Archive for the ‘Uncategorized’ Category

That’s the logical interpretation of the Fed’s current position…

I was interviewed on this topic for a story by Chuck Jaffe of Marketwatch and if you are in an ARM I hope you’ll take a minute to read it and heed the warning.

A reader asks:

I am planning to live in a house for next 6-7 years which I just purchased. Is it advisable to pay accelerated mortgage ( biweekly or 13th payment) compare to monthly payments.
Would appreciate your suggestion. Thanks!

This is great question, and one I hear often: Should I prepay my mortgage?

There are a few things to consider:

1. First, I would not recommend you pay any fees to get a bi-weekly or accelerated mortgage. This is something you can easily do yourself for free. Just take your mortgage payment, divide by twelve, and send in the extra amount each month with your payment. There is an article on our site that talks about do it yourself mortgage prepayments.

2. It’s great you are in a position to pay extra on your mortgage. It’s a risk-free, tax-free way to build wealth in your home. However, I would first encourage you to make sure you have adequate savings reserves that are liquid (easy to get to). If you run into a financial crisis due to a layoff, disability, etc. it may be difficult at that time to tap the equity in your home quickly.

My colleague and the true expert Marc Eisenson wrote a book about prepaying your mortgage called The Banker’s Secret. He also wrote a chapter on pre-paying in the book I co-authored with him and Nancy Castleman entitled Invest In Yourself: Six Secrets to a Rich Life. I am going to send you an autographed copy for your library.

(Yes, that’s a hint for those of you who may be thinking about asking a question. Ask and you may receive!)

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.

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!

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.

Question we received: “I was offered a no-fee loan by Bank of America. The promised interest rate was 5.2% for a 30 year fixed, with 5% down. I was approved based on my great credit. The entire process was complete except underwriting. The underwriter claims that because the property is a log home that it is not qualified for a no fee mortgage! However, it is qualified for a loan with higher interest rate.

My question is does that sound right to you? I’ve asked other loan officers and they have never heard of anything like it before.”

Answer: The team at LenderRateMatch has scrutinizes pages and pages of loan guidelines every day to make sure our loan searches remain as accurate and up to date as possible. (Makes my head spin, but thankfully they’re great at it!) As you point out with your question, it’s those little details that make or break a deal.

So I posed your question to them, and here is what they had to say:

“Log homes, unless they are in a vacation area with lots of log homes, are considered a higher risk factor for the lender. First, there may be no “comps” (comparable properties for an appraisal) and second, reselling the property if it is foreclosed upon can be a problem. Many lenders don’t even write these types of loans. Our suggestion is this, regardless of whether the property IS or IS NOT in a vacation area, go to a lender in a vacation area that is familiar with this type of property for your loan. Make sure the loan officer actually does log home loans, don’t let one just tell you not to worry about it.”

And I’ll add my 2 cents — always compare a no-fee loan with one at par rate using the FreeRateSearch.com home loan search engine. No-fee loans are made at an interest rate that is high enough to roll the fees into the loan. Depending on how long you’ll be paying on the loan, you may be better off with a lower rate loan that also carries closing costs. And if cash is the issue, see if you can’t get the seller to contribute to closing costs or an interest rate buydown. It is a buyer’s market!

“Myrna” writes:

My question is should refinance my mortgage now? I currently have a 30 year fixed at 6% and I also have a fixed home equity loan. My main goal is to have lower monthly payments and no pmi. I would like to know if I should wait until the end of the week and see if the rates go down again like they say they will. I know the houses in my area are going for below the market price and I don’t know if it is worth me refinancing now. We have been in our house for 3 years and we plan on staying for 10 more. I have an FHA loan now and would like to know if I do refinance which lender you recommend and when to do it.

Answer: You have a great fixed rate, and a slightly lower one may not save you enough money to be worth it in the long run…but you won’t know until you run the numbers.

I would recommend you get your three bureau FICO scores, then use that information to run a search on Lender Rate Match. That way your search results will be accurate. When you search you will be connected with one loan officer who can review your search results with you, and determine which loan programs are available.

Ask the loan officer to run a “break even” analysis for you. This will tell you how long it will take you to break even on the costs of the refinance versus the savings from a lower rate (if one is available).

I would also recommend you find out the same about refinancing into another FHA loan. If your loan officer does not offer FHA loans, you will find more information here.

As for timing rates, that’s a tough call. The market changes frequently and often unpredictably these days. Talk with your loan officer for insight, but understand he or she can’t see into the future.

If you learn you cannot refinance and are worried about being able to stay in your home due to your payments, call the Hope Now Alliance at 1.888.995.HOPE. The consultation is free and confidential.

“Barry” asks:
I need to refi my home because of divorce. The home is appraised at $255K, and the current payoff is $120K. I also have substantial credit card debt that I want to pay off (~$14K). My question is what is the effect of using your “Refi - Debt Consolidation” vs. the “Refi - Cash Out”? Thanks for your help and for this superb site.

Thanks for the question and compliment!

When you choose a refinance for debt consolidation, the lender will usually take into account the debt you want to pay off when qualifying you (ignoring the debt you are paying off in your qualifying ratios) and actually write the checks to your lenders to pay off that debt.

When it comes to cash out, you are not specifying what you are using that cash for, and lenders may limit the amount of cash out permitted.

In your case, your LTV (loan to value — or amount of loan compared to the value of the home) is so low, you shouldn’t have any trouble consolidating your credit card debt. Choose a Refinance Debt Consolidation, then talk with the lender you are matched with if you also want to take some additional money out to refinance.

A couple of other things — make sure you continue to make at least your minimum payments on your debts until the funds from your closing have been credited to your credit card accounts. I’ve seen consumers hold off on making payments, and then find late marks on their credit when the payments from the loan proceeds didn’t make it to creditors on time.

Also, it is a good idea to monitor your credit reports and scores for a while during and after your divorce, since that’s when a significant number of credit report mistakes and problems occur.

“Caryn” asks:

My question is this, the site is requesting my credit scores from the three credit bureaus. But what about my fiance’s credit scores? I’m sure those are important if we are buying a house together? Thanks!

Hopefully you have checked both your credit scores. Whichever one of you has the strongest income will likely be considered the borrower, and the other person will be the co-borrower. Keep in mind that if one of you has strong scores and enough income to get the loan alone, you do not need both apply. (You can still hold title together, and there will be paperwork for the other person to sign.)