Steve Hall's Blog

Looking for Guest Contributors

Steve Hall (Invicta Solutions) — Tue, 13 Jul 2010 18:50:37 -0700

Hi there Active Rain Community,

I am currently in the process of rebuilding the Affinity Mortgage website, actually I'm roughly 90% finished with the project. Along with the main Affinity site, I've been contracted to produce and maintain 10-12 other websites/blogs in the real estate arena.

While I would love to have the creativity and knowledge to personally produce material for each of these ventures, I think I'm going to need some help. What I'm looking for are 10-15 guest contributors, real estate professionals from any area that write and promote their own blogs. What I will do is re-blog your articles, with byline and links back to your site of course, in one of my "featured blogs" or "featured contributors" areas. I'm also always on the lookout for industry experts for audio and video interviews, so if you feel you fit into that description don't hestitate to contact me.

If you'd like to wait and see the actual web design of the first project, AffinityMortgage.com, I can understand that; but I would like some folks to be considering whether they could use the additional exposure.

If this is something that you would like to be involved in, either contact me through AR or you can email me directly at steve@affinitymortgage.com.

I'm definately looking forward to getting all of these projects online, and the guest contributor relationships that develop.

Best of luck,

Steve

10 Rules for Handling Debt Collectors

Steve Hall (Invicta Solutions) — Wed, 07 Jul 2010 12:53:22 -0700

As difficult as it may be to stay cool and collected when debt collectors hound you, knowing what to expect when dealing with these agencies will help you formulate a plan and lessen the chance of being taken advantage of.

Ten Rules for Handling Collection Agencies

1. Realize that credit collection agents are usually working on commissions. This is a JOB to them and the more they get you to pay, the larger their paycheck. They will be persistent, so be prepared.

2. Don't argue with the agent, because you will lose. This is what the do all day, every day and they have heard every excuse in the book. They are prepared with an answer to everything. State your case but don't argue.

3. It usually doesn't help to ask to speak to someone's boss. In this case, talking to the supervisor normally won't help (in fact it could be worse). Remember, he ended up with his job because he was good at what he did and was able to squeeze every dime out of past consumers who had disputes.

4. Never give information out over the telephone to a collection agency. This includes your driver's license number, social security number, debit card numbers, check numbers, credit card numbers, or bank account numbers. They should already have this information.

5. Use a money order or certified funds to make all payments. Make a copy of it and staple it to the bill.

6. Keep records of everything (including dates of phone calls and what was said), and make sure that anything sent through the mail has a return receipt.

7. Make sure you get written confirmation of any deals or negotiated payoffs. Make sure you have something that says the collection has been satisfied, and always ask them to remove the item entirely from your credit report. They can do this, and very often will to settle the debt.

8. Never take their first offer when negotiating a lower payment as they will always call back with a better offer.

9. Use powerful sentences like, "This is all I can afford to pay," rather than "This is all I am going to pay." This is a much better negotiation tactic when you are trying to lower the payoff with the collection agent.

10. When repairing your credit, it is a good rule to keep copies of all your credit reports. That way you can track the process of what has been repaired and make sure that what you negotiated is coming to pass.

While it would be impossible to include everything there is to know about dealing with collection agents, these 10 tips will almost always result in more money in your pocket and less in theirs.

7 Ways to Protect Yourself from Identity Theft

Steve Hall (Invicta Solutions) — Thu, 01 Jul 2010 12:56:05 -0700

The big risk of identity theft comes with the benefits of high technology and faster       communication methods to provide information. As criminals have found new ways to steal and manipulate someone's information for their own use the number of white-collar crimes has greatly increased.

Most people are perfect candidates for identity theft, as they are not always cautious with their personal information, and gaining access to your identity has become much easier. Identity theft does not only happen to those who are too trusting and naive; anyone can find himself or herself victimized and it can lead to serious financial difficulties, even   bankruptcy.

How can you protect yourself from being victimized?

Here are some of the most common ways in which thieves get access to your information. After reading this, you may realize that you have often participated in behaviors that     increase your vulnerability to identity theft.

1. Phishing - a popular and effective method for stealing identities. Phishing occurs by anyone that contacts you through email to "verify" specific information related to your credit card, Paypal or bank account. Banks, and most credit card companies, will NEVER contact you over the phone or via email in order to get information about your account. They know that this is very risky.

PayPal, a subsidiary of e-Bay, is the only credit company that sends personal information via email. Still, millions of spam emails flood your inbox daily seeking this most vital information; and too often this information is handed over freely by people who believe this spam is a legitimate request.

Often, a person phishing for your information will use the tactic of telling you that you are the lucky winner of a prize. More than likely they will be super excited for you and they are very pushy about offering you the phony prize. Once you reach that level, they ask you for a bank account number to wire your winnings into. It's easy to give your prize to a thief by providing them with the proper information. Incredibly, this still works and people have not gotten wise to it yet.

