Credit Fitness News Blog

Will Your Credit Scores Survive a Short Sale?

This is an updated version of a post that I sent out earlier in the year:

I have gotten the impression from many real estate agents that they are unaware of the effect of a Short Sale on their clients' credit report. The common belief is that a Short Sale isn't as bad as Foreclosure or Deed In Lieu of Foreclosure.

I have argued with people about this and there is a lot of information out there with claims to the contrary. It scares me because I see a lot of lawsuits in the future regarding this.

Short Sales, Deed in Lieu of Foreclosure, or full blown Foreclosure are all weighted the same in determining credit score computations. This information comes directly from MyFICO.com. MyFICO.com is operated by the Fair Issac Corporation, the inventors of credit scoring. I have not stated this without extensive research. This is "straight from the horse's mouth."

Earlier this year, FNMA announced that a record of foreclosure on a credit report will require that three years must pass prior to placing a borrower into a FNMA insured loan. At the beginning of June 2008, that time frame was extended to five years. That is five years from the sale date.

Remember, that the home owner does have redemption periods after default and because of this, the sale date is the actual date of the foreclosure.  An owner wouldn't necessarily know this without researching the actual date.

The Mortgage Bankers Association announced that one in every 200 homes with mortgages is facing foreclosure.  That is a lot of bad news to many families. This information was announced in June of 2008 and the news has become much worse as I write this in October of 2008.

The "Bail Out" bill now being reviewed again by the House of Representatives will give some "bite" to those of us who renegotiate for Loan Modifications. Loan mods are done for a home owner cannot keep up with the current terms of the mortgage. Changes can be negotiated and will keep you in your home.

I am bragging, but 18 months ago, I correctly predicted that short-refis would exist. They do now.....it is called Loan Modification or a "Loan Mod". A new FHA loan to reduce the balance on home loans and make the payments easier was announced yesterday.

I have been able to help quite a few homeowners' mortgages with awesome results! This new bill being passed will bring some order to the process and make it easier to accomplish.

If I had my home on the market because of a bad loan, but felt I needed to sell when I really wanted to stay. If I found out that my agent said a short sale wouldn't hurt me as badly as foreclosure the I would have me gunning for someone to pay.

I would rather it wouldn't be you. You the seller or You the agent who passed on information that will cause serious harm.

Thanks for reading.

The Mortgage Crisis & Your Credit

Wow! What a week, this past one, the third week of September 2008!

So much has gone on, and frankly, it is very difficult for me to understand a lot of it.

One article that I have read used the phrase, “the credit market has seized up and has made it impossible for anyone to get mortgage loans, etc. (sic).” That pretty much summed it up for me and my business.

Any time that I have a problem getting a loan for a man with 817 middle credit score and 45% down, on the purchase of a single family home in San Diego means that things have gone beyond “hinky”.

With each loan application I take, I summarize with this apology: “I’m sorry. Though I have asked you for everything that my experience tells me we will need, the times are challenging. It is very possible that things that have never had to have been documented before will be asked for before we finish. I believe that we will present a very good loan package. We can get this done if we work together. Please don’t take any additional requests personally. It is simply the need for the underwriter to cover all the bases because he or she fears their own job loss.”

I was very saddened, and then relieved, that the Treasury Dept. had taken over Fannie and Freddie because I believe that those two businesses will become much more predictable as to the standards that must be met for a “good loan”. FHA loans have always made it easier for 1^st time homebuyers to invest in the American Dream and I believe the new standards that will be set for FNMA and Freddie will do the same for all loan programs.

So many people have asked me, “How did all of this happen in the mortgage industry?” I am not qualified to answer that on anything more than my experience in real estate for 26 years and good business sense, but here is my answer:

During the boom there were many nights when I worked very late at the office to keep my loan pipeline on track. I remember thinking many times that “how will these credit scores hold up if a borrower with a 680 credit score buys a home with no money down and loses his job?” If you can’t make the payments, you can’t make the payments regardless of your credit scores.

