Do not co-sign on a credit card for your college student

March 24th, 2010

Zac Bissonnette
Mar 2nd 2010 at 2:45PM

One of the results of the credit card reform legislation that recently went into effect was a dramatic change in the ability of college students to access credit. Anyone under the age of 21 will now need, according to the bill, “financial information. . . indicating an independent means of repaying any obligation” in order to sign up for a credit card.

What exactly that even means is ambiguous. Ben Woolsey of CreditCards.com tells WalletPOP that “The Federal Reserve hasn’t explicitly defined income requirements but rather has left that up to the individual issuers.”

Some banks may require a payroll stub or bank statement, and others may ask the applicant for the name of the employer and annual income. According to Woolsey, a full-time student with an annual income of $5,000 could “probably” qualify for a credit card — but with a limit of no more than $500.
Given that, most parents probably won’t need to co-sign for their kids to get credit of some kind — and given that many parents really only want their kids to have cards to start building credit, there’s really no reason to have a balance of more than $500.

But parents of students who are unable to get credit cards because of the new law will face a quandary that was non-existent just a month ago, when banks were handing 754 credit cards to any student who could name one member of the cast of Jersey Shore.

To co-sign? Or not to co-sign?

I’ll make this easy: No, you should absolutely not co-sign on a credit card for your college student, ever. Never. Surprisingly, the Bible actually has advice on this topic. Proverbs 17:18, in the New English Translation, reads “It’s poor judgment to guarantee another person’s debt or put up security for a friend.” But if you’re still not convinced, here are a few more reasons not to co-sign:

* If Junior is late on the payments, your credit score will get hit — which could cause you to pay higher interest rates on other loans you might take out — if you can get them at all. Wouldn’t it be funny if you couldn’t buy a house because your kid decided to play the “I’m going to throw all my mail from Bank of America in the trash and see what happens” game?

* If your kid decides not to pay, you will be 100% responsible for the bill. If he files for bankruptcy, he’s off the hook: but you’re not.

* You establish a bad precedent. You want to be a source of financial help and wisdom for your kid: not the person who helped him start his relationship with an industry that has led more Americans down a path toward poverty than any other. If you want to help your kid, give him cash and/or advice: not credit!

Here are the two most common arguments people make for co-signing loans/helping their kids get credit:

* “What if he needs the credit card for emergencies?”

If he needs access to cash for emergencies, set up an emergency fund with $1,000 in cash and give him a debit card with strict instructions never to use that card unless he’s in a jam with a baseball bat wielding bookie and he’s tapped out all other sources of cash. If you can’t trust him to do that, then ask yourself: Why would you trust him to use a credit card “only for emergencies?”

* “He needs to start building up his credit history.”

No, actually he doesn’t. Here’s the truth. Good credit scores get people into at least as much trouble as bad credit scores. Consider these lists:

Smart Things You Can Do With a High Credit Score
* Buy a house (and for first-time home buyers with FHA loans, you don’t even need that high of a score). There will be plenty of time to build up credit history after he has a source of income and doesn’t need a co-signer.

* Possibly get marginally lower rates on car insurance and a cell phone plan. But mainly, consumers are likely to be penalized for having a bad score (repossessions, defaults, etc.) as opposed to a limited credit history. According to Consumer Reports, drivers with top scores pay up to 31% less on their insurance premiums, but people with bad scores can pay as much as 143% more.

* Rent an apartment, but here again, what landlords are looking for is the red flag of a history of defaults and landlords left high and dry — not a recent college grad who never had a credit card. Having a limited credit history will not be a problem in the search for an entry-level apartment for a recent college grad. Alison Rogers, a real estate agent and the author of “Diary of a Real Estate Rookie,” recommends that recent grads without credit may want to offer landlords some additional evidence of responsibility like a reference character reference from a teacher or spiritual leader.

Stupid Things You Can Do With a High Credit Score

* Cancun!
* Buy a boat/car you can’t afford to pay for with cash
* Get one of those TVs they have in airport sports bars
* Lease anything
* Absolut Vodka? Abso-freakin-lutely!
* Birthday parties at high-end restaurants with fifty of your closest friends
* Dolce & Gabbana, Fendi and Donna Karan
* Pec implants
* Take out a private student loan.
* Post ex-boyfriend’s bail
* Co-sign loans for people

And remember: Your college student probably can start building his credit — if he thinks that’s a smart thing to do and can manage the card responsibly — with a small limit based on whatever part-time work he has — without a co-signer.