2. Online hackers - if you are a regular on the Internet, you have likely learned more than a couple ways to protect yourself from hackers. This trend is still growing in popularity today; even though there have been advancements to computer protection, many consumers just do not apply them. You need to install firewall and virus software on all of your computers. Even a mediocre hacker can get into very secure sites, so accessing a personal computer that is running a basic Windows program is a walk in the park. If you keep important documents including your credit card or bank account information unsecured on your computer, they cannot be guaranteed as safe.

3. Credit card offers - The more credit card offers you receive, the more chance you have of being a victim. The only thing credit card companies are in business for is profit. Although they may offer protection so that they can collect a monthly fee they are not likely to give you total fraud protection. Once a credit card company receives an application containing your personal information, they will check your credit, process the application and send you the approved card shortly thereafter. It is quite simple for anyone with your personal information to request a card in your name.

You can search the web for phrases such as "opt out of credit card offers" to find reliable sources that will help you opt out of credit card offers. It can be done permanently or even part time. The "lock" icon helps you secure your information online, it indicates that the information you are supplying them with will be encrypted and protected.

Click here for the full article.

If you would like to become even more terrified of super-hackers, watch this episode of the CNBC series American Greed. The story of Max Butler, an Idaho native and super-hacker who became the "Mafia Don of the Digital Underground."

Myths and Facts About Reverse Mortgages

Steve Hall (Invicta Solutions) — Wed, 30 Jun 2010 16:52:43 -0700

Determining the truth about reverse mortgages is not easy. You need to be educated on the program so that you can make the best decision for your personal situation. Basically, if you get a reverse mortgage you will be getting a loan that will allow you to have a monthly income coming in, or a large lump sum at once, or a credit line. You can get any combination of these things as well. If you have an existing loan, it will be paid off. So you will not have a house payment. The monthly income you receive from the reverse mortgage is guaranteed and you will receive it as long as you remain living in the home. Regardless of the length of your life, your debt can never be more than the worth of your home.

I have presented the 5 most commonly repeated facts and myths below to help you further understand the benefits and ease reverse mortgages will bring.

MYTH 1: The reverse mortgage lender owns your home.

FACT: In fact, you will continue to be the home's owner and to hold its deed. There aren't any penalties when selling, paying off, or refinancing your home.

MYTH 2: Qualification is difficult.

FACT: You only need to be 62 years of age an own your own home. You don't need a lot of credit or a qualifying income for this.

MYTH 3: The fees associated with closing are much higher than they are for other loans.

FACT: Actually, the closing costs are very much the same as any other home loan and you will be aware of the fees prior to closing when you receive a Good-Faith Estimate. You can also choose to finance the costs with your reverse mortgage loan. The only other cost involved may be for an appraisal in advance of closing. Often, this is the only fee you will have to pay before closing.

MYTH 4: This will affect your taxes and social security in a negative way.

FACT: The earnings you obtain from your reverse mortgage will not become an issue with Social Security benefits or income tax.

MYTH 5: There can be problems with the payment.

FACT: You will ONLY be required to pay the loan if you decide to leave the house or if it is sold. If your spouse dies then you will still be able to remain living in the house and vice versa and also the living spouse will continue to receive the exact payment amount each month. If you have any heirs, they will be presented with the opportunity to pay off the loan with any other assets or they can opt to refinance so that all the remaining equity will become theirs.

Gather all of the specs, when investigating a reverse mortgage loan. Keep in mind that there are other types of mortgage loan solutions and the right choice only depends on your own unique situation.

What Makes You Different?

Steve Hall (Invicta Solutions) — Tue, 29 Jun 2010 13:18:11 -0700

I was called on by a company last week wanting to sell me Internet leads. During his presentation he told me about his exclusive leads, how great his company was at producing leads, how long they had been in marketing, what great minds they had working on their campaigns and that they could provide me with all of the leads I could possibly handle.

Once he had finished spilling his beans, I paused for a minute and then said "Jeff, what you've just told me is the exact same pitch every other lead provider gives. Now, tell me what makes you different from the rest?" As usual, Jeff went back through his talking points and my mind wandered. Unfortunately, for Jeff, he couldn't give me a single reason why his company was a better lead source than any other.

When I turn that same question around on my business, I've always felt that I could give 9 reasons that set us apart. These are what I believe makes us different from other mortgage companies, and those differences are what makes us special.

With that in mind, I put together a short video that highlights 2 of these areas; I'm working on several shorter videos right now that cover the rest. I can't think of a better place to premier this video, and the others, than on Active Rain. If you can spare about 8 minutes, watch the video below and let me know what you think.

