Wednesday, September 24, 2008

Loan Modification FACTS

Explore Loan Workout Options:
If you have an Adjustable Rate Mortgage that is adjusting or have missed mortgage payments which has impacted your ability to refinance, you still have options in this market. Your lender may offer several 'loan workout' options including but not limited to: reinstatement, forbearance or a new repayment plan to suit your situation. When you call your lender directly ask for a supervisor for best result!


FHA Rescue and Secure Plans FHA officially offers a range of options for people needing to get out of ARM loans or who may be in arrears. Not all lenders offer these plans. Even FHA is teetering on risk based pricing hits (translated: higher interest rates) to encourage lenders to fund these loans. Certainly you should speak with an FHA licensed broker or bank about whether you will qualify. Officially the FHA has advised they perfer no FICO score or a minimum of 500. The banks who fund FHA loans have very strict loan limits (by city/county) and very few will fund under 580 FICO scores. Unfortunately, with guidelines tightening on all fronts, alternative credit reports are no longer acceptable in this market.


Mortgage Modification For longer term issues impacting your ability to afford your current mortgage, you are advised to pursue mortgage modification with your current lender. Mortgage modification may work by adding missed payments to your current loan balance (to bring it current) or change an adjustable rate to a fixed rate or by extending the number of years on your loan, thereby lowering the payment within your means.

Mortgage Insurance Loan: If your mortgage is insured (via Mortgage Insurance) you may qualify for a one-time interest-free loan from your MI guarantor to bring your account current and pay it back within a certain time frame. Your lender handles this process since they are essentially the insured party.

Loan Modification Resources: There are many companies out there who will help you work with your lender to modify your loan for a fee. These are legal negotiators whose fees range into the thousands. Your success depends on your circumstances and you ability to negotiate effectively with lenders. Professional modifiers have the inside story with lenders.
In Washington State, our DFI has proposed new rulings that only Licensed Loan Officers and Brokers can offer this service to protect consumers. You should not have to pay more than $500-1000 up front. If they don't get an acceptable result, you should get your money back less an application fee. Most llenders are very motivated to keeping people in homes. They do not want your house back.

Private Options: I've been speaking with several private lenders about options to refinance out of situations.... but they are very strict on minimum credit ratings in this market. Most private lenders want hefty fees up front and interest rates starting at 10% for higher risk loans. Since some ARM loans are already adjusting higher than that, a private lender could be a very decent option if you are in too deep to have your loan modified.

Non Profit Counseling Hotline: For borrowers in arrears or nearing a rate reset they know they cannot afford, call Hope Alliance's hotline. Hope Alliance is a non profit HUD sponsored counseling organization who will help you determine the parameters of your situation. After which , they will petition your existing lender on your behalf. The lender will then respond directly to you, after which you are on your own to negotiate.
Call Hope Alliance 1-800-995-4673  www.995hope.org
The Hope Alliance fee is paid by the lender if successful, so there is absolutely no cost to you.

BUT FIRST If you are not sure how to proceed, the first step is to ask your lender directly about potentially working out a solution.

Before you call, read about your options online at the HUD site.
http://portal.hud.gov/portal/page?_pageid=73,1827467&_dad=portal&_schema=PORTAL

Success to you! Loannetter

Wednesday, September 17, 2008

Housing Bill Promises!

Congress Passes Housing Bill to Assist HomeownersTakes effect January 1, 2009


The newly passed Housing Bill promises more help for homeowners facing foreclosures. What we don't know yet is how Congress is going to get private banks to actually deliver these programs. Much of the legislation is designed to better inform consumers and this is very welcome news to our industry!

Officially, Congress has set aside more money for FHA guaranteed loans and will pump more money into Fannie Mae and Freddie Mac. Since Freddie and Fannie, both Goverment Sponsored Enterprises, or GSE's were placed in conservatorship shortly after the Housing Bill was passed, the new heads have not yet declared if their recent guideline changes (tighter) will continue as planned. In fact, FHA has areadly delared a moratorium on their own risk guidelines so the whole situaiton is very much up in the air. These risk based guidelines translate into higher interest rates and fees for marginal credit or declining values...affecting many many people across the country.

What most people don't understand is that 'government lending' means a percentage of guarantee to the final lender who is going to hold the note. They still have to like your business proposition: i.e., you and your property.

This bill does raise current loan limits -- which means an individual borrower can borrow more than the previous FHA limits for their locale. Reading closer, the new First Time Homebuyer tax credit must be repaid over a fifteen year period. It appears these measures are designed for short term relief.

Risk leveler: The FHA minimum down payment was raised to 3.5% from 3% by the new Housing Bill. The bill has also outlawed 'gift funds' from non profit organizatoins, but family gifts are still allowed. Lenders have become much tougher about keeping your debt to income ratio under 43% and verifying your income. If you don't qualify for an FHA loan your next best option is to have greater down payment funds and work on your credit. If you have 20% down for a convetional loan, you won't need mortgage insurance unless, again the property is in a declining area...so plan on an extra 5%.