Bottom line? I’ve talked to lots of rich people and I’ve talked to lots of broke people. I’ve never met a rich person who is rich because he had a credit card during college.

But I have heard from literally hundreds of people in their 20s and 30s who are still digging out of the financial mess they created in college with the help of credit cards. And if you think you’re doing your kid a favor by helping him jump in front of that steam roller before he has any income, you better think again.

If you need help understanding your credit scores visit us at: www.creditbureauexperts.com

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Top 5 Reasons Why People Go Bankrupt

March 24th, 2010

by Mark P. Cussen
Monday, March 22, 2010

The bankruptcy statistics in America are alarming. The past few decades have seen a dramatic rise in the number of people that are unable to pay off their debts, and Congress has recently addressed the issue with legislation that makes it harder to qualify for this status. Following is a list of the most common causes of bankruptcy in America today.

1. Medical Expenses

A study done at Harvard University indicates that this is the biggest cause of bankruptcy, representing 62% of all personal bankruptcies. One of the interesting caveats of this study shows that 78% of filers had some form of health insurance, thus bucking the myth that medical bills affect only the uninsured.

Rare or serious diseases or injuries can easily result in hundreds of thousands of dollars in medical bills - bills that can quickly wipe out savings and retirement accounts, college education funds and home equity. Once these have been exhausted, bankruptcy may be the only shelter left, regardless of whether the patient or his or her family was able to apply health coverage to a portion of the bill or not

2. Job Loss

Whether due to layoff, termination or resignation, the loss of income from a job can be equally devastating. Some are lucky enough to receive severance packages, but many find pink slips on their desks or lockers with little or no prior notice. Not having an emergency fund to draw from only worsens this situation, and using credit cards to pay bills can be disastrous.

The loss of insurance coverage and the cost of COBRA insurance also drain the job seeker’s already limited resources. Those who are unable to find similar gainful employment for an extended period of time may not be able to recover from the lack of income in time to keep the creditors at bay.

3. Poor/Excess Use of Credit

Some people simply can’t control their spending. Credit card bills, installment debt, car and other loan payments can eventually spiral out of control, until finally the borrower is unable to make even the minimum payment on each type of debt. If the borrower cannot access funds from friends or family or otherwise obtain a debt-consolidation loan, then bankruptcy is usually the inevitable alternative.

Statistics indicate that most debt-consolidation plans fail for various reasons, and usually only delay filing for most participants. Although home-equity loans can be a good remedy for unsecured debt in some cases, once it is exhausted, irresponsible borrowers can face foreclosure on their homes if they are unable to make this payment as well.

4. Divorce/Separation

Marital dissolutions create tremendous financial strain on both partners in several ways. First come the legal fees, which can be astronomical in some cases, followed by a division of marital assets, decree of child support and/or alimony, and finally the ongoing cost of keeping up two separate households after the split. The legal costs alone are enough to force some to file, while wage garnishments to cover back child support or alimony can strip others of the ability to pay the rest of their bills. Spouses who fail to pay the support dictated in the agreement often leave the other completely destitute.

5. Unexpected Expenses

Loss of property due to theft or casualty, such as earthquakes, floods or tornadoes for which the owner is not insured can force some into bankruptcy. Many homeowners are likely unaware that they must take out separate coverage for certain events such as earthquakes. Those who do not have coverage for this type of peril can face the loss of not only their homes but most or all of their possessions as well. Not only must they then pay to replace these items, but they must also find immediate food and shelter in the meantime. Furthermore, those who lose their wardrobes in such a catastrophe may not be able to dress appropriately for their work, which could cost them their jobs.

The Bottom Line

There are many reasons why taxpayers are forced-or choose-to declare bankruptcy. But many times, common sense, sound financial planning and preparation for the future can head off this problem before it becomes inevitable. Those who are contemplating this possibility should seek a credit counselor or financial planner before choosing this alternative.

If you need help understanding your credit scores visit us at: www.creditbureauexperts.com

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Good Credit Score Not Good Enough Anymore

January 6th, 2010

by Melissa Ezarik
Tuesday, December 29, 2009

With historically low rates, many homeowners are watching closely for the right time to refinance their mortgages. Those with good credit may well recall being showered with praise by a mortgage broker during the initial purchase for that solid credit score.