If you'd like to discuss what Affinity Mortgage could do for you, whether you're an agent, a builder or a consumer; please don't hesitate to contact me!

How to Discover and Protect Yourself From Identity Theft

Steve Hall (Invicta Solutions) — Fri, 25 Jun 2010 13:05:10 -0700

The day begins just like any other one normally would. You're on your way to work in the morning and realize you need to make a quick pit stop at the gas station before you run out of fuel completely. You fill up the tank and grab a coffee and newspaper once inside the store. You offer the cashier your credit card and are stunned when she tells you that it has been rejected. As the wave of embarrassment rushes over you, you fumble around in your pockets for enough cash to cover the entire bill.

On the way out you stop at the ATM to replace the money you had in your pocket and to your horror the screen tells you that your account has insufficient funds. Panicked now, you arrive at the office and immediately check your online credit card and bank statements. Your checking account is in overdraft which means there must be some kind of mistake as you know there was enough in there for the next mortgage payment and then some. Your credit card statement shows thousands upon thousands of dollars worth of purchases over the last two weeks that you know you didn't make.

When you finally call the bank to find out what's going on they pass you over to a supervisor who tells you that the loan you recently applied for has been denied. Because you've applied for credit at a number of other places within the last month they aren't comfortable in extending a loan to you based on your current debt load.

With your head spinning and thoughts coming at you a million a minute you finally realize...you have just become the latest victim of Identity Theft.

To download the complete e-book for free....click here.

Common Myths the Credit Bureaus Want You to Believe

Steve Hall (Invicta Solutions) — Thu, 24 Jun 2010 14:57:33 -0700

Myth No. 1 - It is easy to dispute a credit report. Consumer's can resolve their own issues.

To be honest, it IS simple to challenge a credit report. However, as an everyday person, it's amazingly difficult and frustrating to get results from the credit bureaus. Here's why.

This is a little-known fact. More complaints to the Federal Trade Commission involve credit bureaus than any other type of company. The major credit bureaus have paid fines of $2.5 million over the years due to failure to respond properly to charges.

The main objective of credit bureaus is to protect their profits. They are NOT government agencies. They are for profit organizations. Anytime they have to investigate a consumer disputes it eats into those profits. Investigations take up time and energy too. The credit bureaus do everything in their power to make restoring your credit exceedingly difficult, short of sparking more massive lawsuits.

Attempting to restore your own credit means you must be willing to spend time learning about the process. This is why it is so difficult when you are inexperienced. It most cases you may be less effective than if you hired a professional. Realize that credit restoration will most likely take longer than you expected.

Myth No. 2 -A negative item that is successfully removed from your credit report will simply reappear again.

The reality is that a creditor has 30 days to verify a dispute. If the credit bureau has not heard from the creditor within that timeframe, they must delete the item from your report. Sometimes the bureaus will perform a soft delete. This is where they delete the item from your report but, will reinsert the item if they hear from the creditor within a week or two of the 30 days.

If this happens, the item can be disputed again. However, most of the time, once an item is deleted, it is gone for good. By using our preferred attorney's, you can be sure your item will be disputed over and over again until it is removed. We have experienced a 96% success rate with this.

For my complete, and free, e-book on this topic, click here!

What Is Up With Mortgage Rates?

Steve Hall (Invicta Solutions) — Wed, 23 Jun 2010 12:19:17 -0700

Even through all of the doom and gloom predictions of the first and second quarters, interest rates continue to hover at all-time lows. Take a look at the bond market over the past 30-days:

Not only have rates improved since May 24, they continue to break through ceilings of resistance; which, in turn, become new floors of support. What is driving the market?

In reality, it's bad news. Problems in Europe, worse than expected employment numbers, and losses in the stock market are driving investors to the relatively safe haven of mortgage bonds. The question is, will this continue? And the definitive answer is, no.

What goes up, comes down, and mortgage bonds are no different. When mortgage bonds do drop, and they will, it could be a drastic change; not unlike what we experience in the fall of 2008, when bonds dropped nearly 200 bps over the course of only a few days.

So whether you're looking to buy or refinance, this is the time. If you're in the market to refinance, even if you have a nice low rate like 5.75%, it makes good financial sense to at least take a look at what you can save. For a quick look at the savings available, take a few minutes and watch this short video.

Resetting of the ARM's

Steve Hall (Invicta Solutions) — Wed, 23 Sep 2009 12:38:50 -0700

I know it sounds like the title of this Halloween's next horror movie, or maybe even a documentary about sports medicine, but the ARM's I'm referring to are obviously Adjustable Rate Mortgages. A big deal has been made over the past few months about how the next devastation to hit the real estate market will be the resetting of all of those nasty 5/1 ARM's that were done in 2004-2006, when nearly 50% of all loans were adjustable.

