How Credit Missteps Decrease Your Credit Scoring

The company behind the popular FICO scoring model has published a “What If?” series for common, specific credit missteps.
If you’ve ever wondered how your credit score would be affected by a missed payment or a maxed-out credit card, now you can use a look-up guide to assess the probable damage.

As published by http://www.myfico.com/, here’s a few common financial difficulties and how they affect FICO scores.

Max-Out A Credit Card

• Starting score of 780 : 25-45 point drop
• Starting score of 680 : 10-30 point drop

30-Day Delinquency

• Starting score of 780 : 90-110 point drop
• Starting score of 680 : 60-80 point drop

Foreclosure

• Starting score of 780 : 140-160 point drop
• Starting score of 680 : 85-105 point drop

The higher your starting score, the more each given difficulty can drop your FICO.  This is because credit scores are meant to predict the likelihood of a loan default. People with lower FICOs are already reflecting the effects of risky credit behavior.

Also worth noting that the above is just a guide, your scores may fall by more, or less, depending on your individual credit profile.  The number and type of credit accounts you hold, plus their respective payments and balances make up your complete credit history.

California forgoes new foreclosure law

California has a law on the books requiring loan servicers to contact distressed homeowners and consider them for a loan modification before beginning foreclosure proceedings. But the law applies only to homeowners who took out a mortgage between Jan. 1, 2003, and Dec. 31, 2007.

Does the new health care law impose a 3.8 percent tax on profits from selling your home?

No, with very few exceptions. The first $250,000 in profit from the sale of a personal residence won’t be taxed, or the first $500,000 in the case of a married couple. The tax falls on relatively few — those with high incomes from other sources.

Only a tiny percentage of home sellers will pay the tax. First of all, only those with incomes over $200,000 a year ($250,000 for married couples filing jointly) will be subject to it. And even for those who have such high incomes, the tax still won’t apply to the first $250,000 on profits from the sale of a personal residence — or to the first $500,000 in the case of a married couple selling their home.

The sort of people who would have to pay the tax might include, for example:

• A single executive making $210,000 a year who sells his $300,000 ski condo for a $50,000 profit. His tax on the sale of that vacation home would amount to $1,900, in addition to the capital gains tax he would have paid anyway.
• An "empty nester" couple with combined income of over $250,000 a year who sell their $1 million primary residence to move to smaller quarters. If they cleared $600,000 on the sale, they would be taxed on $100,000 of the profit (the amount over the half-million-dollar exclusion). Their health care tax on the sale would amount to $3,800 over and above the usual capital gains levy.

However, a typical home sale would not incur any tax. In March, for example, half of all existing homes sold for $170,700 or less, according to the National Association of Realtors. Obviously, none of those sales could possibly generate a $250,000 profit, and so none would be subject to the tax.
Thus, for the vast majority, the 3.8 percent tax won’t apply. The Tax Foundation, in a report released April 15, said the new tax on investment income (including real estate) "will hit approximately the top-earning two percent of families" when it takes effect in 2013.

The Internal Revenue Service says that to qualify for the $250,000/$500,000 exclusion, a seller must have owned the home and lived there as the seller’s "main home" for at least two years out of the five years prior to the sale.

Yield Spread Premiums Will Soon Be The Past

Newly-approved federal regulations target a mortgage brokers/bankers/loan officers that experts say contributed heavily to the mortgage meltdown and ultimately the greatest financial recession since the Great Depression.

Effective April 1, 2011, the Federal Reserve will prohibit ALL loan originators from receiving compensation based on a borrower's interest rate or other loan terms. That will save consumers thousands of dollars on a mortgage.
 
In the past, loan originators were compensated, in part, for steering borrowers to more expensive mortgages. The more costly the mortgage, the higher the so-called "yield spread premium" (YSP) payment.
They pretented that YSPs helped borrowers avoid additional closing costs. They rarely did.
 
