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Here's how you can stay in their good graces and avoid sky-high rates.
Debra Tanner was thrilled when, in early 2008, her longtime credit-card issuer cut her interest rate nearly in half, from 16% to 9%. But a few months later, the thrill was gone. In August, Tanner discovered that the card issuer, HSBC Bank, had jacked up her rate to 30%. In fact, the rate hike had gone into effect several billing cycles earlier without Tanner noticing.
When she called to protest, a customer-service representative told Tanner that her rate was being raised because she had been two days late with a payment. The bank refused even to consider restoring her lower rate until at least November.
Tanner, who owns a gift-basket business in Clearwater, Florida, considers herself a responsible borrower. The issuer has steadily increased her credit limit (to $16,000 currently) since she got the card in 1993. "I don't see anything in my record that justifies raising my rate so high," she says. After Kiplinger's contacted HSBC, the bank agreed to lower her rate to prime plus five percentage points -- about 10% recently -- and to give her credit for the additional interest charges she had paid since March.
What Tanner learned the hard way is that lenders are not only skittish about extending new credit but are also clamping down on existing customers. In July 2008, a survey of senior loan officers by the Federal Reserve Board found that during the preceding three months, 65% of U.S. banks had tightened their credit-card lending standards by raising required credit scores or lowering existing credit limits. That was up from the April survey, in which 30% of banks reported tightening their standards.
A year ago, a credit score of 720 had lenders lining up for your business; today you need a score of 740 or higher to get the best rates, says Ben Woolsey, director of marketing and consumer research at CreditCards.com. Bank of America, for example, says it's looking for higher FICO scores, although it wouldn't specify a number.
And a higher score alone might not be enough to keep lenders happy. They're also scrutinizing your credit-card use more frequently, looking at where you live and what you buy. HSBC, for example, says it has tightened its credit criteria and will "continuously monitor changing market and economic conditions."
In addition, says Woolsey, lenders are less willing to cut you slack for minor, one-time infractions. And you're less likely to receive solicitations for new credit or to get automatic increases in your credit line. "The definition of what makes a good customer has gotten a little more stringent," says John Ulzheimer, president of consumer education for Credit.com. Risk factors. In some cases, credit-card companies are using geography as a risk factor, especially if you live in an area that's experienced declining home prices or if you hold a subprime mortgage. For instance, Discover is cutting back on marketing programs in "rising-risk areas" and limiting automatic credit-line increases. Discover didn't cite specific risk areas, but states such as California, Florida and Nevada have been hit hard by home foreclosures.
Your work or business could also be a factor. American Express says it's reducing credit lines for cardholders at greatest risk - including small businesses in the construction, home-building and mortgage industries.
Some card issuers are also paying closer attention to your spending habits. In June, the Federal Trade Commission sued CompuCredit Corp. for failing to disclose to cardholders that the company would monitor certain payments - to bars, massage parlors and marriage counselors, for example - and could reduce their credit lines as a result. There's nothing wrong with that kind of snooping, as long as card issuers tell customers that they use such data to evaluate risk. CompuCredit says the FTC's allegations about its marketing practices are "untrue and without merit." What to do. Despite the increased scrutiny, you can still satisfy card issuers' requirements.
Pay your bills on time and keep your balances as low as possible - preferably to 25% or less of your credit limit.
Use each of your cards at least once every quarter. That will prevent a lender from closing an account that it deems inactive, says Ulzheimer.
Look elsewhere if your card issuer cracks down. If you have a stellar record, you still have leverage with other lenders, says Scott Bilker, founder of DebtSmart.com.
Don't close old accounts. That increases the ratio of your outstanding balance to your available credit, which can hurt your credit score.
Ask for help if you're in a tight spot. Card issuers are sometimes willing to waive late fees, reduce interest rates or establish payment plans before you become delinquent, especially if you've been a good customer in the past.
