The new rules will direct mortgage servicers (who you make your payment to) go through a forbearance process when the homeowner has lost their job before moving into foreclosure territory. Under the new rules these services have automatic authority to grant homeowners on unemployment a full six months forbearance and can go to the GSE’s for approval of another six months if the homeowner’s unemployment income lasts for longer than six months.

That’s adding up to a year to get back on track before any sort of foreclosure process begins!

There are some exceptions to the new rules however. The house must be a primary residence, not an investment or second home. And the mortgage must be backed by one of the GSE’s themselves, not FHA or VA, and not a private/portfolio loan held by the bank themselves.

That covers the basics. But, of course, there are some more details that might affect you. If you have any questions, please ask! I’m always here to help…

Greg

CREDIT MAKEOVER IN FIVE STEPS

A lot of homeowners have the mind set that making payments on time automatically equates to good credit and credit scores.

Unfortunately, this couldn’t be further from the truth.
While paying your bills on time accounts for a large portion of your credit score, there’s still a lot more to it. In fact, paying your bills on time only drives 1/3rd of the points in your credit score, which means that 2/3rds of your score has nothing to do with making on time payments.
Five main categories go into making up your overall credit score calculation. Let’s briefly review each category and how much they count:

1. Payment History – The Most Important Category

This category is pretty self-explanatory. It doesn’t take a rocket scientist to figure out that if you pay your bills on time, you’ll do well in this category. Likewise, if you have a history of late payments, collections, chargeoffs, public records, etc. – you’re not going to do so well in this category.

In addition, the number of negative items on your credit reports is important. The more incidents of credit transgressions, the more your score will suffer. And if you have recent negative information that will punish your scores more than if they are several years old.

2. Debt – A Very Close Second

The most important non-payment category in your credit score is, by far, the amount of debt that you carry. And while your installment debt (auto loans and mortgages) are factored into your scores, it’s really your credit card debt that’s most important.

This includes anything from Visa, MasterCard, Discover, American Express, gas cards and/or retail credit cards like Macy’s or Target. The balances that you carry on your credit cards can affect your scores almost as much as whether or not you make your payments on time.

This category calculates the proportion of balances to credit limits on your revolving credit card accounts – also referred to as ˜revolving utilization’. Simply put, the higher your revolving utilization percentage, the fewer points you will earn in this category.

So what is revolving utilization and how is it calculated?

To determine your revolving utilization, you’ll need to add up all of your current balances and all of your current credit limits on your open revolving credit accounts (except for Home Equity Lines of Credit). This will give you a total balance and a total credit limit. Divide the total balances by the total credit limit and then multiply that number by 100. This will give you your total revolving utilization percentage.

See the example provided below:

Remember, the lower your utilization percentage, the more points you’ll earn and the higher your credit score will be. To earn the most possible points in this category, you should try to keep your revolving utilization at 10% or less. If you can’t reach 10%, just remember that the lower the better. While 50% is better than 60%, 40% is better than 50% and so on.

How you pay your bills and your revolving utilization are by far the most important factors used to determine your credit scores. They account for 2/3rd of the points in your score. That’s a hefty chunk! Needless to say, if you don’t do well in both of these categories, your scores aren’t going to be very good regardless of how you do in the remaining categories.

While the remaining categories are worth fewer points, they are still very important for consumers who want to earn the highest scores possible, certainly a requirement in today’s difficult credit environment:

3. The Age of Your Credit History - Secondary Category

Don’t confuse this with your age. It’s the age of your credit reports. Basically, the score is looking to see if you have a lengthy history of managing your credit obligations. The age of your credit history is determined
by the “date opened” on the oldest account listed on your credit report. The older your credit report, the more points you will earn in this category.

There’s really not much you can do in this category except wait it out. As your reports get older, you will gradually earn more points. This means that you should never try and get old, good accounts removed from your credit reports.

You want the history!

4. New Credit/Inquiries – Secondary Category

When you apply for credit you are giving the lender permission to pull your credit reports and credit scores. Each time this happens, your credit report will reflect what’s called an “inquiry.” To perform well in this
category, you should really only apply for credit when you need it.

5. Credit Mix – Secondary Category

What types of accounts do you have? You will do well in this category if you have a nice diverse list of different types of accounts in your credit report. This includes mortgages, auto loans, installment loans, credit cards, etc.

If your credit report is dominated by one type of account (or lack of others), this could negatively affect the number of points that you earn from this category.

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That pretty much covers the factors that are used in determining your credit scores. Let’s do a quick recap:

1. How you pay your bills – on time is good, late is bad

2. How much you owe your creditors – keep your credit card debt low (10% utilization is optimal)

3. How long you’ve had credit – the longer the better

4. How often you apply for credit – apply only when you really need it

5. Account mix – diversity is good
If you can stick by these five key principles, you should be well on your way to healthy credit and credit scores.

Critics say that the ruling favors large banks, which don’t want advocates representing homeowners. However while there might be a small grain of truth to that, the ruling really favors consumers in my opinion. As one would suspect, unethical mortgage modification firms often fail to do any work after collecting fees, and the FTC rule will prohibit mortgage modification firms from being paid in advance so this can not (legally) happen ever again. What some may not expect is the vast majority of these companies should be considered unethical. Most of them have little to no experience in the business and if they so it’s usually that they were mortgage originators for the predatory lenders than put so many people into very bad situations during the real estate boom of 2004-07, but couldn’t get the proper licensing required to originate mortgage loans in today’s regulatory environment. Taking advantage of people on their way in (giving them the predatory loan) and again on the way out (charging thousands up front to try and modify their mortgage)…

Greg

BUYERS…

Have your agent do some research. Make sure the current owner’s agent is experienced with short sales. Less than half of short sales result in closed escrows so it’s important to make sure you are working with the right short sale seller or you could just be wasting a whole lot of time, possibly letting other opportunities pass while you wait.

Listen to your agent when he/she tells you what an appropriate offer is. The severe lowball offer just isn’t going to fly. Local short sale experts say to make an offer no less than 10% below current market value. And make sure to GET PROQUALIFIED before you make your offer (this goes for short sales and any other real estate transaction).

Patience is a virtue. Especially important when dealing with banks on short sales. We already talked about how important it is to work with a listing agent that is experienced with short sales but even if you do this is going to take some time. Most of my clients end up waiting a minimum of 3 weeks, up to 3 months, for the bank to get back to them on their offer. A good buyers agent will also put in a clause allowing the buyer to search for and bid on other homes while they wait. There is no reason to miss a great opportunity just because the banks are months behind of short sale offers…

SELLERS…

Be ready to provide evidence of a hardship before going to your lender with a short sale request. It’s more than likely that the bank will not approve your request just because you are upside down on your mortgage. Be able to support some sort of financial hardship. The most common would be the loss of a job, medical bills, death in the family, or divorce.

Get started in conversation with your lender ASAP. Once you have made the decision to try and sell you home by way of short sale let them know! This can possible shorten the process by months and you may end up one of the lucky ones knowing what the bank will accept in short sale before you actually get an offer on the house.

Share the pain. Even if it’s just a little. Odds are the bank is taking a bath costing them tens of thousands of dollars. Sweeten the pot for them. Maybe offer them a couple grand on top of the sale. If it is what it takes to get you out of a foreclosure or a loan on a house worth tens of thousands of dollars more than the house is worth, it just might be worth it.

That’s it for now….

Sincerely,

Greg :: The Roseville Loan Expert

FTC Leads “Operation Loan Lies” to Stop Fraud and Help Distressed Homeowners

~ Greg Cowart :: Roseville Loan Expert