News Channel Mortgage

A guest post from Constantine von Hoffman, veteran business journalist and author of the blog CollateralDamage.biz, a humorous look at marketing, business and his dog.

At this point in the economic down-turn there’s really only one question on most of our minds: How can I become a commercial bank or an automaker?

My old friend Helen Kennedy put it succinctly in The New York Daily News: “Two more pillars of the American economy are coming to Washington hat in hand: American Express and Detroit’s Big Three. The struggling New York-based credit giant reportedly wants a $3.5 billion bailout. American Express got permission to become a bank holding company this week, making it eligible for a piece of the $700 billion bailout.”

The Federal Reserve gets to make the decision about who gets to be a bank. Since the Fed has already decided to leave us all holding the bag for bank companies, it seems only fitting that we should also get a chance at being a bank holding company as well.

Use the following checklist to see if you qualify:

• Do you need to cut borrowing costs?
• Are your main sources of funding in danger of going away?
• Do you need access to government money?
• Has your inability to get credit endangered your fiscal health?
• Would the ability to issue government-backed bonds keep you solvent?
• Are you willing to take deposits from both consumers and companies?
• Is your current role in the financial system mostly watching your investments lose money?

If you answered yes to all these questions then CONGRATULATIONS!!! You clearly meet all the essential qualifications needed to be a bank holding company.

Not sure of all that it takes to become an American car company but I do know I can fulfill one of the basic obligations: I guarantee no one will want to buy a car I build.

Share This

Two news items were released on Friday that would seem to bode poorly for the state of the real economy. One of these was the report on unemployment rates, which has now shot up to approximately 6.5%. That figure happens to be the highest since 1994, which curiously represented a turning point for the American economy. While that number is not astoundingly high in itself, when we look at the factors which comprise it, 6.5% becomes slightly more alarming. 247,000 manufacturing, construction, and service-providing full-time jobs were lost. We also have to bear in mind that these are the official numbers reported by the government, which are of course configured to appear far more optimistic to the casual observer.

My opinion is that real unemployment stands at 7.5%, with the figure coming from this table from Mish’s Global Economic Trend Analysis below. but regardless of which number you believe to be truly accurate, it would be tough for anyone to disagree with the fact that the real economy continues to stumble. Last months unemployment figures were also revised upwards by 125,000 jobs, putting total job losses at about half a million in two months.

The second piece of news, far more ominous in its implication, is the staggering quarterly loss and cash burn rate reported by General Motors on Friday. GM is essentially hemorrhaging cash at this point, posting a loss of $2.5 billion, while spending $6.9 billion. It doesn’t take a genius to figure out that those figures are a bit problematic. The company has gone so far as to acknowledge that its pockets will be empty by the beginning of 2009 unless something is done to recapitalize it, hinting at an additional $25 billion, which would be coming on top of the current $25 billion loan that has yet to be disbursed. Ford’s cash burn rate is equally substantial, and Chrysler looks to be just as poorly positioned as the aforementioned.

Why is this news so dire? For many of us keeping an eye on the economy, the key to recovery has been identified as the housing market. Even though activity has been stirring in the housing market of late, the simple fact is that as people continue to lose jobs, it becomes difficult to make housing payments even in the best of times. When your house is mortgaged for more than it is worth, and your interest rates are suddenly adjusted higher, that makes the situation even worse. As this continues to happen at a national level, money will continue to simply disappear.

Now let’s bring the automakers into the discussion. Anyone who has seen Michael Moore’s “Roger & Me” can attest to the intense, immediate impoverishment that a closing auto plant can wreak on a local economy. Regardless of what you or I may think of his politics, the scenes of dilapidated houses and boarded-up shops are viscerally evocative of our deepest sympathies. A bankruptcy of the Big Three would cause a ripple effect not only in local economies, but nationwide. The downward spiral of the housing market, and therefore the economy at-large, would continue. Other automakers will fill the gaps in the market left by the Big Three, but even if that took only a year (a highly optimistic estimation), the effects would be devastating.

It’s important to consider that while we rail against large corporations, they employ, and support the lives of everyday, responsible, hard-working people, people who could foreseeably lose their homes. These are not sub-prime homeowners who were suckered into something they could not afford by the allure of the housing bubble. These are victims of mismanaged and outdated corporations. I am not a proponent of the government giving aid to corporations, but when it comes to retaining working-class jobs, our government is required to preserve the well-being of its citizens. If that means lending additional money to the Detroit, our policymakers need to attach some strings that emphasize a change in production emphasis. The same would apply if the government decided to allow the Big Three to have access to the $700 billion bailout package. Automakers should be forced to anticipate future demand for new types of efficient, green vehicles, rather than current demand for gasoline-fueled cars.