That was then. This is now.
A few years ago, a score of 620 or higher was good enough. That increased to 680 in early 2008. Then it jumped to 720 in April last year and 740 in August, says Rodney Anderson, senior managing partner of Plano, Texas-based Rodney Anderson Lending Services.

In the past, any score of 700 or higher would get a double thumbs-up from credit experts. Now, rate adjustments begin kicking in at 740, with every 20-point drop adding another adjustment.

In other words, many people who were taking pride in their credit habits either must pay significantly higher or try to make quick changes to nudge their scores upward. “What used to be great is now only good,” says mortgage broker Todd Huettner, president of Denver-based Huettner Capital. Refinancing that would have worked a year ago might well not make sense, he adds.
“I have clients all the time who literally wind up with a score of 739, 719, 699, 679 … and it costs them money to either fix it or pay for it,” Huettner says.

One of Huettner’s clients, who always had a score of about 740, went to do a refinance and found her current score at 719. “The reason was, she put a new washer and dryer on a store credit card,” he says. Many store cards are actually revolving credit, and your limit may well be equal or about equal to the purchase you’re trying to make that day.

Take the application that Stamford, Conn.-based Luxury Mortgage Corp. got recently. Interested in lowering the rate on an existing mortgage, the borrower could verify substantial income, assets and personal credit history, says chief executive David Adamo. But the borrower’s credit score had taken a hit after co-signing an auto loan for his son that had not been paid timely.

“As a result, the borrower, who otherwise met every other criterion, was unable to refinance the loan at a rate that made economic sense,” Adamo says.

Another wrinkle in today’s market: Even those with FICO scores of 740 or higher are penalized for buying in a geographic market on the downswing. “This adjustment affects all borrowers, regardless of score, if in a declining market,” says mortgage broker Jim Heidelberg, president of Heidelberg Capital Corp. in Tampa, Fla.

In many cases, the added costs of rate adjustments are “enough to make a refinance that would otherwise make sense have no benefit to the borrower,” Huettner says.

The road to new scoring

How did we get to this new reality?

The nation’s two largest mortgage lenders, Fannie Mae and Freddie Mac, suffered major losses in the market last year and then redefined risk, announcing price adjustments for borrowers with FICO scores below 720, says Sean Cragg, vice president of sales for Ann Arbor, Mich.-based Gold Star Mortgage Financial Group.

And, in case you were wondering, “these fees have nothing to do with your mortgage company or its various products and cannot be negotiated away,” Cragg says.

All mortgage bankers, brokers and credit unions must comply with the higher interest rates and delivery changes in all traditional mortgages, says Heidelberg. Only entities intending to hold the mortgages in their own portfolios can follow their own guidelines.

Worse news may be on the horizon. “There are many factors, including proposed legislation and regulation, that continue to change the mortgage lending landscape,” says David Chung, managing director of Towson, Md.-based CreditXpert Inc., which provides credit analysis services to consumers. “In the near term, it is more likely that this benchmark will continue to rise than fall.”

Surprise, surprise

Joe and Jane Homeowner have likely heard of the new credit restrictions. But the actual cost to them is often a surprise when they sit down with a broker.

“Often, lenders will quote rates that include the adjustments, without calling attention to them in order to avoid a negative reaction from their customer,” says James Guthrie, a partner in New Home Finance in Suwanee, Ga.

Less surprising are other factors that go into securing financing for a new or existing mortgage. Paola Kielblock, national products manager for Sun Prairie, Wis.-based Fairway Independent Mortgage Corp., clarifies today’s requirements:

• Good credit.
• Stable job, with a minimum of two years of employment.
• Reserves after closing, including a minimum of two to six months of mortgage principal, interest, taxes and insurance.
• Down payment from the borrower’s own funds.
• Low debt-to-income ratio. The required ratio varies between banks but is generally less than 40 percent, according to many in the industry.
• Good loan-to-value percentage. It also varies, but it’s often cited as less than 80 percent.

Having equity in your home is a major factor in getting approved for a refinance and in finding the best rate, says Cameron Findlay, chief economist for LendingTree.com. The more equity in the home, the less risk there is to the lender if the home is repossessed.

Taking action on your score

What can a homeowner who wants to refinance do with a good FICO score that’s not good enough?

“Virtually everyone can raise their scores by at least 10 (points) to 20 points, sometimes significantly more in 30 days,” Anderson says. Here’s what to do.