The furor has died down somewhat recently, perhaps because the growing "crisis" is possibly a blessing in disguise. I've had several clients, old and new, in the past few weeks call me in a panic because their rate was about to reset and they wanted to refinance into that "warm and fuzzy" 30-year fixed loan. Don't get me wrong, that isn't a bad phone call for me to get considering that is how I make a living; but many of these people have been shocked to hear my advice.

"Take a deep breath, relax, and don't do anything crazy."

I'm going to get a little elemenatary here so bear with me. Adjustable loans are based on two variables, the index and the margin. The index is the financial indicator that the loan is pegged to, such as the 1-year LIBOR, and the margin is the percentage added to the index by the lender as profit. There are some bad loans still out there, but the reality of the situation in many cases will probably be a rate reduction. Somewhere in all of this financial fear people have lost sight of the fact that adjustable rates don't always go up, they can adjust to a lower rate just as easily.

The majority of 5 and 7 year adjustable loans are tied to the 1-year LIBOR index, which today is 1.26, and have an average margin of 2.25%. Therefore, if your rate is adjusting today your new adjusted rate will be 3.51%, and in most cases will stay at that level for the next year. That is, of course, not taking into consideration the floor or the caps of any particular loan, but I believe it is safe to say that the majority of these big, scary ARM loans had initial interest rates above 3.5%. I know I don't remember writing many loans that started with a "3" five years ago.

So, as much as the refinance business adds to my bottom line, and as much as I love the additional income it provides; I must say I see absolutely no sense in refinancing purely out of fear right now. There are certainly sitations where it makes sense, but a purely knee-jerk reaction can be financially costly. I do strongly advocate putting any savings gained from a rate reduction into a safe side account. If you are in the position to save 2% over the next year on your mortgage, make sure you put that cash aside to offset any future costs if things ever do get ugly.

As a caveat, I'm sure there are those reading this and thinking it would be foolish not to lock in today's low rates on a 30-year fixed loan; and it's important to understand that there is no blanket, one-size-fits-all plan that is right for everyone. I have proven time and time again to Mortgage Management clients that we can be much more effective eliminating debt and increasing savings by refinancing every 5-7 years; but it is crucial to have someone experienced in your corner helping you manage the liability. Without that piece of the puzzle in place a 30-year fixed loan is probably a good way to go; even if it is considerably more expensive, and exactly what the bank wants you to do.

A Case Study in Mortgage Planning

Steve Hall (Invicta Solutions) — Thu, 10 Sep 2009 16:57:51 -0700

I get the question quite often, what is mortgage planning? The simple answer is that mortgage planning is looking at a mortgage from a different perspective; a hybrid of a typical loan officer and a financial planner. We use a clients mortgage as a tool to achieve the client's long and short term goals. If you've viewed my profile on Active Rain, or visited my website, you've undoubtedly seen a version of this explanation.

Sometimes, though, I think what people hear is "blah blah blah, mortgage, blah blah blah blah." A better way to explain the difference between mortgage planning and a "mortgage-in-a-box" business models is through case studies. The following is an example of a real-life situation where mortgage planning came into play, and what the results were.

Client A: How Much To Put Down?

Client A was referred to me by a Realtor Partner in Portland, Oregon last month. He was looking to buy a home, with a price of $300,000, and could afford a 20% down payment. He was referred to me because various sources were giving him conflicting advice, and they had a genuinely intelligent man thoroughly confused. His financial planner told him to put the minimum amount of cash down and invest the difference, his banker told him to put the full 20% down to avoid mortgage insurance, and his wife told him to just hurry up and make a decision; she was ready for a new house!

After Client A and I had a couple of conversations, I put together an analysis for him of his different options. His plan was to stay in the home for 10 years, at which point his goal was to sell and move to a smaller home on the coast for retirement. One of his major goals was to replenish his liquid cash or add to it.

The first thing we look at is the total cost of each loan, usually over the first 5 years; this is what his options looked like:

Over the first 5 years, the 30-year FHA loan is the most expensive and the 30-year fixed conventional loan is the least expensive. Of course, in order to qualify for the conventional loan, Client A had to spend $60,000 of his liquid cash, while the FHA loan only required a down payment of $10,500. Based on this information, it appears that the financial planner was correct; putting down the least amount was the more prudent choice, and it was spelled out for him clearly and concisely.

But we need to go deeper for Client A. Remember he isn't planning to keep the home for only 5 years, he's actually planning to be in the home 10 years. So our next plan is to put together an asset accumulation strategy for him, which looks like this:

What we did here was create a safe, separate side account for Client A. How the account was structured depends on which loan we use. For the conventional 30-yr loan, we don't have any liquid cash left to begin with; but the monthly payment is $394 less than the FHA 30-year loan, so we have that to work with each month. Starting from zero, we apply $394 to the account each month, calculating a rate of return of 6%; and in 10 years our account balance is $64,568. Not bad, mission accomplished.