By doing so, the government would be killing two birds with one stone, and could avoid a potentially catastrophic acceleration of job-losses. These are the sorts of crises that Keynesian economics are meant to deal with, not those that involve providing corporate welfare. It certainly won’t save the housing industry, but it well prevent the bottom from falling out. We can only hope that the government is aware of the severity of the situation.

Share This

Have you seen Robert Wagner recently? Chances are you have and he’s been talking about reverse mortgages. Reverse mortgages have been touted as a solution for cash strapped seniors allowing them to keep and live in their home while still enjoying a comfortable lifestyle. Comfort has lately taken a back seat to surviving the current economic chaos.

Reverse mortgages can help seniors weather some financial disruptions. On November 1, lower origination fees and higher loan limits were introduced on Home Equity Conversion Mortgages (HECMs), the federally insured reverse mortgage program. HECMs account for most (99 percent) of the reverse mortgages being made today although only an estimated 1 percent of those eligible for the program are participating, according to the Christian Science Monitor.

Read more »

A guest post from Constantine von Hoffman, a veteran business journalist who writes the blog CollateralDamage.biz, a humorous look at marketing, business and his dog.

The Fed has announced it will now buy commercial paper from money market mutual funds and endorsed the idea of another economic stimulus package. Far be it from me to turn up my nose at free money. I could use a handout … I mean stimulus check as much if not more than most of Wall Street. But I am disturbed that these efforts continue are in keeping with previous Bush Administration policy to never have a clue how something – like a war or a however many bailouts there will be – will be paid for.

I am nostalgic for the days when conservatives would mock liberals for wanting to solve problems by throwing money at them. That was back when there money to throw and we could count on the GOP to ask questions like, “Where’s the money for that?” (Occasionally a renegade Democrat would also ask this question. Sadly, Bill Proxmire has shuffled off this mortal coil just and no one has risen to take his place – on either side of the aisle. Proxmire, was Democratic senator from Wisconsin most famous for initiating the Golden Fleece Awards which identified wasteful government spending. During his last two election campaigns in ’76 and ’82 he refused to take any contributions – spending less than $200 on each. His campaigns consisted mostly of standing at the entrance to a state or county fair or a sporting event and saying, “Hi, I’m Bill Proxmire.” But I digress…)

I have absolutely no idea whether or not buying this commercial paper or giving checks to you and me will actually do any good in slowing or stopping the progress from recession to depression. They may. We are in uncharted waters with the economy. What I do know is that nothing whatsoever has been proposed that will pay for any of this. Nor is there yet any talk of how we as a nation are going to rebuild our capital by encouraging saving.

I was watching a collection of Disney cartoons from World War II recently. The thing that struck me the most about them was the emphasis on how we should all do our part. That took the form of everything from donating bacon grease and metal to buying war bonds to help pay for the war. Wow. What a concept. Buy a bond to help pay for something and earn a guaranteed return. I wish we had something that cutting edge now.

Share This

Share This

Banks have dialed up the lending requirements in the face of the nearly half-trillion dollars lost in the mortgage mess to-date. The Federal Reserve reported that banks and lending institutions have tightened credit standards across all loan-types as losses mount and liquidity remains a key issue.

This should be seen as good news of course. Common sense lending disappeared for a long time, and now it seems like we’re making our way back to some place of balance. Of course, we’re sure to over-correct in the process; but we’re certainly not there yet.

From Bloomberg:

Most “domestic institutions reported having tightened their lending standards and terms on all major loan categories over the previous three months,” the Fed said today in its quarterly Senior Loan Officer Survey.

Banks may be reluctant to lend against housing collateral that is falling in value. Home prices in 20 U.S. metropolitan areas dropped 15.8 percent in May, the biggest decline since record keeping began in 2001, according to the S&P Case-Shiller Home-Price Index.

The economy is also faltering. The unemployment rate has moved up 1 percentage point during the past 12 months to 5.7 percent, while delinquencies on home loans to borrowers with weak or limited credit histories rose to 18.8 percent in the first quarter from 13.8 percent a year earlier.