1. Find out what might have gone wrong. Applicants should know their credit score, understand what it means to their loan rates and ask their loan officers to use credit analysis on their behalf, says Chung. Credit analysis tools are a simple way to identify key score influencers by scrutinizing the information contained in each of an individual’s three credit reports to look for inconsistencies, errors and omissions that may artificially depress the score.

2. Correct any inaccuracies. Although consumers can improve scores on their own, Kielblock notes that credit agencies offer services to mortgage brokers to help consumers raise their credit scores if something is reported inaccurately and there is proof of a discrepancy.

3. Decrease the percentage of available credit used. This can be done by paying down balances or increasing credit limits, says Guthrie. Ideally, this means keeping balances as close to zero as possible, and definitely below 30 percent of the available credit limit, experts say.

“We’ve seen people increase their scores by as much as 90 points or more, simply by paying off the right cards,” Anderson says.

4. Move things around. If one income can be used to qualify for the loan, transfer accounts to “park” the debt in the other party’s name, Guthrie says.

5. Get a rapid rescore. It’s the only way to find out fast if an attempt to improve a score was successful. It’s done through your lender and a rescoring company. The process takes about a week, but it can get the loan process back on track. The downside is it costs a few hundred dollars. The credit bureau Experian has seen an increase in rapid rescoring requests, says spokeswoman Cynthia Baker. “While we haven’t done a direct cause-and-effect analysis, anecdotally, the volume does appear to have increased as interest rates have dropped in March,” she says.

Aside from working toward a better score, there are two additional options. One is paying points to buy down the interest rate. “This is only a good idea if the borrower will then live in the house beyond the break-even point, meaning the time where the money they’ve paid in points is made up for by way of less expensive monthly payments,” says Findlay.

The other option: shopping around. Some lenders, such as Palo Alto, Calif.-based Addison Avenue Federal Credit Union, have loans, known as “portfolio” loans, that aren’t subject to blanket rules on credit scores because the lender intends to keep them rather than sell the loans in the secondary market.

Michelle Edwards, national mortgage sales director, reports that for these loans, her company increases the cost of a mortgage only for consumers whose credit scores are below 680. One customer looking to refinance avoided a pricing adjustment because of compensating factors such as loan-to-value ratio, assets and length of employment.

In a perfect world, anyone contemplating a refinance or a new mortgage anytime within the next year or so would start working on getting the ideal credit score now.

But what if that didn’t happen? Try not to let your emotions drive how you feel about your interest rate. A mortgage is a financial decision that should be driven by economics, “not the pursuit of the world’s lowest rate because having it would make you feel good,” Heidelberg says.

He also says some consumers wait six months for a slightly better rate when a refinance could save $500 a month means missing $3,000 in savings. As Heidelberg says,

“This is foolish.”

If you need help understanding your credit scores visit us at: www.creditbureauexperts.com

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FICO Reveals How Common Credit Mistakes Affect Scores

November 30th, 2009

by Jeremy M. Simon
Sunday, November 29, 2009

Disclosed for the 1st time, ‘damage points’ taken off for late payments

Borrowers already knew that late payments hurt their credit scores, but for the first time, they now know the extent of that damage.

Did you max out your credit card? Expect a credit score drop of 10 to 45 points. Declare bankruptcy? Your score will plummet by up to 240 points, and your odds of getting credit will nosedive with it.

The “damage points” data, unveiled recently by FICO, are part of the most revealing glimpse into the firm’s once-secret — and still mysterious — credit scoring model. The new information discloses how many points borrowers’ scores will drop when they make the most-common mistakes.

‘Help People Understand’ Scores

“I hope this information will help people to better understand FICO scores and the value for them of avoiding credit missteps. It illustrates key points such as the higher your score, the farther it can fall if you stumble,” says FICO spokesman Craig Watts. “Getting and maintaining a good score isn’t complicated. We all just need to pay our bills on time, keep credit card balances low and take on new debt sparingly. ”

The greater transparency about FICO scores is important because American consumers’ ability to get credit rises and falls with the number. FICO, the company that pioneered credit scoring, assigns consumers a three-digit number from 300 to 850, depending on how well they handle credit. Other companies also offer scores, but FICO’s version is the most widely used by lenders in determining whether a consumer can borrow, and at what rate.