For the Split MI loan, we were able to start the account with $30,000 since we only had to put 10% cash down. The monthly payment is $146 less than the FHA plan, so we are able to add that in as well each month; and at the 10 year point we have $78,508 in liquid cash. Goal exceeded.

By using the FHA loan and only putting down the minimum 3.5%, we are able to put a full $49,500 in the side account. Since this is the most expensive loan we have available, from a monthly payment standpoint, there is no additional cash flow each month to add to the account. But as you can see, in 10 years at 6% ROR the side account now has a value of $90,060. A clear and easy winner, right? The least expensive loan at 5 years, and $30,000 more in our side account than we had hoped for.

Not so fast. Remember, Client A is planning on selling at this point and moving into a smaller home. So while the FHA plan has the highest side account accumulation value, if you switch focus to net worth the conventional loan is superior by nearly $16,000. Client A already had it in his mind that the financial planner was right, and was surprised to see with his own eyes what the long-term effects of his decision were.

So What Did We Do?

Obviously, the 30-year conventional loan provided the best return for Client A in the long-term, right?

Nope. Consider Option 4.

We used the 10% down with split MI, but had the client use a portion of the leftover cash to buy his rate down from 5.5% to 4.5%. Our cash account starts at $24,000 after the 2% buy-down, but our monthly payment is $311 less than the FHA loan so we can add that each month. At the 10-year mark, we have increased Client A's net worth $10,000 over and above the conventional loan; and based on 3% yearly appreciation Client A should be able to petition at the 3-year point to have the mortgage insurance removed. If he is successful, he will save an additional $3300.

So, in essence, that is mortgage planning. Everyone doesn't fit into the same box, and what appears to be a good idea on the surface can pale in comparison over time. Mortgage planning is thinking outside of a box that is already outside of the box.

Let's Talk Mortgage Insurance, or How to Avoid It

Steve Hall (Invicta Solutions) — Fri, 28 Aug 2009 15:14:12 -0700

With the untimely and unfortunate death of combo loans, buyers who have less than 20% down payment have been faced with the ugly truth about mortgage insurance. It's here to stay, and it isn't cheap. It's not unusual or uncommon to see mortgage insurance premiums in the $300 per month range, or more.

There are a few ways to avoid MI, or at least reduce the cost. If the loan-to-value is below 80%, don't worry about it. MI is only required on FHA loans, or conventional loans above 80% loan to value. So, if you have a $300,000 property with a loan amount of $240,000, problem solved.

But what about those that aren't in that much of an equity position, or those that don't have 20% down. There are some alternatives to expensive conventional MI.

FHA. This is the go-to program for most loan officers with a client over 80% LTV. The MI is less expensive than on conventional financing, usually by half or more, and the rates are still attractive.
RD or USDA loans. If you live in the right area, there are 100% financing options available with no mortgage insurance; called rural development loans.
VA. For veterans, VA loans are a good alternative because they also don't carry MI. There is a funding fee that is a little hard to swallow sometimes, but it can also be financed in without affecting loan to value ratios.

Some, not many, conventional lenders have jumped into the market to compete with FHA; using a product called Split MI. This program works much like the FHA program, a percentage of the mortgage insurance is collected up-front and used to offset the costs of the monthly mortgage insurance. For borrowers with good credit, this can actually be an attractive alternative and some lenders will finance up to 95% of the purchase price.

Another choice is full lender paid MI. Believe it or not, there is a large percentage of the population out there that doesn't want to pay mortgage insurance at all, period, end of story. For these folks, some lenders offer LPMI, and while the rates may not be as attractive as a conventional or FHA loan; the monthly payment is generally lower and all of the payment goes to P&I. Payments going toward mortgage insurance do nothing to help the borrower, only the lender; so I believe this is actually a smart decision.

As a mortgage planner, it is my practice to break down the total cost of every available option for my clients; this helps them make an educated and rational decision that they usually don't regret a few years down the road. If you're in Idaho, Washington, Oregon, Utah or California and are looking for a lender with all of these options, and more, available; please don't hesitate to call or email me. (Shameless self promotion, I know; but, then again, this is my blog!)

Understanding Credit Scores

Steve Hall (Invicta Solutions) — Thu, 27 Aug 2009 16:58:50 -0700

I find myself surprised when I'm talking to clients, or real estate professionals, how little is actually known about how credit is scored. Even people that deal with credit as a cornerstone of their living often have no real idea what the numbers mean, and how they work. Without trying to get all Yoda, Zen-like; the greatest thing about a credit score is that it doesn't exist until you look at it. A credit score is a picture of that exact moment in time, which is why varying scores can be derived at various times during a transaction.