“Large majorities of domestic respondents reported having tightened their lending standards on prime, nontraditional, and subprime residential mortgages over the previous three months,” the Fed said.

Of the 32 banks that originate non-traditional mortgage loans, about 85 percent reported tighter lending standards, up from 75 percent in the prior survey, the Fed said.

About 65 percent of domestic banks indicated they had tightened their lending standards on credit card loans over the previous three months, up “notably” from about 30 percent in the April survey, the Fed said.

Share This

This post is from the Blown Mortgage Hall of Fame.  It originally appeared back in July 2007 on my series on credit.  Now more than ever your credit score is vital to securing financing.  I’m on vacation from Saturday until Tuesday the 15th so enjoy some of the classics while I’m gone. 

——————————————————–

In part 1 of this series on credit we talked about how important credit has become in surviving the current home depreciation environment and avoiding the ARM Reset Foreclosure Trap. In part 2 of the credit series we looked at the elements that comprise your credit score. Part 3 covered improving your score on your own and outlined the importance of credit management and protecting your credit report. Inpart 4 examined the pros and cons of using and outside credit repair service.  Our conclusion was that it probably made sense to try to fix credit errors yourself.  In the conclusion of the series we look at the best ways to manage your score and ensure you’ll keep your score heading up, up, up!  Here is a recap of the series so far and where we are at to date:

Credit Series Overview

1. Why credit is so important
2. Understanding elements of credit
3. Improving your score organically
4. Improving your score using 3rd party help
5. Managing your score

The Goal

Over the past four articles we’ve examined credit and how your actions can improve or damage it.  We’ve given you some tools to repair and improve it.  Today we will give you some tips for maintaining your score and improving it.  The main goal of this series is to help people with short-term adjustable rate mortgages improve their credit enough to enable them to refinance in to a better loan when the first rate adjustment date arrives.  This is the best chance you have to avoid the ARM Reset Foreclosure Trap if you are planning on staying in your home.

You can’t control the value of your home, you can’t control the interest rate your loan will reset to when the fixed period ends, you can’t (assumably) pay down your mortgage balance significantly; the one thing you can do is improve your credit.  You do this by managing your score.

Manage Your Score

Managing and improving your score is kind of like exercise.  The more you use it, condition it, and look after it the better and stronger it becomes.  If you go to the gym, eat well, keep track of your weight, caloric intake and improvements at the gym you become healthier and stronger.  Same goes for credit.

Track Your Score

It is important to keep track of your score, its changes and performance and whether it is increasing or decreasing.  The best way that I have found to monitor your score is through myFICO.com’s Score Watch program.  This program monitors your Equifax credit score daily and your FICO score weekly.  It does the work for you.  For about the cost of 2 cups of Starbucks a month you’ll be alerted to any changes to your credit report and score.  This is a valuable service that anyone who wishes to invest in protecting and improving their credit score should use.

I’ve stated through out this series that my wife and I both used the Score Watch program while improving our credit and it helped me add well over 100 points in the last year through proper management and payment history.  Please note again that I am an affiliate of myFICO.com and do get compensated for sales through my site.  However, I have been promoting myFICO.com for over 3 years now and have only recently in the last two months become and affiliate.  It is a great service.

The nice part about this service is that if anything derogatory appears on your credit  you can research and dispute it right away to have it removed.  You can also take a proactive approach to managing your scores.  If you see your scores decline you can look at your report and determine what may be negatively impacting your score.

Proactive Management

Just like anything else of great import in life; it is better to be proactive about your credit score than reactive.  The worst feeling in the world is applying for credit and not knowing if you’ll be approved or not.  Not knowing your score puts you at a disadvantage.  It gives people power to tell you what you do and don’t qualify for.  It puts you at the mercy of people who would try to take advantage of you by your ignorance in this arena.  Know your score.  It is as important as your social security number, and more important than your drivers license number.

Take these steps to actively manage your credit:

1. Sign up for Score Watch from myFICO.com
2. Watch for any changes in your score, positive or negative
3. Maintain a close eye on your credit card balances - keep your balances ideally under 33% of your credit limit and definitely under 50%
4. Always make your mortgage payment - missing a mortgage payment can be the single most devastating thing you can do to negatively impact your credit score
5. Sign up for automatic payments on all revolving accounts - this simple move is guaranteed to improve your score; especially if you have a tendency to be lazy with bill payments
6. Promptly follow up with all disputed items - work quickly to remove erroneous items from your credit report and payment history
7. Get everything in writing - it is extremely important that you keep a written record of any and all disputes you have regarding your report and payment records on your credit report.  Keeping written documentation will help you whenever another party or opinion is needed to settle a credit matter.

