Archive for the ‘Mortgage Problems’ Category

If you are having trouble paying your mortgage and trying to stop foreclosure, you probably know that things are very tough for many borrowers. At Lender Rate Match we have been monitoring thousands of loan programs over several years, and we’ve seen extraordinary changes in mortgage loan programs and what it takes to qualify.

If you have decent credit, equity in your home or a good sized down payment, and a job that pays you a steady W-2′d salaried (meaning taxes are withheld), then plenty of good loan programs still exist and we encourage you to compare mortgage rates.

But if you are someone who is self-employed, you owe more than your house is worth or your credit is bad (maybe you’ve missed payments), then your options are more limited.

In particular, it’s the homeowners who are “under water” - meaning they owe more than their house is worth - that are really in a tough bind.

The new housing legislation is supposed to help that with an FHA option that allows lenders to write off some of the balance of the loan now in exchange for a share of the appreciation of the home later.

But it’s a voluntary program, and that’s the big problem.

Many lenders simply are not working with borrowers on long-term solutions. They are only plugging the leaks temporarily, and they need someone with some authority to help right the ship. That person could - and in my opinion should - be a bankruptcy judge with the authority to direct a lender to restructure a bad loan to give the consumer the opportunity to pay off a loan based on the current value.

The New York Times agrees. In a recent editorial, they called for the same reform that many consumer advocacy groups have been pushing for:

…lawmakers should be ready to reform the bankruptcy law so that homeowners can have their mortgages modified under court protection. That is arguably the best way to prevent foreclosures, but it is also the policy most reviled by the mortgage industry

It’s a solution that costs taxpayers nothing, yet can save millions of homes from foreclosure and halt the downward spiral that vacant homes are causing, even for homeowners with no trouble making their payments.

If you are going to buy or refinance your home, beware: Your appraisal may cost more than before, and take a lot longer. It’s not surprising that lenders are trying to make sure that appraisals more accurately reflect the value of the property today. After all, they’ve taken a big hit on loans where inflated appraisal values contributed to foreclosures.

But their “solution” to appraisal problems often just mean more headaches for borrowers — and higher costs as well. Randy Johnson a mortgage broker who has financed over $1 billion in properties shared the latest scoop in his post about Appraisal Hanky Panky on Creditbloggers.com.

Just one more thing to deal with when you’re trying to buy a home. Seems like they are making the “housing turnaround” an awfully wide turn.

Q: My two sons and ex-wife are in the market for a mortgage. My sons’ FICO scores are in the high 700’s but my ex-wife’s score is in the low 700’s (3-4 years ago, she declared bankruptcy). Can your software handle three FICO scores on a single inquiry ?

A: Great question!

First, let me explain how lenders view credit scores. You’ll typically have one “primary borrower” on an application. That person is usually the one who is makes the most income. It’s the middle score of that primary borrower that usually determines the rate and program for the loan. Any “co-borrower” will also be on the application, but their credit scores are often considered a “compensating factor” which means they can help, but don’t carry the same weight. A very small number of lenders will average credit scores of both borrowers.

Our system is set up like that of the lenders whose programs we search, allowing for two borrowers (one primary borrower and one co-borrower).

I don’t know what your son and ex-wife’s incomes are, but if your sons make enough money to support the loan, your wife doesn’t even have to be on the loan. She can still be on the title to the property without being included on the loan. If her income is essential to qualifying, however, then the good news is that her bankruptcy may be old enough that it doesn’t have a major impact on the loan. (Though as you point out, it would likely be best if one of your sons is the primary borrower because of their high credit scores.)

I would recommend they run their rate search using the information of the two borrowers with the highest documented income. If those two are your sons, then great. If your ex-wife is the primary wage earner, she should be listed first. After they compare mortgage rates using our mortgage search engine, a single loan officer will contact them to discuss their loan needs, and can help them decide if there is a better way to handle the application.

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.

I recently read this article by Gary Foreman and thought it was excellent.

The other night I watched a movie called “Flags of Our Fathers.” It was the story of the men who raised the flag on Iwo Jima in World War II. The main theme of the film (heroism) isn’t relevant to us here, but something did strike me while watching it. As soon as someone was wounded and went down they called for a corpsman or medic. If the wounded was injured too badly, a buddy called out for them. The many battle scenes were filled with cries for corpsmen.

With a little research, I found out the corpsman was a Navy enlisted medical specialist and a medic was from the Army. I still know only a little about the subject, but it seemed clear that it was important to get help to the wounded as soon as possible. That’s why the brave medic or corpsman was willing to risk his own life to help save a friend.

It occurred to me that there are similarities in the world of personal finance. At some point or another, we’ll probably all get wounded in the money wars. And we’ll likely fall bleeding to the ground. How quickly we stop the bleeding and dress the wound will make a big difference in our survival rate. Let’s learn the lesson of the corpsman. It’s important for borrowers to call for help as soon as they’re wounded.

Right now many people are having trouble with their home loans. If you think you’re about to fall behind in your mortgage, talk to your bank. Don’t wait until you have missed a payment. Most lenders are glad when a borrower faces trouble squarely and comes to them seeking a solution. It’s much harder for the lender if you run and hide.