CRL also found in the 2004 study, "Yield Spread Premiums: A Powerful Incentive for Equity Theft":
 
• The average amount of a YSP was about $1,850 per loan, the largest part of a broker's compensation. Broker's earned an average $1,046 more on loans with YSPs than on loans without the fee.
• Loans that included YSPs cost borrowers an additional $800 to $3,000 more than loans without YSPs.
• There was no legal requirement to inform borrowers about the connection between the YSP and the interest charged on a loan.

Foreclosure flaws

Hopeful news for homeowners may not be the best news for the larger US economy. As the 'robo-signer' scandal unfolds, here are the likely consequences.

Questionable paperwork has halted foreclosures across the country, and may give some troubled homeowners the leverage they need to stay in their homes.

Some borrowers have already used lenders' erroneous documentation to get their mortgages legally erased in bankruptcy court. Others hope to use the problems as a levrage to force lenders to reduce their principal or payments.

"You can challenge not only the foreclosure, but (the legitimacy of) the mortgage," said attorney Stephen Elias, the author of "The Foreclosure Survival Guide: Keep Your House or Walk Away with Money in Your Pocket." "You make the allegation that 'we don't think you're going to be able to prove the ownership and the paperwork' . . . that's the thread that, if you pull it, the whole thing will unravel."

The problems stem from the way modern lending is done, and the way lenders have struggled to keep up with a tidal wave of defaulting homeowners. Many mortgages were sold to investors shortly after they were made. Some pieces changed hands several times. Loan servicers, the companies that actually accepted borrowers' payments to forward to the investors, and that are the ones to begin foreclosure proceedings, don't always have the paperwork to prove who owns the loan.

How loan servicers handled foreclosure filings in court is the latest issue. One of the core problems is "robo-signers," or people working on behalf of lenders who signed foreclosure documents without verifying the facts, or even reading what they were signing. It was a way to try to facilitate the process. They've been overwhelmed by the foreclosed properties, and this was their way of trying to get through those problems as fast as they could. Concern about the process has prompted officials to halt foreclosure in many places across the country. Authorities have put the brakes of foreclosures in 23 states as they try to figure out if thousands of homeowners were unfairly booted out of their homes by the banks.

After admitting widespread problems with foreclosure documentation, Bank of America, JPMorgan Chase and Ally Financial's GMAC Mortgage unit suspended tens of thousands of foreclosures in the 23 states where foreclosures go through the courts.

More loan servicers are expected to follow their lead, and the foreclosure freezes could spread to so-called "nonjudicial foreclosure" states where the court system isn't used.

Some of the likely consequences of the scandal:

1. A big mess for the courts. Experts predict a blizzard of lawsuits over past and current cases, with attempts to get the courts to undo foreclosures and evictions. Foreclosures that were thought to be completed may come back to life "like a hangar-full of dead bodies started to wake up.
2. A much slower housing recovery. The longer it takes to resolve the foreclosure crisis, the longer the huge inventory of foreclosed homes will weigh on local real-estate markets. Buying a foreclosure may get tougher as title insurers get pickier about which homes they cover. The controversy could scare away potential buyers and lead to even lower home sale prices.
3. More time for struggling homeowners. Nationwide, the average foreclosure takes nearly 16 months to complete, up from 12 months a year ago, according to LPS Analytics. The foreclosure freeze and attendant regulatory scrutiny are likely to lengthen that wait in many states.

 

Bank of America Stops All Foreclosures Due to Questionable Foreclosure Documents

Bank of America Stops All Foreclosures Due to Questionable Foreclosure Documents

October 8th, 2010 at 10:03am

Bank of America became the first lender to halt foreclosure proceedings against distressed borrowers in all 50 states amid questions about whether it had properly processed foreclosure documents. JP Morgan Chase, Ally Financial, Inc. (GMAC), Wells Fargo and other lenders are under the microscope too, although Wells Fargo denies it failed to follow state foreclosure laws. Despite the self-imposed moratorium, Bank of America claims “Our ongoing assessment shows the basis for our past foreclosure decisions is accurate.”