Investors are also facing lower limits on how many properties they can mortgage (In some cases, 4 total mortgages). It's a good idea to speak with a financial advisor about setting up a savings plan if you are planning to buy a home in the next year or two!

January 1, 2009 is when these new guidelines come into effect. If you can qualify for a refinance or purchase loan before then and need to make a move before your ARM adjusts--don't wait! Rates, while volatile, appear to be rising. 'FHA Secure' interest rates are currently higher by 1.5 - 3% depending on your risk category. 'FHA Rescue' (the new program) is likely to be even higher.

Do You Know Where Your Money IS? Considering all the bank failures, mergers and buyouts, it's a good time check out your bank and see they how stable they are: Compare bank ratings here:
http://www.bankrate.com/brm/safesound/select.asp?insttype=0 (click or copy and past this link into your browser)


If your bank was doing something risky they have ceased to do so given the new level of FDIC oversight. So while they may be less inclined to lend--this is to protect your deposits also.

Buying a Fixer Upper? When buying your own home, it's easy to add up to $35,000 cash for renovations or $6,000 for energy efficiency improvements through FHA streamline renovation "Green Loans". We also have full construction and renovation loans through our specialist construction lenders. It really is a great time to buy, build or renovate if you are in good shape financially. Check out my Buildnet Blog.

Improve Your Fund-Ability! The most important thing you can do these days to improve your chances of getting a loan is to raise your 'middle' FICO score to 720 or higher (850 is the top).
Having sufficient assets to close is absolutely essential these days.

Remember when the rule of thumb was no more than 25% of your income for your house payment? Those days may be returning. While you are riding your bike to work -- take time to appreciate the scenery. You might find a nice little house you can afford along the way!

Happy shopping! Loannetter
© copyright 2008 susan templeton loannetter

Saturday, July 19, 2008

Stop Your FICO From Becoming a Fido!

Online Mortgage Shopping Impacts FICO Scores
If you've considered checking out an online mortgage site: think again. What they don't tell you is that their network may comprise multiple agents. Each may pull your credit report (separately) over a course of hours or days while they review your loan options.

While all this is going on, your FICO score is taking a nosedive. Each mortgage inquiry can negatively impact your score 3 points. Each time. So if 10 brokers pull your credit in one 90 day period you could be 30 points worse off. And here's the scary part: each of those 10 brokers could actually submit your application to another 10 banks who also check your credit and that little exercise just cost you 30 points per broker...so the potential for damage is exponential. Because banks and lenders have strict FICO score requirements, a lower FICO Score can affect your qualifying for the loan you want. So much for convenience...

What is a FICO Score?
Invented by the Fair Isaac Company, FICO scores are based on a scale of 300-850, there are three FICO scores issued to you--one from each of our three National Credit Bureaus: Experian, Transunion and Equifax. These are our government respositories of information collected from creditors, courts and municipalities across the country. Not all creditors report to all three bureaus, so your score numbers will vary somewhat. They also collect information reported by collection agencies, government sources and other brokers who submit information about you to verify your identity when you apply for a mortgage.

FICO scores are one measure that lenders use to evaluate you, by placing you in risk brackets. These brackets (a range of score numbers) supposedly determine your likelihood of defaulting on loans. Every time you apply for credit, be it a cell phone account or credit card, you can bet your credit is being pulled.

Your Credit Report is not the same thing as your FICO Score.
The report is prepared by a Credit Reporting Agency that 'pulls' the information on file from the three National Credit Bureaus. Different lenders may prefer the score from a particular bureau, but most use the 'middle score' of the three scores. FICO scores are based on complicated logarithms which indicate how well you manage your debt.

What's a 'Good Score"?
The difference depends upon the lender and their own guidelines, but basically 680-740 is required for the best rates for conventioanal loans. The difference in a 679 and a 680 score (the higher the better) could make quite a difference in the final analysis. Your score also determines whether you qualify for a 'no doc', 'stated', or 'full doc' loan. The higher your score, the greater the trust lenders have in the information you provide. The lower your score, the more verification (paperwork) lenders require. Anything over 740 is gold standard. Lenders have restrictions on funding mortgages below certain scores but some capitalize on this niche by charging higher rates.

In late 2007, Fannie Mae and Freddie Mac progressively raised the 'guidelines' they allowed for credit scores and debt to income ratios. We now have penalty-based interest rate pricing for lower scores. These days if you are self employed you can expect a very hard time if your FICO score is below 700. A FICO score of 580 is the lowest most banks will entertain for government guaranteed programs like FHA, VA, and USRDA Loans. Every bank and lender must adhere to these guidelines unless they hold their own loans in a portfolio (very few do) rather than sell them.