I also knew that any market that white-hot was going to cool. Sadly, I also knew that many loan officers and real estate agents only look at the “deal” and not how the transaction will play out in their client’s lives.

Then, there is the issue of so many negative amortization loans that were funded where even the loan officer didn’t understand them well enough to explain them to their borrower. I am a proponent of neg-am loans; they definitely have their place. Many, many homeowners, me included, have been able to buy homes and keep them because of this type of loan. As long as the borrower has owned property before and understands how the loan will work, they are good loans.

The final big reason that I could see was that all of the different types of loans that were introduced went far beyond common sense. In terms of the loan programs and the underwriting and approval of those loans, many of this was simply bad business and without common sense. I am and have always been very proud to work with General Mortgage in San Diego. Their level of professionalism has always been superior.

Human nature and/or capitalism will exploit every avenue until it proves harmful and then regulation will bring it back into balance.

In the coming years, I believe that the standard of education for the client and the loan officer and real estate agent will improve. It has to! The price is too high to fail and I am not just talking about money. Our clients trust us with their financial lives which directly affects their quality of life.

The need to prepare the clients’ credit report, carefully consider the loan program being offered, and understand the entire process and teach that will be the professional’s duty to obtain the best results for the client.

I challenge anyone, still in the business, to bring the level of their education up on an ongoing basis. I promise, it will be expected.

Copyright 2008

Mary Supinger

Fannie Mae & Freddie Mac Taken Over By the Feds

The Federal Government took over control of FNMA and Freddie Mac this morning.(09/07/2008) As I was reading about it last night and again this afternoon, my thoughts go to how this will affect home buyers and sellers, as well as the economy in general.

The bad news is that it will have a huge and prolonged effect. Credit will become even tighter and qualifying for any type of loan will become more difficult.

As I take a perfect borrowers' credit report these days, I tell them upfront that I will be apologizing to them until the loan is closed. I will be apologizing because even though I have asked them for everything but the proverbial kitchen sink, the loan process will still be met with things not ever asked for before.

Prior to using credit scoring for loan approvals, we had to document and re-document the source of a home buyer's funds, income, job security, bank records, and every other aspect of getting a loan approval. My experience with that enabled me to ask the borrower for all the needed information up-front. Asking for this information up-front is much less stressful for the home buyer and agents, and of course, me.

In the past year, we have entered a completely different mood in the mortgage business. The news today will make the mood even more serious.

I tell all of my loan clients that it comes down to this: the person who is going to sign off on your loan approval wants to cover every possible thing because they don't want to lose their job.

This is the temper and mood of the mortgage industry in a nutshell.

The good news about the take-over is that more people who are having trouble will get help sooner. There will be more consistency in how mortgages that aren't working are modified so that people can keep their homes. This will keep values up and keeping values up is good for every single American.

I will write more in the coming days. I am very good at helping people improve their credit scores so that the cost of credit can be greatly improved.

Please check me out at http://www.creditfitness.net/calc.html

TIPS ON PUMPING GAS

I received this as an e-mail and thought it might be helpful! I don't know who authored it.

I don’t know what you guys are paying for gasoline…but here in California we are also paying higher, up to $.50 per gallon. But my line of work is in petroleum for about 31 years now, so here are some tricks to get more of your money’s worth for every gallon…

Here at the Kinder Morgan Pipeline where I work in

San Jose

,

CA

we deliver about 4 million gallons in a 24-hour period thru the pipeline. One day is diesel the next day is jet fuel, and gasoline, regular and premium grades. We have 34- storage tanks here with a total capacity of 16,800,000 gallons.

Only buy or fill up your car or truck in the early morning when the ground temperature is still cold. Remember that all service stations have their storage tanks buried below ground. The colder the ground the more dense the gasoline, when it gets warmer gasoline expands, so buying in the afternoon or in the evening…your gallon is not exactly a gallon. In the petroleum business, the specific gravity and the temperature of the gasoline, diesel and jet fuel, ethanol and other petroleum products plays an important role. A 1-degree rise in temperature is a big deal for this business. But the service stations do not have temperature compensation at the pumps.