Despite the denial, Renee Hertzler, a Bank of America employee, has acknowledged in at least one deposition that she routinely signed 7,000 to 8,000 documents per month having to do with foreclosing on residential properties.

Also today, Pittsburgh-based PNC Financial Services Group, Inc. announced it is suspending foreclosure proceedings in the 23 judicial foreclosure states for a month while it conducts an internal review to confirm it has complied with state foreclosure laws.
Read the full article in Yahoo News and MSN.

Resale Fees! What are those? Better watch.

If you haven't heard about resale fees, then it's time you did. They are making headlines across the nation, and for very good reasons.

When you buy a house, how often do you read every line of your sales contract? If new legislation fails to pass, you'll need to read before signing anything.
 
Resale fees, also known as capital recovery fees or private transfer fees, are fees that a seller pays to the developer, each and every time the home sells for a specified period of time.
 
A recent article by the New York Times, detailed the story of one family who bought their dream home, only to find that resale fees allowed the developer to collect 1 percent of the sales price from the seller every time the property changes hands, for the next 99 years.
 
This particular detail is typically hidden deep inside the sales contract. And homebuyers simply sign away their rights to that 1 percent, without ever having knowledge of it. Why would a builder or developer want to use this questionable practice?
 
The New York Times explains it this way, "Many developers see the resale fee as a creative way to get new financing. They are hoping to one day use the trickle of cash from these fees as collateral for a loan, or to get cash up front if pools of the fees are packaged into securities to be bought and sold on Wall Street." As they see it, developers are desperate.

Be sure to talk to your agent about your contract and if resale fees could be an issue for you.

Avoiding Mortgage Scams

It's goes against accepted ethics, but there are those who prey upon the weak and desperate in today's housing market. If you find yourself upside down on your loan, facing default and foreclosure, then beware. There may be those lurking nearby, waiting for a chance to take advantage of your vulnerable situation. They could make away with more than just your money; they could walk away with your home.

If the company, or person, in question asks for an upfront fee, it's time to turn on your scam radar. No fees should be exchanged until a service is being rendered. Additionally, your mortgage company will not charge you a fee for counseling about your mortgage.
 
Do not respond to pressure to sign or to "move quickly." If a legitimate professional is truly interested in your property, they will have no issue waiting days or even weeks for you to make a decision. Never sign anything upon first meeting with someone.

Never sign anything without having a lawyer review it. There are numerous pro-bono lawyers in most areas that can look over your paperwork for free. Don't worry about insulting the company or person offering you a deal. If they are a true and honest professional, they will have no problem with you taking your time and exploring your options.

FTC's New Debt Settlement Protections For Consumers Begin Today

Improved Disclosure Requirements Start Today, Tougher Rules on Fees Begin on October 27

Starting September 27:  New Disclosure Requirements

Starting today, debt settlement firms must disclose to consumers the time it will take to reduce the debt, when the firm will negotiate a settlement with creditors, and how much money consumers must set aside before a settlement offer will be made.  Debt settlement firms also must tell consumers about the negative consequences of not making payments to outstanding creditors, such as being subject to collections or lawsuits, decreased creditworthiness, and increased debt.

Starting October 27:  New Limits on Advance Fees

Beginning on October 27, new rules will go into effect that will prohibit debt settlement firms from collecting fees for their services until they have settled some or all of a consumer's debt.  Under the new rules, a debt settlement company cannot charge any fees until it reaches a settlement on at least one of the consumer's debts that the consumer agrees to in writing.  Fees cannot be collected until the consumer has made at least one payment to the creditor as a result of the negotiated agreement. 

If one portion of the debt is settled, the fee will be limited to a proportion of what the total fee would have been if the entire debt was settled or a percentage of the amount saved by the settlement.