Before we go any further, let me ask you, do you really know what a credit score is? Don't worry if you don't, most people are in the same club. In fact, even in an industry dominated by credit data; 90% of industry professionals don't know the answer either. The textbook answer is a credit score is a factor used by lenders as an indicator of how likely someone is to pay their bills on time. Your credit history, and credit score, is a reort card of how you manage your finances as an adult.

Scores range from 350-850 and, in the mortgage industry, until recently there was little differrence from 620 to 850. Three or four years ago, a person with a 621 credit score received exactly the same rate and terms as someone with a 840 credit score. With the relatively recent advance of risk based pricing, that is no longer the case. Now anyone with a credit score below 740 can be subject to interest rate penalties, depending on some of the factors of their particular loan.

Why is a credit score important? Other than the above example, our credit rating affects nearly everything we do today. Simple things like getting a cell phone account, turning on utilities at a new home, buying insurance, paying for college, and even getting a job are all increasingly tied to our credit scores. A good credit score is essential in achieving almost all of the major goals that we have in life, and most consumers have no idea how truly influential their score is.

The actual scoring system is a very complex, and secret, algorithm that no one I've ever spoken to could articulate clearly. The easiest way I have to get my head around it is to think of the credit score as a pie, with three slices.

The first slice of the pie is payment history. Payment history accounts for 35% of the overall credit score and includes both good payment history and derogatory items; such as late payments, collections, charge-offs, judgements, bankruptcy and foreclosure. Just from looking at that list, it's obvious that there are more ways to impact your credit score negatively than positively; and the negatives are far more heavily weighted than the positives.

The second slice is outstanding debt. This includes all of the outstanding debts you owe, and also includes your loan-to-balance ratio. The LTB ratio compares what you owe on your installment and revolving accounts in relation to your high credit limits. Recently lenders have started reducing the high credit limits on many of their clients revolving accounts, which has had an extremely negative and possible unintended impact on credit scores. Imagine if you had a $25,000 credit limit with a $2,500 balance, well within acceptable ratios; but then the bank or finance institution reduced your credit limit to $5,000. Since outstanding debt is 30% of your credit score, that jump from 10% to 50% in your loan-to-balance ratio can have a dramatic effect on your credit score.

The remaining 35% of the pie is made up of smaller slices. Roughly 10% is your length of history, how long you have had individual accounts and how long you have been on the credit bureau in total. Another 10% is mix of credit, with an ideal balance being one mortgage, one car loan or other installment loan, and three or four major credit cards; that you use correctly.

The remaining 15% is inquiries, probably the single most mis-understood element in the credit scoring system. There are two types of inquiries; permissable, or soft inquiries and hard inquiries. A soft inquiry is where you pull your own personal credit, or and existing credit looks at your credit, or your insurance company or prospective employer takes a look. These are also referred to as "free looks" because they have no impact on credit scores.

Hard inquiries are those made by potential creditors, the IRS, a judgement filer or even those "pre-approved" credit card offers we get a lot. Hard inquiries can cost between 2 and 50 points, depending on credit history; someone who is a credit risk loses many more points per inquiry than a person on the higher end of the credit scale. Hard inquiries in the most recent 6 month period carry the most weight, so it is important when contemplating a major purchase to hold off on inquiries for at least six months to keep your credit scores at their peak. Lenders are currently asking for expanation letters for hard inquiries from as far back as 120 days when underwriting mortgage loans, so having explanations prepared is always a good idea.

A relatively unknown and unheralded change happened a few years ago regarding inquiries. Before, when you were shopping for a car for instance, and the dealer sent you to 5 separate lenders you would end up with 6 separate inquiries. Adding up the points for all of these inquiries could completly change a persons credit rating within the span of 24 hours; so they changed the algorithm. Now any inquiries that are ran during the same transaction are considered to be an inquiry string and only count as one; as long as they happen within 14 days.

As you can see, going from a good credit score to a great credit score isn't too difficult, if you know where to focus. First, since more than one-third of the credit score is payment history, it is imperative to not only pay your debts on time, but to make sure the creditor is reporting your account correctly.

Second, learning how to manage outstanding balances can make a huge difference in your loan-to-balance ratio; another 30% of your score. And finally, keeping long term accounts open and keeping inquiries to a bare minimum; that 10% off at Nordstrom isn't worth this hits to your credit score!

Have you ever heard of steroids? Thanks to BALCO, and Barry Bonds here, the whole world knows that steroids are the single best way, though illegal, for an athlete to improve his or her performance. What most people aren't aware of, though, is that if you use steroids incorrectly the only thing you get is fat.

