My New Blog

This will be short and sweet. 

This past week, we have locked 3 loans for people looking to get out of their adjustable mortgage.  We also took 2 other applications that should be finalized next week.

Every case was cut and dry.  The clients we paying an average of 7.25 % (amortized).  Two of these were straight Adjustable and one was the Low payment option (1.5% option with negative amortization)

Please call me to go over your scenario.  I will give you a detailed analysis of your loan options.  I will tell you if it does not make sense at this time and follow up when it does.

Here is some information that I got from a friend.  I have had a few questions in the past week about this exact issue. 

Recent statistics indicate that the number of foreclosures in the US are nearly twice what they were a year ago. In some states, foreclosures reportedly claim one in every 199 households!

If you or someone you know has an Adjustable Rate Mortgage (ARM) that is scheduled to adjust in the next 2 to 18 months, please schedule an appointment with us before it's too late. Don't let a foreclosure or default situation sneak up on you. For many borrowers, there are a number of viable foreclosure alternatives that can help, including short sales, FHA refinancing, or FHASecure, to name a few.

Short Sale
A short sale is a legally-binding agreement to allow a home to be sold for less than the amount that is owed. For debt-ridden homeowners or those who owe more than the house is currently worth, a short sale could save them some of the enormous pain, embarrassment, and major credit challenges associated with bankruptcy and/or foreclosure. For lenders, it helps avoid some of the hassle and expense of seizing and auctioning off delinquent real estate. For potential homebuyers and real estate investors, a short sale offers a great opportunity to purchase property at a significant discount.

It's important to note that short sales occur at the sole discretion of the existing lender or servicing company. This is not like negotiating the price of a home under normal circumstances. A written declaration and supporting documentation demonstrating financial hardship and an inability to make payments will definitely be required by the lender in order to even consider a short sale. This may include pay stubs, tax returns, and liquid asset statements – including those for retirement accounts – among other documentation. In addition, the borrower must be at least 91–days delinquent before a lender will even discuss a short sale.

This is where an experienced real estate professional becomes invaluable to your cause. Knowledgeable real estate agents have likely negotiated short sales in the past and are well-versed in the substantial risk and reward involved in this extremely complex and often drawn out process.

FHA Refinancing
The Federal Housing Administration (FHA) was established in 1934. Its purpose is to provide and improve home ownership opportunities to the general public by insuring home loans made by lenders. The FHA is the only government agency that operates entirely from its own income, and costs the taxpayers nothing. It is also the largest insurer of mortgages in the world. The Federal Housing Administration became a division of the Department of Housing and Urban Development (HUD) in 1965. In the United States, HUD administers low down payment loan programs to help increase and promote home ownership opportunities for Americans.

In recent years, FHA loans had become less popular, especially in areas with higher loan requirements. With the collapse of subprime lending, however, FHA has reemerged as a valuable resource for many borrowers.

The FHA guidelines are not FICO-score driven and are said to be "forgiving" about certain negative financial circumstances, including bankruptcies, foreclosures, or certain consumer credit counseling programs. According to HUD, FHA transactions are projected to surpass 100,000 loans by the end of the fiscal year, which does not include refinances for delinquent borrowers.

You've probably heard about FHA reform in the news recently. As a result of the significant market volatility experienced this summer, lawmakers are clearly invested in updating and expanding the limited reach of FHA lending. All politics aside, this new flexibility will likely help many homeowners who take the initiative and seek out help before it's too late. However, there is still a lot of confusion and misinformation about the features and benefits of new FHA legislation currently awaiting approval.

Home buyers, home sellers, ARM holders, and other borrowers looking to refinance, don't allow yourself to be overwhelmed by all of the information surrounding these initiatives. Call us and find out what real opportunities are available right now to help you meet your financial goals.

FHASecure Initiative
FHASecure is a temporary lending program – which expires in late 2008 – announced by President Bush on August 31, 2007, and released to FHA–approved lenders on September 4th. Qualified homeowners seeking payment relief from their ARM may be able to use FHASecure to refinance their loan into a more stable, fixed-rate program, even if they are already delinquent on payments. This program is estimated to rescue somewhere between 80,000 and 220,000 ARMs borrowers.