A FIDO Story
A client of mine requested a 'free' online Credit Report she saw advertised on an internet ad. She clicked on the site, and answered a few very personal questions including giving out her Social Security Number, email address, etc. and was asked for a credit card number to 'verify' her identity. Moments later, her screen flashed blank and she could not retrieve the report. Annoyed, she cancelled the transaction, without receiving a report. She checked her emails: no report. A few weeks later, she noticed a charge on her account for a yearly service fee which she did not recognize. Unfortunately she had used a Debit card so her bank would not refund the payment because she had 'authorized' it by giving them her card number.

While many of these so called credit firms are being shut down, it's best to avoid the heartache. Unfortunately, this same client had submitted an online mortgage application to a firm promising three competitive bank quotes. Her FICO score fell about 60 points in one month. In her case, the original broker she contacted did not mention they used several agents and after a few weeks, they simply turned her down after wrecking her score. I was sickened when I saw her report afterward. Her list of lender inquiries was as long as your arm, which also affects your score.

Unfortunately, contesting an inquiry on your credit is not really possible...you can bark all you like!

Regular Check Ups
By now you've probably been drilled about checking your credit yearly. Fortunately, every citizen can a get free report once a year in the USA. It's wise to sit down and look it over carefully to verify that no unauthorized credit cards or collections have been lodged against you. If you happen to have a common name, it is easy for mistakes to occur. I knew a man who had the same name as an uncle who lived rather irresponsibly. He was actually advised after repeated efforts clearing inaccurate reports against him to change his name!

Not all Credit Reports show your FICO score, so you can order your own online from the Fair Isaac consumer site www.myfico.com It costs about $49 for a Tri-Merge (all 3 scores). It does not impact your score when you check it yourself. When you apply for a mortgage, your bank or broker will pull a professional Tri Merge Report. Ours costs about $20 if you want to use the secure link below. We will call you to discuss your report with no obligation. Banks can't use the consumer reports from My FICO as they are apparently sanitized.

Banks and Brokers must have your permission to pull your credit but this practice may not be adequately monotored in some settings. If you already have a banking or credit relationship (cards, revolving accounts) your creditor may check your credit without your permission to see how you are perfomring on your other obligations. This is the really stinky part: if you are behind or missing payments on accounts, your current creditors can raise the rates they charge you!!

Legally, when a bank or lender pulls your report we are required to give you a copy of the report and a form listing any derogatory information used if we turn down you application for a loan. A mortgage lender should be able to explain your report and take the time to go over it with you. Your Credit Report is your first step to getting the desired result: the loan you deserve!

Wishing you every credit sanity! Loannetter

© copyright 2008 susan templeton loannetter

Wednesday, January 09, 2008

Practice Credit Wellness!



4 Point Plan to Success:

Most people think if they not have claimed bankruptcy or bounced checks then all is well in credit land. Unfortunately, it’s not that simple. If you have let your payment schedules slip or allowed your credit account balances to creep up these practices can seriously impair your creditworthiness.

Since the new Fannie Mae and Freddie Mac guidelines for mortgages were released in late December 2007, lenders are being forced to charge more for loans in up front points and fees due to the increased risk factors. This means a low FICO score is costing you higher interest rates not only on your mortgage but for everything from insurance to auto loans. The difference between a low 600’s score and a score over 700 could easily mean $100 a month on a car loan and more on your home payments. Below are some tips for turning things around. The standards have been raised 20 - 40 points across the board this year and document stacks are that much taller!

Make 2008 the year you get on top of your credit! It may only mean changing a habit or two. For example, use auto drafts to make your mortgage payment rather than relying on the mail. Make more than the minimum payments on your credit cards and your score will improve steadily. It helps to have a goal…so here are some tips to help you chart your course!



  1. Set Your Goals: Every citizen can request a free credit report every year at http://www.annualcreditreport.com. Review your file, see what is reporting, how accurate it is and if you have any issues needing correction or addressing. This is your starting point to credit wellness.
  2. Learn the Terms: To manage your credit wisely it helps to understand the lingo. Read my article Credit Reports Defined or download the free booklet Understanding Your FICO Scores written by Fair Isaac, the folks who invented the FICO scoring system.
  3. Plan to Win – Once you’ve checked your report and defined any targets, you can correct your course. For example if you have been making late payments, set up an auto-draft system to pay your bills a few days before they are due—without fail. Even one late payment will affect your score.
  4. Keep Watch – Congratulate yourself once you see improvement…but don’t let up! About 6 months before applying for a major line of credit or mortgage, order a new credit report with a score. Unfortunately the consumer reports you buy yourself are ‘sanitized’ and may not have as much information as lender reports…so scores will vary. Your bank or broker will pull you lender report showing your scores for you when you are closer to financing, say 30 days prior to seeking a mortgage.

Once you know what your score is, and you've made what improvement you can, you can become qualified to compare rates and product terms. To say: “Interest rates are under 6% today” does not mean you will not be offered these terms unless your credit picture is a rosy one!

Check our the My FICO score
free calculator for comparisons on scores, rates and payments

Happy scoring! Loannetter

© 2008 susan templeton