FICO’s credit score has been around for decades, but only within the past decade have consumers gradually gained access to theirs. Though the raw numbers can be purchased, how they’re figured remains a FICO secret, as closely guarded as the formula for Coca-Cola. Until Thursday, FICO revealed only broad categories of factors influencing the score, but not the number of points at stake for consumers who fail to pay as agreed. The “damage points” information, revealed in a report by personal finance writer Liz Pulliam Weston, will be made available through its myFICO.com Web site starting this weekend.

FICO’s information shows that bankruptcy does the most serious damage to a credit score (up to 240 points), followed by foreclosure (up to 160 points) while maxing out a credit card has the least numerical impact (as few as 10 points).

Those with good or excellent credit — so-called prime borrowers — put more points at risk with each mistake. For example, someone with an average credit score of 680 who pays a bill 30 days late will see a drop of 60 to 80 points. But for someone with an excellent credit score — 780 — that same delinquency can send a FICO score tumbling by 90 to 100 points.

The Cost in Dollars

In order to show just how badly a drop in your FICO score can hurt your wallet, we spoke with members of the home mortgage, auto and credit card lending industries. We presented hypothetical scenarios of a consumer who decided to apply for a $200,000, 30-year mortgage; a $20,000, five-year auto loan and a credit card. While all the industry insiders stressed that a FICO score isn’t the only factor in determining who gets credit and at what cost (other factors they cited include the borrower’s debt-to-income ratio and whether they have already established a relationship with the lender), they were able to provide an idea of what a borrower who had the following credit scores could expect.

For a Consumer Who Started With a FICO Score of 780:

Following a 30-day late payment, the consumer’s car loan rate would jump nearly 3 percent, costing the borrower $26 more each month.

Following a debt settlement, the consumer would pay as much as $109 more each month on a home mortgage.

For a Consumer Who Started With a FICO Score of 680:

Following a 30-day late payment, the consumer would pay $41 more each month for a car loan.

Following a 30-day late payment, the consumer would pay as much as $95 more each month on a home mortgage.

Following a debt settlement, the consumer would no longer qualify for a credit card.

Some Surprised By the Details

Consumer advocates say it’s important for borrowers to know what can damage their FICO scores. “If they know it in advance, they won’t go out and step in a pile of doo-doo. They won’t go out and do some of these things,” says Linda Sherry, director of national priorities with advocacy group Consumer Action. Even experts found some surprises in today’s news. “FICO imposes bigger hits than I would have thought for being maxed out or 30-days late just once, reinforcing my view that it is a cruder, blunter instrument than they like to claim. Nevertheless, it is a powerful, widely used crude blunt instrument,” says Ed Mierzwinski, consumer program director for the U.S. PIRG consumer advocacy group.

Of course, knowing the impact on a FICO score and actually avoiding these mistakes are two separate things: Amid rising unemployment and other daily financial struggles, paying bills and staying on-track financially becomes a much bigger challenge for many borrowers.

“Some of these things are out of their control,” Sherry says of consumers.

Additionally, as Weston points out, consumers with identical FICO scores can have different credit histories. That means the same slip-up — such as maxing out a credit card — could have different impacts on consumers who have the same FICO score. In the examples they provided, FICO assumed each borrower had several active major credit cards, a mortgage, car loan and student loans.

Sherry acknowledges the benefit of putting a number to a financial blunder. “I don’t think we necessarily knew the numbers that a bankruptcy could apply to a credit score,” Sherry says.

Helping You Make Better Decisions

While knowing the numbers may not keep you filing for bankruptcy if given no other choice, the information may help you make the best decision when faced with a bad situation.

FICO scores — and the access to credit they provide — are a valuable asset to consumers and supply a safety net when incomes are stretched. It’s an asset that needs to be protected, Sherry says, even if job loss or catastrophic illness makes bill paying problematic.

“In that period of time, paying down debt is the last thing on your mind. Paying the minimum payment may also be the last thing on your mind, but you’ll be doing yourself a big favor if you do,” Sherry says.

If you need help understanding your credit scores visit us at: www.creditbureauexperts.com

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Mortgage delinquencies hit another record in 3Q

November 17th, 2009

Mortgage delinquencies peak again in 3rd qtr, but pace of growth slows for 3rd straight period

By Eileen Aj Connelly, AP Personal Finance Writer
On 6:50 am EST, Tuesday November 17, 2009

NEW YORK (AP) — The pace at which people fell behind on their mortgages slowed during the summer for the third consecutive quarter, but the overall delinquency rate hit another record, a new report shows.
For the three months ended Sept. 30, 6.25 percent of U.S. mortgage loans were 60 or more days past due, according to credit reporting agency TransUnion. That’s up 58 percent from 3.96 percent a year ago.