The FHASecure initiative will utilize existing FHA guidelines. Eligible homeowners will be required to pay a mortgage insurance premium and, like all FHA loans, FHASecure will not include pre-payment penalties or "teaser rates."

A number of important criteria must be met in order to be considered for this and the other programs discussed in this article. Give us a call and, even if you do not meet these specific criteria, we'll help you find the resources you need to overcome challenges and reach your financial goals.

If you would like to learn more about how these and other financing options could help you, please call us at (610)825-2389 to set up an appointment. We would be happy to speak with you about it

1. Apply for business credit cards (where applicable)

Most people don't realize that over 90% of business credit cards do not get reported to personal credit reports. If they are not reported, they are not scored, period.

Many people run their businesses from their personal credit cards and as a result their credit score suffers. Your client doesn't need a big company to get approved for a business credit card; it is much easier to get approved than most people think.

Once approved, you can move your personal credit card debt over to the business credit cards and watch their credit score go through the roof once everything is updated on the credit report.

2. Settle for deletion, or at least zero out all unpaid collection accounts less than 24 months old.

When payment is made on a collection account that is less than 24 months old, the score will either stay about the same or increase a few points. Settling in exchange for deletion is ideal, but not always possible. Given the fact that the collection account will keep selling to other collection agencies in the future, it is best to deal with it while it is still young.

Once an account goes beyond 24 months you need to be careful when settling because the account may erroneously have the date of last activity updated to the current date and bring the score down as a result.

3. Get rid of all their past due amounts on non-collection/charge-off accounts and make sure to pay before the due date until after the loan closes to be safe.

Within the delinquent accounts on your credit report, there is a column called "Past Due". Credit Scoring software penalizes clients for keeping accounts past due, so past dues destroy a credit score.

If you see an amount in this column, pay the creditor the past due amount reported, unless that amount belongs to an account that is charged-off or in collection. If that is the case, use the advice in number 1 above to determine the best action.

4. Get rid of your late payments.

Contact all creditors that report late payments on their credit and request a good faith adjustment that removes the late payments reported on their account.

You should be persistent if they refuse to remove the late payments at first. They should remind the creditors that they have been a good customer and would deeply appreciate their help.

5. Ask for a credit limit increase on your credit cards and either pay-off if possible or at a minimum evenly distribute the balances your are carrying on your revolving debt.

Credit scoring software likes to see borrowers carry credit card balances as close to zero as possible and also see that they have been trusted with a lot of credit - which is why increasing their limits is good.

If you can't afford to pay down their credit card balances, tell them to evenly distribute their credit card balances among all of their credit cards rather than carry a large balance on one credit card to maximize their score.

6. "Do not close your credit cards".

Closing a credit card can hurt their credit score, since doing so effects their debt to available credit ratio. For example, if you owe a total credit card debt of $10,000 and their total credit available is $20,000, they are using 50% of their total credit.

If you close a credit card with a $5,000 credit limit, they will reduce their credit available to $15,000 and change their ratio to using 66% of their available credit.

7. Keep your old credit cards active.

15% of a credit score is determined by the age of the credit file. Fair Isaac's credit scoring software assumes people who have had credit for a longer time are at less risk of defaulting on payments. Therefore, even if old credit cards have horrible interest rates, closing those cards will decrease the average length of time a client has had credit.

Use old cards at least once every six months to avoid the account rating changing to "Inactive". Keeping old cards active can be as simple as pumping gas or purchasing groceries every few months, then paying the balance down.

An inactive account is given less weight by Fair Isaac's credit scoring software, so your client won't get the benefit of the positive payment history and low balance that card may have as much as if the account were active.

8. Pay down Negative Amortization mortgage balances below the original amount borrowed to increase the score

Most people don't realize that owing more than the original amount borrowed on a loan is a negative event to the credit score. If possible,  pay down the balance on any and all negative amortization loans that the client owes more than the original loan amount. This includes mortgages and student loans. Once you brings the balances below the original amounts borrowed, a credit score increase of 5 to 10 points is very common.

Don't confuse this advice with labeling a negative amortization loan as being bad. They can be a great financial tool when used appropriately and make otherwise unaffordable payments affordable. They can be great as long as your client is not in the middle of a refinance, but if they are, paying these balances below the original amount owed can maximize their credit score.

Thanks CreditCRm for this info