If your score is going down

If your score is dropping it is important to obtain a copy of your credit report and ascertain why the score is declining.  Remember your score can be impacted negatively by any of the following:

• Too many inquiries on your credit report
• Balances on revolving accounts of more than 50% of your credit limit
• Reporting of a late payment on your mortgage or other reporting accounts
• Too much debt, for example another car, second home or other large debt item
• Public judgment, tax lien, unpaid parking tickets, etc.

When you review your report take a look at what may be dragging your score down and work to rectify it quickly.  Here are some common ways to rectify a score drop:

• If your score is hit by excess debt it may be because an old mortgage or automobile account is still showing as active even if you’ve already refinanced that old mortgage, or turned in a leased vehicle or sold your old car.  While you no longer have that debt the bureau may count it against you if the account is not properly recorded as closed.
• If you’ve been shopping excessively for items that require a credit inquiry your score will take a temporary hit.  Take a break from running your credit for about 3 to 6 months to allow your score to recuperate.  Too many inquiries make you look desperate for credit - which hurts your score.  Time will clean this up.
• If your balances are getting large it may make sense to open another card and transfer some of the debt to the new card.  This may be effective if you only have one or two cards with high balances.  Having a third may allow you to return your debt levels to under 50% of the credit limits.  This takes discipline however; do not use the new card to rack up additional debt.

Essential Reminders

1. Do not miss a mortgage payment, please.  This is one of the worst things you can do.  There was a study recently that showed Americans are more likely to make their credit card payment than their mortgage payment.  If you are in a short-term adjustable ARM and are planning on refinancing in the next 12-18 months this is a terrible decision.
2. Know what is on your report.  I’ve seen loan applications declined because borrowers didn’t know that their gym membership was reporting on their credit and they neglected to pay their gym dues.  I’ve seen a late library book from a University library shave 30 points of a credit score.  Don’t let trivial items hurt your chances at getting a great loan.
3.  Fight erroneous information. No one is going to clean up your credit report for you with out you being vigilant about keeping it clean and pristine.  Dispute errors quickly and in writing to document your efforts.  Your credit is your responsibility.

Avoiding the ARM Reset Foreclosure Trap

If you refinanced to a high loan-to-value (85% or higher) loan over the last two years; and chose a short-term adjustable rate mortgage in the process - these articles are for you.  Regardless if your loan expires in 6, 12, or 18 months it is important to begin working on your credit now.  The reason is simple.  The combination of falling home prices, rising interest rates and tighter underwriting guidelines will make high loan-to-value loans available only to those with the best credit.  If you are not in that group you will have to deal with the consequences of an ARM Reset and payment adjustment which can be financially devastating.

Work now to avoid that trap.

First time homebuyers

This advice applies to you as well.  By managing your score before you begin the home buying process  you will ensure yourself access to the best rates and loan programs on the market.  The more programs you have to choose from the more manageable owning your first home becomes.

Conculsion

Credit is essential.  Access to credit is a major determinant to your success and quality of life; especially in regards to your home.  Please understand that recent events in the mortgage market make it essential-now more than ever-to improve your score to protect yourself from deleterious changes.  I hope that you are able to use some of these concepts and skills to raise your score.  Using these same skills I personally raised my score over 100 points in two years and 200 points in a little over 3 to put me in the best position possible for my financing needs.  You can do it too.

This post is from the Blown Mortgage Hall of Fame.  It originally appeared back in July 2007 on my series on credit.  Now more than ever your credit score is vital to securing financing.  I’m on vacation from Saturday until Tuesday the 15th so enjoy some of the classics while I’m gone. 

——————————————————–

In part 1 of this series on credit we talked about how important credit has become in surviving the current home depreciation environment and avoiding the ARM Reset Foreclosure Trap. In part 2 of the credit series we looked at the elements that comprise your credit score. Part 3 covered improving your score on your own and outlined the importance of credit management and protecting your credit report. In this part of the series we’ll look at options for improving your credit using third party services.  Here is a recap of the series so far and where we are at to date:

Credit Series Overview

1. Why credit is so important
2. Understanding elements of credit
3. Improving your score organically
4. Improving your score using 3rd party help
5. Managing your score

A note before we begin. Before you agree to work with any third party to improve your credit score you need to do the following things:

• Know and understand your current score, and understand the items on your credit report. You can do this by signing up for MyFICO, an inexpensive, accurate way to keep tabs on the accuracy of your credit report.
• Know and understand what is legal and what is illegal when it comes to credit repair.
• Check with the Better Business Bureau for any third party you choose to work with.
• Carefully examine the fees charged and the results guaranteed by the party you choose.