Being two months behind is considered a first step toward foreclosure, because it’s so hard to catch up with payments at that point.

The rate was up 7.6 percent from the second quarter. That’s a much smaller jump than the 11.3 percent rise in the second quarter from the first, and the 14 percent leap seen in the quarter before that.

While the slowing growth rate is a positive sign, the increase shows there’s still a lot of problematic mortgages out there, said F.J. Guarrera, vice president of TransUnion’s financial services division. The company doesn’t expect the figure to start declining until the middle of 2010.

Two things must get better before mortgage delinquency rates start reversing themselves, he said: home values and unemployment. “Until we see improvement in both of those areas, it’s possible that it will take longer for delinquency to improve,” Guarrera said.

The statistics, which are culled from TransUnion’s database of 27 million consumer records, show that mortgage delinquencies remain highest in the four states where the crisis has hit the worst.

– In Nevada, the rate reached 14.5 percent, up from 7.7 percent a year ago.

– In Florida, the rate was 13.3 percent, up from 7.8 percent last year.

– In Arizona, the rate hit 10.4 percent, up from 5.5 percent in 2008.

– In California, the rate jumped to 10.2 percent, from 5.8 percent last year.

North Dakota remained the state where mortgage holders most often paid on time, with just 1.7 percent delinquency, up from 1.4 percent last year.

TransUnion expects delinquency to rise to just short of 7 percent for the fourth quarter, compared with 4.6 percent for the 2008 fourth quarter. The rate may reach 16 percent in Nevada. Those states with the highest delinquency and foreclosure rates will likely continue to see depressed housing prices.

The average mortgage debt per borrower nationwide edged up to $193,121 in the third quarter, from $192,287 last year. The District of Columbia had the highest average mortgage debt per borrower at $359,788. The lowest average mortgage debt per borrower was in West Virginia at $97,265.

If you need help understanding your credit scores visit us at: www.creditbureauexperts.com

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Beware a mortgage-rate spike this spring

November 16th, 2009

Carla Fried
November 16, 2009 11:31 am

A looming shift in Federal Reserve policy could send the 30-year fixed mortgage to 6% or higher, up from Monday’s rock-bottom rate of 5.02%. For all the hullaballoo about the stimulative impact of last week’s decision to extend the $8,000 First-Time Home Buyer Tax Credit and create a $6,500 credit for current homeowners, a sharp rise in the bellwether mortgage rate could muck up a housing recovery.
For the past year the Federal Reserve’s voracious $1.25-trillion purchase program of mortgage-backed securities has effectively pushed the 30-year conforming fixed-rate mortgage lower than it would normally be. Typically the conforming FRM is about 25 basis points lower than the rate on a jumbo mortgage. According to Bankrate’s latest weekly survey, the difference is more than one percentage point (6.24% vs. 5.19% as of Nov. 10).

But the Federal Reserve has signaled that it intends to wind down its purchase program by the end of the first quarter of 2010. Analyst Meredith Whitney recently dubbed the Fed’s “Great Exit” the biggest risk for banks and the markets over the next four months. And consumers.

Absent another big buyer (or set of buyers) stepping up and taking the Fed’s place, rates would likely rise. If the jumbo/conforming spread reverts to its historic norm, we’re looking at a 30-year fixed rate mortgage closer to 6% based on today’s levels. That could translate into a decline of 10% or so in home buyers’ purchasing power. A $300,000 mortgage at 5.02%, for example, works out to about $1,614 a month. At 6% you’d need to drop the mortgage amount to less than $270,000 to keep the monthly payment at $1,614. As Amanda Gengler points out in her 2010 Housing Outlook, prospective buyers and refinancers should look to lock in a rate sooner rather than later.

If you need help understanding your credit scores visit us at: www.creditbureauexperts.com

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Foreclosures dip 3 pct. in October from September

November 12th, 2009

Foreclosures back off in October for 3rd straight month, but unemployment could derail trend

By J.W. Elphinstone, AP Real Estate Writer
On 6:38 am EST, Thursday November 12, 2009

NEW YORK (AP) — The number of homeowners on the brink of losing their homes dipped in October, the third straight monthly decline, as foreclosure prevention programs helped more borrowers.