When you’re filling up do not squeeze the trigger of the nozzle to a fast mode. If you look you will see that the trigger has three (3) stages: low, medium, and high. In slow mode you should be pumping on low speed, thereby minimizing the vapors that are created while you are pumping. All hoses at the pump have a vapor return. If you are pumping on the fast rate, some of the liquid that goes to your tank becomes vapor. Those vapors are being sucked up and back into the underground storage tank so you’re getting less fuel for your money.

One of the most important tips is to fill up when your gas tank is HALF FULL or HALF EMPTY. The reason for this is, the more gas you have in your tank the less air occupying its empty space. Gasoline evaporates faster than you can imagine. Gasoline storage tanks have an internal floating roof. This roof serves as a zero clearance between the gas and the atmosphere, so it minimizes the evaporation. Unlike service stations, here where I work, every truck that we load is temperature compensated so that every gallon is actually the exact amount.

Another reminder, if there is a gasoline truck pumping into the storage tanks when you stop to buy gas, DO NOT fill up- most likely the gasoline is being stirred up as gas is being delivered, and you might pick up some of the dirt that normally settles on the bottom. Hope this will help you get the most value for your money.

DO SHARE THESE TIPS WITH OTHERS!!!

Tax Relief for Homeowners in Foreclosure

Homeowners facing foreclosure and any shortfall of funds due to their lender were subject to tax by the Internal Revenue Service.

A person could lose their home in foreclosure and the lender could suffer of loss of say, $100,000. According to a tax law enacted in 1986, the lender was required to mail a 1099 to that ex-homeowner the dollar amount of loss suffered by the lender.

As an example:

A loss of $100,000 is reported on the foreclosed homeowner. That $100,000 would be added to their other W-2 and 1099 income. If our ex-home owner usually made $50,000, the $100,000 1099 would then increase their income to $150,000 and would be taxed at 50%. It is possible that the tax bill would be $75,000 for the tax year.

Essentially, someone in a very bad situation could go from the frying pan into the fire! The Bill H.R. 3648 relieves the homeowner from that tax liability for the owner-occupied foreclosed property.

I am several proven methods to keep homeowners in their homes, but this legislation brings a huge sigh of relief for many, many homeowners across the country.

Lending Guidelines Are Tightening Up

June 1st of 2008 began with the use of new software for underwriting Fannie Mae loans. Version 7 of the Desktop Underwriting® software was upgraded with lenders.

This new version of the underwriting process will take a much longer and more conservative look at borrowers. By longer, I mean that additional documentation will be required in order to get an approval. Fewer approvals will be given as well.

The bar has been raised as to what makes for an approvable loan.

The entire underwriting process for mortgage loans has snapped back into the days prior to any credit scores being used. In those days, a human being reviewed the loan application for the lender. At times, even two humans beings did the underwriting; once for the lender and again for the mortgage insurance company. Those were the days when, as a loan officer, you hoped your underwriter was having a “good” day and wouldn’t hit you with a page long list of conditions for a full loan approval.

This new version of the software is crankier than previous versions. It demands more proof of what is stated in the actual loan application. The loan officer will need to be more careful that information is entered correctly onto the application because this software won’t allow the loan officer to change the information repeatedly based on what one thinks the lender wants to hear. This will prevent a lot of the fraud that has caused some of the problems we are living with today.

This newer, more conservative software will look at the borrower s with a much more critical eye. More will have to be proven. Risks in the file will have to be balanced with additional “compensating factors”.  As an example, fewer years in a line of work could be balanced with having substantial savings or reserves.

This new software will mean there will be fewer loan approvals.

It also means that the bar for loan officers has also been raised. The average loan officer has less than five years of experience. Many of the “newbies” have left the profession.  I recommend that you “prequalify” your loan officer at the time he or she prequalifies you.

Pumping Up Your Credit Scores

As a loan officer, people ask me all the time, "What can I do to increase my credit scores?"