How to Avoid Scams

Just like in mortgage, if it’s too good to be true, it probably is. Ignore any company that makes any of the following claims:

• We can erase your bad credit - guaranteed!
• We can remove bankruptcies and judgments permanently!
• Get new credit instantly!
• Form a personal corporation and get all the credit you need, now!

These all represent untrue statements about credit repair. You are setting yourself up for disappointment if you do business with these types of firms.

Your Rights When Engaging a Credit Repair Service

From the Federal Trade Commission Web site on Credit Repair:

By law, credit repair organizations must give you a copy of the “Consumer Credit File Rights Under State and Federal Law” before you sign a contract. They also must give you a written contract that spells out your rights and obligations. Read these documents before you sign anything. The law contains specific protections for you. For example, a credit repair company cannot:

• make false claims about their services
• charge you until they have completed the promised services
• perform any services until they have your signature on a written contract and have completed a three-day waiting period. During this time, you can cancel the contract without paying any fees

Your contract must specify:

• the payment terms for services, including their total cost
• a detailed description of the services to be performed
• how long it will take to achieve the results
• any guarantees they offer
• the company’s name and business address

I have heard horror stories of people sending thousands of dollars to “credit repair” companies only to find their situation unimproved and their precious cash squandered on false hope. Do not let this happen to you. As with all financial situations do not rush in to a decision; and always get a referral if possible.

Types of Third Party Credit Repair Companies

Consumer Credit Counseling - These companies take all of your outstanding debt, analyze the creditors, balances and interest rates compared to your monthly income. They then negotiate with all of your creditors to reduce your overall debt and monthly payments. While this sounds good; it really looks bad on a credit report. This is a red flag to an underwriter reviewing your credit history. Some banks will consider this almost as negatively as a bankruptcy. While it may be beneficial to consult with a credit counselor to help game plan a way out of your debt; it can be very costly to your future credit options should you engage them to restructure your outstanding debt.

If you choose to work with a credit counselor simply use them to help remove disputed items that appear on your report. They can provide you templates and contacts to help you remove incorrect information on your report.

Consumer Law Offices - Lawyers like to tout that they are more effective than credit counseling companies because, well, they are lawyers. The truth is that they take the same steps as everyone else to remove disputed items. There is nothing inherently bad about using a law firm to remove credit items that are erroneous; its just that they don’t have different avenues than other organizations that may be less expensive.

Individual Credit Counselors - There are many independent “credit experts” who offer services to repair or improve your credit score.  They may be former employees of the above types of firms or not.  As long as you use the same precautions in researching and selecting them as the above companies they can be a reasonable alternative to the above.

The Best Alternative?

Most people turn to third party companies when they are desperate and in need of help.  This is the wrong time to begin to work on your credit profile.  The best bet may be to do it yourself.  Using a copy of your credit report and some template correspondence you can effectively clean up your credit report with out having to pay the fees associated with the above services.  The bottom line is that, all things considered, being your own credit counselor may be your best bet.

If you’d like samples of the template letters you can use to dispute items on your credit report please email me at morganb@blownmortgage.com and I’ll be happy to send them to you.  if you’d like a detailed white paper on how your credit score impacts your home financing options please email me as well.  Much of this information is based on the FTC’s Consumer web site on Credit Repair - you can learn more byvisiting the FTC site.

THE Dow soared 200 points in a Christmas rush on Friday that belied emerging details that US banking, mortgage companies and credit rating faced collapse while the nation’s mortgage insurance industry plunged into chaos. Nearly 180,000 US local councils were placed on credit watch, with the credit agency Fitch releasing another $US5.3 billion in credit downgrades [...]

WASHINGTON, Dec 17 (Reuters) - A program unveiled by U.S. President George W. Bush in August that is trying to save tens of thousands of homeowners from foreclosure has aided just 266 borrowers so far, according to government data released on Monday. The initiative, which helps high-risk or low-income borrowers win better loan terms by insuring [...]

« Previous entries