But foreclosure filings are still up 19 percent from a year ago, RealtyTrac Inc. said Thursday, and rising job losses continue to threaten the stabilizing trend.

More than 332,000 households, or one in every 385 homes, received a foreclosure-related notice in October, such as a notice of default or trustee’s sale. That’s down 3 percent from September.

Banks repossessed more than 77,000 homes last month, down from nearly 88,000 homes in September.

New state programs, like one launched in Nevada in July, that require mediation before banks can seize a property have helped stem foreclosure activity, said Rick Sharga, senior vice president at RealtyTrac.

Also, anecdotally, lenders are delaying foreclosure as they evaluate which borrowers might qualify for the federal loan modification program, he said.

“That’s the reason there’s been a buildup of homes that are seriously delinquent but not foreclosed,” he said.

Despite Nevada’s legislative efforts to slow foreclosures, the state still clocked in the nation’s highest foreclosure rate for the 34th month in a row, followed by California, Florida, Arizona and Idaho. Rounding out the top 10 were Illinois, Michigan, Georgia, Maryland and Utah.

Among cities, Las Vegas had the highest rate, the report showed. One in 68 homes there received a foreclosure filing in October, more than five times the national average. Seven of the top ten metros were in California, led by Vallejo and Modesto at No. 2 and 3.

After three years of declines, home prices reversed course in June and have been rapidly climbing month-over-month. This will rebuild home equity and reduce the number of borrowers that owe more than their homes are worth.

Still, foreclosures remain near record highs and the mortgage industry is still struggling to manage the onslaught. The government has had to push many lenders to participate in the Obama administration’s loan modification plan.

The Treasury Department said Tuesday that more than 650,000 borrowers, or 20 percent of those eligible, had signed up for temporary trial plans lasting up to five months. But since the beginning of September, only about 1,700 modifications had been made permanent. The Treasury Department expects to release updated data later this month.

Congress last week also extended and expanded a key federal tax credit for homebuyers that has been credited for boosting home sales recently.

Buyers who have owned their current homes for at least five years are eligible for tax credits of up to $6,500, while first-time homebuyers — or anyone who hasn’t owned a home in the last three years — would still get up to $8,000. To qualify, buyers have to sign a purchase agreement by April 30, 2010, and close by June 30.

“Anything that stimulates buying activity,” Sharga said, “will go a long way to mediate the foreclosure problem.”

If you need help understanding your credit scores visit us at: www.creditbureauexperts.com

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Credit-card countdown: Higher rates abound

November 11th, 2009

By Jennifer Waters, MarketWatch

CHICAGO (MarketWatch) — If you’re one of the millions of Americans holding a credit card, this isn’t necessarily news: Credit-card issuers are hiking interest rates, penalties and fees in full force ahead of stringent new laws that take effect in February.

In fact, some 400 credit cards from the nation’s 12 largest bank issuers — accounting for 90% of the $889 billion in outstanding consumer revolving credit in September — are still using most of the same tactics that the Federal Reserve has called “unfair or deceptive” and that will be outlawed in fewer than four months, according to a new report from the Pew Health Group’s Safe Credit Cards Project.

“Until the law takes effect we’re seeing that all the major credit-card issuers on the bank side are continuing to engage in these unfair and deceptive practices,” said Nick Bourke, project manager of the Safe Credit Card Project. “The numbers of unfair and deceptive practices have grown and in some cases are worse.”

Among the other findings:

99.7% of bank cards allowed issuers to boost interest rates on outstanding balances — a jump from 93% in December

95% of bank cards are applying payments first to low-rate balances, a practice the Federal Reserve has said will likely cause substantial financial injury to consumers

90% of bank cards had penalty rate hikes with the vast majority imposed by so-called “hair triggers” of one or two late payments in a year. The median bank penalty rate was 28.99%.

As of July, interest rates spiked an average of 20% across the board from December of 2008 with some issuers jacking up rates 30% and in at least one case 50% — even on their best customers.

Many — but not all — of the interest rate increases were tied to user credit scores, which have been dropping as many consumers’ credit lines have been cut or cancelled, Bourke said.

Credit-card losses mount
There’s no question that the economic malaise and the millions of people without jobs has had a damaging effect on credit companies too. Credit-card charge-offs and delinquencies this year have doubled, even tripled in some cases, and are still hovering in record territory at the nation’s largest banks with the outlook only worsening. Credit-card charge-offs retreated in September from August’s record high, but are still in double digits, according to Moody’s Investor Service.

