on the use of these “seasoned tradelines” as a credit boosting technique.

Buying a good tradeline doesn’t come cheap — it may cost you roughly $1400 or so for the first one, and several grand for the next ones.

I understand how some people who have been through terrible credit problems are lured by the promise of quick and easy credit fixes. But in this case, it is truly not worth it. As the Times article points out, this is a clear case of credit fraud. If your mortgage loan goes bad and you were found to use one of these schemes, you could find yourself with far greater problems than a poor credit score.

Save yourself some money and grief. Read my tips for building stronger credit and get to work.