The answer to that question often depends on what the details of their credit report shows and how long they have had credit. Those who have had credit for over twenty years or more will have higher scores than someone with only two years of credit history, assuming that the past two years of each person's credit contains no recent late payments.

The most recent two years are what weigh the most on credit scores, but a person's overall credit history has great bearing too.

35% of a person's score is determined by their track record. The payment history shows how you have handled your credit. Have you paid your bills when they were due or before? This part of the score will reflect if there are any judgements, tax liens, collections, or wage attachments.

30% of a person's score is based on how much is owed. If all of your eight credit cards are up to their maximum levels, then your scores are dramatically lower than they could be.

15% of a person's score is based on how long they have credit history. As was stated before, 20 years of good credit will help a person to bear a few dings than someone who has a short credit history.

10% of a credit score is based on the recent activity  and new accounts. Inquiries occur if new accounts have been added, if a person has applied for lots of credit, and/or if you are "shopping" for various lenders.

Lastly, 10% of the score reflects the types of credit that exist on the credit report. A healthy mix of credit would be a real estate loan, car loan, and a few credit cards with 75% of their limits available.

People who know the rules of credit will get better rates and service.

Most of us need to perform regular maintenance on our credit reports. Check out my website at www.CreditFitness.net for information on improving your credit scores. Everyone needs this: if you have great credit, you need to protect it. If you have not-so-great credit, we can help with that!

Are You Facing Foreclosure?

I have gotten the impression from the many real estate agents are unaware that the effect of a Short Sale on their clients credit report isn't as bad as Foreclosure or Deed In Lieu of Foreclosure.

I have actually seen a lot to the contrary in advertising. It scares me because I see a lot of lawsuits in the future regarding this.

Short Sales, Deed in Lieu of Foreclosure, or full blown Foreclosure are all weighted the same in determining credit score computations. This information comes directly from MyFICO.com.

Earlier this year, FNMA announced that a record of foreclosure on a credit report will require that 3 years must pass prior to placing a borrower into a FNMA insured loan. At the beginning of June, that time frame was extended to five years. That is five years from the sale date. Remember, that the home owner does have redemption periods after default and because of this, the sale date is the actual date of the foreclosure.  An owner wouldn't necessarily know this without researching the actual date.

The Mortgage Bankers Association announced that one in every 200 homes with mortgages is facing foreclosure.  That is a lot of bad news to many families.

A year ago I correctly predicted that short-refis would exist. They do now.....it is called Loan Modification and I can help you with that.

Finding out that my agent said a short sale wouldn't hurt me as badly would have me gunning for someone to pay. I would rather it wouldn't be you.

Please call me at 619-701-4321 to see if I can help you to stay in your home. We can help in most states or know good, ethical professionals if we don't work in yours.

Thanks for reading.

Free Annual Credit Reports

You are entitled to a copy of your credit report each year. You can order the reports on line, but be very careful that you use this exact address: https://www.annualcreditreport.com/cra/index.jsp

There are sites that are similar and can cause you to give your private information to identity thieves.

I advise that you write a letter or call each of the three main credit repositories. They are:

Equifax Credit

Info

rmation

Services

PO Box

740241

Atlanta

,

GA

30375

By phone: 1-800-216-1035

http://www.econsumer.equifax.com/equifax.app/Welcome

TransUnion Corporation

PO Box

390

Springfield

,

PA

19064-0390

By phone: 1-800-888-4213

http://www.transunion.com/CreditReport/

Experian

ATTN: NCAC

PO Box

949

Allen

,

TX

75002

By phone: 1-888-397-3742

http://www.experian.com/consumer/index.html

I prefer to have the written reports mailed to my clients because they are easier to read.

It is important to get your reports every year to review what is on each one. 72% of credit reports contain errors and of that 72%, twenty-five percent of those will cause a borrower to be declined on a loan.

Obtaining your annual credit reports is essential to protect your credit profile from identity theft. Check out www.CreditFitness.net for more information.