Moody’s charge-off index, a measure of credit-card loans that aren’t expected to be repaid — slipped to 10.72 in September from August’s peak of 11.49. However, loans at least 30 days late, considered a gauge of future losses, climbed to 5.97 from 5.8. Charge-offs and delinquencies closely follow the jobless numbers: As unemployment rises so too does bad debt.

“Some of (those interest-rate and fee hikes) occurred because of the economic environment we’re in,” Bourke admitted. “But the timing is pegged at getting a lot of changes in before the bill takes effect.”

The American Bankers Association agreed that some higher rates are being pushed ahead of February, but said the embattled economy that is leaving issuers with boatloads of unpaid, unsecured debt is the real driver of such huge interest-rate increase.

“We have to take into account the losses in the credit-card space,” said Peter Garuccio, ABA spokesman.

Credit-card companies recognize the pain they are inflicting on many consumers. “We understand that customers don’t like price increases, especially in difficult economic times,” Citi said in a statement. “However, these actions are necessary given the doubling of credit card losses across the industry from customers not paying back their loans and regulatory changes that eliminate repricing for that risk.”

Moving ahead of law
The Pew study looked at rate and fee increases from January to July and doesn’t include hikes made since then as issuers press consumers before the law takes effect Feb. 22. Nor does the study take into account the initial credit-card legislation that took effect in August.

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Fannie Mae asks for $15 billion in US aid after posting $19.8 billion third-quarter loss

November 10th, 2009

By Alan Zibel, AP Real Estate Writer
On 7:33 pm EST, Thursday November 5, 2009

WASHINGTON (AP) — Fannie Mae is asking for an additional $15 billion in government aid after posting another big loss in the third quarter as the taxpayer bill from the housing market bust keeps rising.

The government-controlled company continued to see a dramatic surge of borrowers fall behind as the unemployment rate climbs. At the end of last month, about 4.7 percent of Fannie Mae’s borrowers had missed at least three payments.

That’s nearly triple last year’s level. And the problem is worse in Florida and Nevada, where more than 11 percent of Fannie’s loans are in serious trouble.

Seized by federal regulators 14 months ago, the problems at Fannie Mae and sibling company Freddie Mac have proven far worse than most experts had foreseen. Fannie Mae’s request Thursday will bring the tab for rescuing both companies to about $111 billion. The government has promised up to $400 billion in assistance.

“There is significant uncertainty regarding the future of our business, including whether we will continue to exist, and we expect this uncertainty to continue,” Fannie Mae said.

Fannie Mae and Freddie Mac play a vital role in the mortgage market by purchasing loans from banks and selling them to investors. Together, Fannie and Freddie own or guarantee almost 31 million home loans worth about $5.5 trillion. That’s about half of all mortgages.

The two companies lowered their standards for borrowers during the real estate boom and are reeling from the consequences. High-risk loans, now defaulting at a record pace, have come back to haunt the companies. Worse still, the recession is causing formerly reliable homeowners with good credit to default.

Fannie Mae posted a quarterly loss of $19.76 billion, or $3.47 per share. The loss includes $883 million in dividends paid to the Treasury Department and compares with a loss of $29.41 billion, or $13 per share, in the year-ago period.

The results were driven by $22 billion in credit losses as the company continued to build its reserves for sour mortgages.

Thursday’s request for financial aid — Fannie Mae’s fourth — brings the company’s total to about $60 billion.

To help reduce the number of homeowners evicted by foreclosure, Fannie Mae announced Thursday it would give some borrowers on the verge of foreclosure the option of renting their homes for a year.

The new “Deed for Lease” program will allow homeowners to transfer title to Fannie Mae and sign a one-year lease, with potential month-to-month extensions after that. It also helps save money because the lender does not need to complete the often lengthy and time-consuming foreclosure process.

The program helps “eliminate some of the uncertainty of foreclosure, keeps families and tenants in their homes during a transitional period, and helps to stabilize neighborhoods and communities,” Jay Ryan, a Fannie Mae vice president, said in a statement.

Critics, however, say the company is simply gambling that the properties will eventually sell for a higher price.

“Taxpayers are now going to own all these houses that (Fannie Mae) should have unloaded,” said Peter Schiff, president of Euro Pacific Capital in Darien, Conn. “It’s going to cost a fortune.”

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