The bank doesn’t want to foreclose on you. They’ll probably lose money selling your house. The best situation for them is for you to continue to make payments on your home — even if those payments are less than the original mortgage called for.

Find a way to help the lender “win” if you stay in your home. Contact your mortgage company and tell them that you’re having a problem and want to work with them to find a solution. They’re in business to make money by loaning it out. Reducing your payments and lengthening your mortgage is better for everyone than foreclosure and resale.

The same thing is true if you’re struggling with your auto loan. The lender would rather work with you. That’s easier than repossessing the car, selling it and then chasing you for the difference between what you owed on the car and what it sold for.

Now, that doesn’t mean you should call the lender anytime that your payments are a little uncomfortable. It’s up to you to eliminate the extras in your budget before you approach your
lender. If you haven’t done that, don’t expect help.

And, don’t call your lender and tell them you want reduced payments so you can buy something else. They won’t be receptive. Not because they don’t like you, but because their job is to protect their loan and make money on their investment. Helping you to borrow more money isn’t good business.

Back in the movie, one advantage that the corpsman had was that they could pretty easily tell when someone was wounded.
But, financial wounds aren’t like war wounds. There’s no blood. They’re not that visible to others and we can easily conceal them if we wish.

Often that’s exactly what we do. We try to hide our problems. We won’t address them while the wound is still fresh and can be healed.

Why don’t we ask for help? Sometimes we’re afraid to face the problem. We hope that it will go away on it’s own. Or maybe we
don’t want our friends, neighbors, and co-workers to think we’re not doing as well as we think they are. Usually pride is involved.

The funny thing is that your co-workers or neighbors don’t need to know that you have a problem or that you’re looking for a solution. You don’t need to publicize that you’re asking for help. Only you and your lender need to know.

Can we guarantee that you’ll save your home or car? No, but the sooner you clean and dress the financial wound the better your chances of a recovery.

This advice comes from Gary Foreman, the editor of The Dollar Stretcher.com website and newsletters. You’ll find hundreds of ways to stretch your dollar and your day. I love the site & recommend you visit today for more great time and money-saving ideas!

Depending on whose opinion you are reading, the Paulson/Bush plan for mortgage rate freeze is either an overly generous mortgage bailout or a woefully inadequate attempt to help borrowers misled into bad loans. Opinions are all over the map.

But only a few eyebrows have been raised by the requirement that, to be elgible, some borrowers must commit “credit score suicide,” as credit expert Emily Davidson warns at Creditbloggers.

Because the rate freeze is only available to consumers with credit scores of 660 or below, some consumers may have no choice but to damage their credit in order to qualify. Which would you do: hurt your credit a bit in order to get a break or go into foreclosure (which would hurt your credit more significantly?) Hmmmm….not a lof choice there.

The goal of the credit score cut-off is to allow only “subprime” –supposedly the most abused borrowers — to qualify. However, many studies have shown that as many as a third of borrowers who got subprime loans in the past year could have qualified for Alt-A or even conventional loans. The problem is those borrowers, who are the most likely to be able to repay, would not qualify for the freeze unless they lower their scores.

I know the experts will say those borrowers should refinance, and that’s may be a legitimate answer. I definitely recommend they use the mortgage search engine to find out what programs are available.

However, they may find nothing is available if

a. their home value has fallen and they didn’t start out with a hefty downpayment

b. they fell into subprime due to lack of income documentation or other factors besides their scores (and we’ve seen what’s happened to “stated” income loans), or

c. they can’t refinance due to a significant tightening of lending standards.

Applying a cut-off score to the freeze program is treading on dangerous ground. A better solution would be to require a documentation that they can afford their loan at the current rate, but can’t qualify for a refinance, and then allow them to freeze the rate for a period of time.

And what if homeowners do damage their credit scores to qualify? Will they be able to qualify to refinance in 3-5 years?

There are no easy answers here, but asking homeowners to ruin their credit to save their home is as bad a “solution” as the loans that got them into trouble in the first place.

The New York Times warns that foreclosure fees are often wrong. These improper fees can be a few hundred dollars to a few thousand (or worse!). If you are falling behind on your mortgage or facing foreclosure, I highly recommend you read the article.

Borrowers Face Dubious Charges in Foreclosures
By GRETCHEN MORGENSON
Published: November 6, 2007
As record numbers of homeowners default on their mortgages, questionable practices among lenders are coming to light in bankruptcy courts across the nation.

Q: Right now I have a ARM on my mortgage. It ends in April. When do you think I should refinance my mortgage? Do I take the risk of waiting and going to the rate in April or should I refinance now?

A: Is there a prepayment penalty on your current loan? If not, I see no reason not to look into refinancing right now. Even if you do have a prepayment penalty you may need to consider refinancing sooner.

Keep in mind that if home values continue to decline in your areas it may be more difficult to refinance in the future, depending on how much equity you have n your home. Liz Weston wrote an excellent article on this topic for MSN Money. Additionally, we have no idea where rates will be by spring, but by all indications they are likely to be higher.

Use the search feature on Lender Rate Match to find out what loans may be available to you. Then talk with the lender and ask him or her to run a “break even” analysis for you if there is a prepayment penalty. You’ll have a better idea of whether you should refi now or risk waiting.