Problems With Your Mortgage? There May be a Short Way Out
With unemployment figures reaching a 25-year high, the toll of the declining economy continues to impact hundreds of thousands of families each month, especially homeowners struggling with their mortgage. According to RealtyTrac, 303,410 foreclosure notices were served on properties in the month of December alone. This followed the 2,854,396 foreclosure filings throughout all of 2008.
For homeowners facing foreclosure, options do exist that can prevent the trauma of losing their home or facing long-term financial loss. YOU Magazine has addressed these options in previous issues. So, this month we'll focus instead on short sales, an alternative to foreclosure for struggling homeowners who do not want to stay in their homes but would also like to avoid the years of potential financial damage that a foreclosure could cause on their credit rating. If you or someone you know are looking for a "short" way out of a mortgage, keep reading and find out if a short sale is a feasible option.
Don't Be Short-Sighted Before we dive into what a short sale is and how it can benefit some struggling homeowners, it's important to understand that you're not alone, and that just because you're struggling now doesn't mean you won't be able to recover in the near future. In today's tough economy, millions of Americans are facing challenging situations seriously affecting their finances right now that they can, and will, eventually overcome, including lay-offs, divorce, the death of a spouse, or even major losses in the stock market or their retirement investments.
That's why, before choosing to attempt a short sale, it's important to ask yourself if staying in your home is an option you'd like to explore, because there are opportunities, including a loan modification that may be a better path for some struggling homeowners to pursue. A loan modification would allow the homeowner, in many instances, to renegotiate the terms of their existing mortgage(s) to a more affordable monthly payment(s). This can be accomplished in a number of ways that bring about both temporary and permanent solutions but ultimately allow the homeowner to keep their home.
If you think that a change in your mortgage terms, like a lower rate or lower monthly payments, might help you make it through this rough patch, it's important to communicate with your lender, even if you're several months behind in your payments. Many lenders have reported that in over 50% of the cases where a homeowner is delinquent on his or her mortgage, they have been unable to reach the owner to discuss any options. Picking up the phone and placing a call is always in your best interest. More importantly, opening lines of communication with family members, in many cases, could help lighten the emotional burden that often comes along with these challenges.
When Staying is Not a Viable Option If, however, you think a loan modification would not be appropriate for your individual needs, one solution to avoiding foreclosure could be a short sale. A short sale is an agreement from the lender(s) to allow the homeowner to sell the property for less than what is owed on the mortgage(s). An example would be an agreement to allow a sale of the home to take place for $175,000 when $300,000 is actually owed on the property.
For a lender to consider a short sale, there are a number of factors that the lender will take into consideration before an approval can be secured, including:
Current hardship, which can include a change of income due to job loss, loss of hours or salary reduction, illness, death of a wage earner, or a change in marital status.
The property is "upside down," which means the house is worth less in today's market than what is owed.
It's important to note that, unlike a loan modification, a homeowner does not have to be delinquent to be considered for a short sale. However, a hardship should be demonstrated showing that the homeowner would not be able to remain current on the mortgage in the future due to mounting financial obligations.
Why would a lender agree to sell your home at a loss? Well, in many cases, the foreclosure process results in a loss of up to 40% or more of the original mortgage balance for the lender. When borrowers and lenders work together on a short sale or loan modification, however, these losses can be reduced by roughly half, in many cases. For example, a foreclosure on a $300,000 home could cost the lender up to $120,000 or more in losses, where they might only lose $60,000 by working with the borrower. Add to that the record losses incurred on other foreclosures, and it's clear why lenders, in many cases, prefer to negotiate a solution.
Credit Benefit Working with a lender to negotiate a short sale instead of a foreclosure can also be more beneficial to your credit as well, especially if you want to secure another mortgage in the near future when your finances are back on track. According to Fannie Mae, one of the largest mortgage insurers in the country, a foreclosure on your credit record will likely mean it will be between 3 and 5 years before you're able to secure a new mortgage. The typical timeframe to buy a new home with a short sale on your record, however, is only two years.