Credit cards are the same way. Use them correctly and nothing can improve your scores more effectively; use them incorrectly and you just end up a fatty.

So how do use them correctly?

Use them every month or two. Don't cut them up, don't freeze them in ice and don't close the account. Closing the account costs you payment history (35%) and length of credit (10%).
Don't carry a balance. Use the cards for something simple, a tank of gas or a dinner out, something you were going to pay cash for anyway. Once you get home send the payment in and payoff the entire balance each month.
If you can't pay them off each month, always try to be below 10% of your credit limit; 30% in an absolute emergency. If you're looking to make a major purchase, though, don't carry any balance.
Don't load up one card and leave the others empty, spread the balance around; again, only if you absolutely must carry a balance.

That's how we turn 700 credit scores into 840 credit scores. Don't lose a lot of sleep, though, if you can't get much above the 740 mark; the only thing you really gain is bragging rights. 850 credit scores and 740 credit scores all pay the same.

H.R. 3044-Take Action Now!

Steve Hall (Invicta Solutions) — Tue, 25 Aug 2009 12:10:32 -0700

As all of us in the industry are aware, and consumers are becoming more aware, New York Attorney General Andrew Cuomo has wreaked havoc on the real estate recovery and cost consumers billions by introducing HVCC regulations; and forcing Fannie Mae and Freddie Mac to comply.

Some background on HVCC, it stands for Home Valuation Code of Conduct, and was brought into being due to a New York investigation of ties between Washington Mutual Bank and an appraisal management company that were deemed to be fraudulent. It seems Washington Mutual and their AMC were putting undue pressure on appraisers to inflate values on appraisals, which Mr. Cuomo was rightfully enraged about.

Of course, there were already plenty of laws on the books against such collusion; but according to the Attorney General they just didn't have the manpower to enforce them. So, instead of enforcing the laws already on the books, Mr. Cuomo bypassed Congress and basically enacted a law of his own. HVCC is not a law, but for some reason Fannie and Freddie seem unable or unwilling to disregard these "regulations."

The problems with HVCC are many. First of all, it doesn't solve the problem it was proposed to solve; collusion between lenders and appraisers. Banks and lending institutions are allowed to own up to 20% of their own appraisal management companies; that hardly sounds like a collusion-free environment. The costs to the average consumer are enormous, a conservative estimate that only entails appraisal fees and increased interest rate lock times is $2.8 billion. That's billion, with a "b," and it comes straight out of the consumer's pocket. Add in the cost of inadequate and unqualified appraisers, extended wait times, non-portability of appraisals and outright appraisal errors that can't be corrected; and the costs are staggering.

Here is a great article from by Scott Austin, an appraiser in Austin. He breaks down very well the problems from HVCC, even from an appraiser's point of view.

So, I didn't set out here to tell you the troubles that we already know about; there is a solution. On June 25, 2009, Rep. Travis Childers (D-MS) introduced H.R. 3044; a moratorium on the HVCC guidelines for 18 months so that unintended consequences can be evaluated. The bill has 54 co-sponsors, and the bill is picking up steam. Check here to see if your respresentatives are on the list of co-sponsors, and if they aren't call them and make sure they know how important this bill is.

We need the support of both those in the industry and out to finally get this monstrosity put to rest! We can not afford to have over-regulation and short sighted regulations hamper the recovery of the housing market.

Where Do Mortgage Rates Come From?

Steve Hall (Invicta Solutions) — Mon, 24 Aug 2009 18:49:40 -0700

I talk to a lot of clients who really don't understand how mortgage rates are determined; and why they fluctuate so wildly. Of course it doesn't help that many industry professionals don't fully understand the process, either.

The first thing to understand is what mortgage rates are tied to. We hear a lot of talk about the Fed raising or lowering the Fed Funds rate, which has virtually nothing to do with mortgage rates. In fact, it's not unheard of for mortgage rates to actually rise when the Fed Funds rate is lowered. The Fed rate is the rate at which banks loan money to each other on a short term basis, usually overnight. Mortgage rates are obviously long term rates, not short term. The Fed rate is directly tied to the Prime rate, but except in the case of fully adjustable home equity lines of credit, Prime has little to no effect on mortgage rates either.

I've also heard people explain that mortgage rates are tied to the 10-year Treasury note, which is also inaccurate. While the two indexes do pattern each other at times, the T-Bill does not govern mortgage rates; in fact, it's actually quite the opposite.

Mortgage rates are determined directly by Mortgage Backed Securities (MBS), which are traded on the Chicago Board of Trade. To understand how these securities are created, it's important to first understand the wholesale loan process.