If the debt settlement service requires the consumer to place funds in an escrow account, it must disclose that the fund is owned and controlled by the consumer and that the funds can be withdrawn at any time without penalty. 

While the new FTC regulation will ensure that debt settlement companies only get paid if they help consumers, it does not stop them from charging outrageously high fees.  Consumers Union supports legislation to cap debt settlement fees to a reasonable percentage of the actual savings for consumers.  

"The FTC's new rules will put an end to advance fees but more needs to be done to limit the amount of fees that can be charged for debt settlement services," said Pamela Banks, Policy Counsel for Consumers Union.  "Lawmakers should cap fees so consumers who are already drowning in debt don't have to pay a steep price to get a fair debt settlement."  

Avoiding Foreclosure

If you are having difficulty paying your mortgage on time or know you will have difficulty in the near future, call your lender. Your lender is your biggest ally if you are having problems paying your mortgage, and the sooner you reach out for assistance, the more help they can provide.
Your lender – also called a servicer – has a variety of options to help you with your mortgage and avoid foreclosure. These options include:

• The President's Making Home Affordable Plan
• Loan Modification
• Refinance
• Short Sale
• Deed-in-Lieu
• Forbearance
• Repayment plans

You can find your lender's contact information on your mortgage statement or coupon book.
If your lender has called or mailed you documents, do not ignore them. Your lender is trying to help you. Remember, when you contact your lender early, there is a greater chance your lender can help you with your mortgage and avoid foreclosure.

Are You Facing Foreclosure?

There are resources available to help you protect your home.

• Attend a Foreclosure Prevention Workshop in Your Area
• Where to Get Help
• Working With Your Lender
• Identifying a Housing Counselor
• Special Circumstances to Stop Foreclosure
• How to Rebuild After a Foreclosure
• How to Spot Loan Modification Scams
• Making Home Affordable Frequently Asked Questions

Help for Homeowners

Please use the self-assessment tools provided on MakingHomeAffordable.gov to see if you are among the millions of homeowners who may be able to benefit from Making Home Affordable. You can also connect with a HUD-approved housing counselor through HOPE LoanPort.

• Your next step: Preparing for the conversation with your lender.

Beware of Foreclosure Rescue Scams Help is Free!

• There's never a fee to get help with Making Home Affordable from your lender or a HUD-approved housing counselor.
• Beware of anyone who asks you to pay a fee in exchange for housing counseling services or modification of a delinquent loan. Do not pay – walk away!
• Beware of people who pressure you to sign papers.
• Beware of anyone who says they can "save" your home if you sign or transfer over the deed to your house. Do not sign over the deed to your property to any organization or individual unless you are working directly with your mortgage company to forgive your debt.
• Never submit your mortgage payments to anyone other than your mortgage company without their approval.

Homeowners Warned about New Mortgage Fraud Schemes

Homeowners Warned about New Mortgage Fraud Schemes

August 24th, 2010 at 6:06pm

The U.S. GAO (General Accounting Office) has just released a report on the newest forms of mortgage fraud. Requested by Rep. Doris Matsui of Sacramento,  the new frauds are a variation of the foreclosure fraud schemes in which fraudsters demanded upfront fees and performed little or no work on behalf of the consumer. Attorney General Edmund G. Brown has been aggressively prosecuting licensed agents, attorneys and others who broke the law, with the result that some have been sentenced to prison and fined and some have lost their real estate licenses or the right to practice the law.

The GAO has identified the two new scams as:
(1) a “forensic” loan audit, in which the borrower pays an upfront fee to the “auditor” (someone who is usually NOT an auditor) to see if their were regulatory violations in the original mortgage. The auditor tells the borrower s/he can get the loan modified or even canceled.

(2) the “consultant” promises to get the borrower’s mortgage erased based on a far-fetched notion that the government will pick up the loan due to the lender having done something illegal during the loan origination process.
Read the full article in the Sacramento Business Journal.