A short sale also has a lesser impact to your FICO score compared to a foreclosure, which is very important for obtaining future credit from everything including automobiles and consumer credit to getting reconnected with local utilities and cell phones services. Your credit score can even affect certain employment opportunities as well.
Start the Process The first step of a short sale is to contact your lender and seek their assistance.
The second step is to enlist the help of an experienced real estate agent. An agent who is skilled at handling the negotiation process will not only minimize negotiation time, he or she will also help in limiting the time and costs of marketing the property.
Tony Sena, a real estate agent with North American Realty in Las Vegas, Nevada agrees. Sena, who is currently closing 10-15 short sale transactions a month says, "The single greatest reason for a distressed property not selling is selecting the wrong agent."
When selecting an agent, don't be afraid to ask questions about their experience. Sena says to look at the current inventory of listings the agent represents and ask:
How many of the properties are currently short sale properties?
Does the agent have testimonial letters from short sale sellers?
If an agent says they have sold a number of short sale properties, how many of the transactions were listings sold, not just where they had the buyer.
The third step is to price the house properly, according to the market. While many buyers would love to "steal" your property for the lowest price possible, remember that the lender is already going to incur a loss and they are not interested in losing more than they have to. Sena suggests initially pricing the property at the current value and then reducing the asking price every two weeks until it attracts buyers. Then, once you have an offer, the negotiations on the final price can begin with the lender.
The last step is to be prepared for challenges in both the short sale process and in the market place. Remember, you have a lot of competition out there and getting a property sold can be tough, especially in a buyer's market. However, choosing the right agent and setting the right price can assist you in not only selling it more quickly but also in minimizing the friction of having to deal with the lender directly.
Be aware that, in some cases, not all, a lender will agree to a certain price, but only if the seller agrees to accept a promissory note for some amount of the deficiency - that means money that you will be responsible for paying back. In some cases, Sena has seen lenders ask that sellers pay up to $20,000. However, while early last year the interest rate for these notes was in the range of 4% to 8%, lately Sena has seen that lenders have also been extending offers with 0% and terms of repayment up to ten years.
Get Moving Once you recognize that you are having problems keeping up with your mortgage payment, take action quickly. Decide whether you want to stay in the home or not. Then contact your lender to find out the best solution to your needs. If you'd like to learn more about short sales or other foreclosure alternatives, a great place to start is by contacting the professional who provided you with this copy of YOU Magazine.
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Obama Unveils Homeowner Affordability and Stability Plan
Revised February 20, 2009
President Obama unveiled his plan to help stabilize the housing market and keep millions of borrowers in their homes.
The Homeowner Affordability and Stability Plan includes two initiatives to help struggling homeowners. One is a refinancing program for homeowners with less than 20% equity in their homes, or who owe more than their home is worth. The second program attempts to lower monthly payments for homeowners at risk of losing their home. In addition, the plan includes a third initiative to support low mortgage rates by strengthening confidence in Fannie Mae and Freddie Mac.
Many of the plan's details are still being worked out and will not be announced until March 4, here is an overview of the plan's main components.
Refinancing Initiative Under current rules, those families who own less than 20% equity in their homes have a difficult time refinancing and taking advantage of the historically low interest rates. Therefore, the refinancing initiative in the new plan provides refinancing help for homeowners with less than 20% equity in their homes or who owe more than their home is worth. This initiative is open to homeowners who have conforming loans which are guaranteed by Fannie Mae and Freddie Mac, and who owe up to 5% more than their home is worth.
According to the plan, "credit-worthy" or "responsible" homeowners can refinance their mortgage into a 30- or 15-year, fixed-rate loan based on current market rates. The refinanced loan, however, cannot include prepayment penalties or balloon payments. For many families, this low-cost refinancing may help reduce their mortgage payments by up to thousands of dollars per year.
As with the rest of the plan, details about this initiative will be released at a future date-including what, if any, credit score requirements will be included.