When a bank or mortgage company makes a loan to help someone buy or refinance a home, they don't necessarily want to keep the loan and service it themselves. If they did keep the loan, they would have a more limited amount of funds available on their balance sheet to make more loans and turn more profit. If the lender can sell the mortgage to someone else, they recoup the amount on their balance sheet and are able to make another loan. That is why your mortgage sometimes gets passed from lender to lender, or servicer to servicer; each takes a bit the total profits of the loan, but sells the loan to recoup lending power.

In order for this to work, there has to be someone out there with the capital to buy all of these loans. That's where Fannie Mae and Freddie Mac come in. Fannie and Freddie buy loans from all over the country and aggregate them together into pools. Now, Fannie and Freddie don't have unlimited capital either, so to replenish their balance sheets they need to sell their loans as well.

In order to do this, Fannie and Freddie take these huge pools of loans, securitize them into Mortgage Backed Securities, and then are able to sell them on the open market along with other securities to investors eager for a reasonably safe investment vehicle.

As the trading of these securities goes, so go mortgage rates. When the bond market is up, interest rates are down and when the bond market is down interest rates are up. These securities are traded on the exchange just like stocks, which is why we sometimes have multiple rate changes every day.

There is only so much investment capital out there, so when the stock market is taking a beating many investors pull their money and put it into the safe haven of MBS. When the stock market is climbing, investors pull money from MBS and put it back in stocks. This is why when the S&P has a good day, for example, we usually see mortgage rates deteriorate. It also explains why sometimes good news for the economy is bad news for mortgage rates.

There are other factors that contribute to mortgage rate fluctuation, like the size and amount of Treasury auctions, unemployment numbers, the consumer price index, crude inventories and of course building and housing starts.

Because there is so much volatility inherent in the market, it makes it very difficult for consumers to understand; especially when they are shopping for a mortgage based purely on interest rates. Unless a borrower obtains quotes from many lenders at the exact same time, on the same day, with no pricing changes, and is able to lock their rate that day; it is not possible to compare apples to apples. Today's best rate may be mediocre tomorrow, or it may be completely out of reach.

The volatility leads to misunderstanding in the marketplace, so hopefully having a basic idea of why interest rates fluctuate as much as they do will help put at least some of the questions to rest. The best advice I can give a consumer, or a real estate professional, is to make sure you put your loan in the hands of someone who understands how interest rates work, and not just how to read a rate sheet. A home is our biggest liability and biggest asset rolled up into one; placing it in the hands of the lowest bidder isn't always the best financial decision. It makes more sense to trust someone with a tight finger on the pulse of the market that can, at least somewhat, anticipate where rates will be heading in the short term.

I hope this sheds some light on this topic. As always, if you have any questions or would like to go deeper, don't hesitate to give me a call or drop me an email. I'm currently producing a video on this topic, and once the final edit is complete I'll post a link.

Boost Your Savings....Without Even Trying

Steve Hall (Invicta Solutions) — Sun, 23 Aug 2009 14:19:35 -0700

Annual income aside, there's not a person among us who wouldn't welcome the idea of having more money in their savings account. This is the money we use on everything from yearly vacations to family presents. Come holiday time, wouldn't it be nice to have an extra thousand or so dollars at your disposal? Here are a few ideas that can help to make that possible. The best part is you'll hardly feel it!

1) Bring Your Lunch to Work - The average person spends $6 when they buy their lunch yet only $2 when they pack it themselves. That's a potential savings of $20 a week or $1,040 dollars a year.

2) Durable over Disposable - Using products like Handi-Wipes (semi-disposable rags) as opposed to paper towels, and a rechargeable razor rather than the disposable kind, can save you up to $200 per year.

3) Hold an Annual Yard Sale - You should have no problem making at least a hundred bucks. Besides, you'll get rid of all that household clutter in the process. Whatever you don't sell can be donated to charity and used as a tax write-off.

4) Ask for Discounts - From buying airline tickets to paying a medical bill, always ask if there's a discount to be had. The worst that can happen is you'll be told no.

5) Get a Library Card - As opposed to buying a book for $20 or renting a DVD for $4, get it for free. If you
average 3 movie rentals a month, you'll save yourself over $140 a year.

6) Watch Those Utilities - Changing over to energy saving light bulbs and low flow showerheads is a great start. Also, most utility companies offer a home audit you can complete online. If not, go to http://hes.lbl.gov for a virtual inspection of your home. You may be surprised to learn how much energy (and money) you could be saving.

The good news is suggestions like these are merely a start. Only you know where your household may be wasting money. Find inefficient habits and figure out a solution. Remember, every little bit counts. The final step is when you save money on something, put the savings into an earmarked account. Then leave it alone until it's the appropriate time to use it.

Do you have any tips on boosting your savings? If so, give me a call and tell me about them, or just post them below