Stability Initiative This initiative aims at providing help to individual families as well as entire neighborhoods by helping reduce foreclosures and stabilize home prices. It is intended to help homeowners who are struggling to afford their mortgage payments, but cannot sell their homes because prices have fallen significantly.
The goal of this initiative is simple: "reduce the amount homeowners owe per month to sustainable levels." To accomplish this, lenders are encouraged to lower homeowners' payments to 31 percent of their income by lowering their interest rate to as low as 2% or by extending the terms of the loan. In addition, lenders can also lower the principal owed by the borrower, with Treasury sharing in the costs.
Homeowners who are current on their mortgages but are struggling can still apply for this program. As such, this is one of the few programs designed to help homeowners who may face delinquency soon, but are current at the moment.
Since the focus of this initiative is on helping families and neighborhoods, investment properties do not qualify. This initiative also includes a number of additional elements and incentives that benefit homeowners and lenders alike, including:
Incentives to Help Borrowers Stay Current: To provide an extra incentive for borrowers to keep paying on time, the initiative will provide a monthly balance reduction payment that goes straight towards reducing the principal balance of the mortgage loan. As long as a borrower stays current on his or her loan, he or she can get up to $1,000 each year for five years.
Reaching Borrowers Early: To keep lenders focused on reaching borrowers who are trying their best to stay current on their mortgages, an incentive payment of $500 will be paid to servicers, and an incentive payment of $1,500 will be paid to mortgage holders, if they modify at-risk loans before the borrower falls behind.
Supporting Low Mortgage Rates As part of the Homeowner Affordability and Stability Plan, the Treasury Department is increasing its funding commitment to Fannie Mae and Freddie Mac to ensure the strength and security of the mortgage market and to help maintain mortgage affordability. This portion of the plan will use using funds already authorized in 2008 by Congress for this purpose.
The increased funding will enable Fannie Mae and Freddie Mac to carry out ambitious efforts to ensure mortgage affordability for responsible homeowners, and provide forward-looking confidence in the mortgage market.
I will continue monitoring the plan as new information becomes available. If you have any questions or would like to discuss how this may specifically impact you, I'd be happy to sit down with you. Just call or email me to set up an appointment.
I received a large number of calls this last week about what the Government's latest attempt to stimulate the economy really means to them. Thus I have highlighted below a couple of the more important items.
Tax Credit for Homebuyers First-time homebuyers who purchase homes from the start of the year until the end of November 2009 may be eligible for the lower of an $8,000 or 10% of the value of the home tax credit. Remember a tax credit is very different than a tax deduction - a tax credit is equivalent to money in your hand, as opposed to a tax deduction which only reduces your taxable income.
The tax credit starts phasing out for couples with incomes above $150,000 and single filers with incomes above $75,000. Buyers will have to repay the credit if they sell their homes within three years.
Tax Credit Versus Tax Deduction
It's important to remember that the $8,000 tax credit is just that... a tax credit. The benefit of a tax credit is that it's a dollar-for-dollar tax reduction, rather than a reduction in a tax liability that would only save you $1,000 to $1,500 when all was said and done. So, if a homebuyer were to owe $8,000 in income taxes and would qualify for the $8,000 tax credit, they would owe nothing.
Better still, the tax credit is refundable, which means the homebuyer can receive a check for the credit if he or she has little income tax liability. For example, if a homebuyer is liable for $4,000 in income tax, he can offset that $4,000 with half of the tax credit... and still receive a check for the remaining $4,000!
Phase-out Examples
According to the plan, the tax credit starts phasing out for couples with incomes above $150,000 and single filers with incomes above $75,000.
To break down what this phase-out means to homebuyers who are over those amounts, the National Association of Homebuilders (NAHB) offers the following examples:
Example 1: Assume that a married couple has a modified adjusted gross income of $160,000. The applicable phase-out to qualify for the tax credit is $150,000, and the couple is $10,000 over this amount. Dividing $10,000 by $20,000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first-time homebuyer tax credit that is available to this couple, multiply $8,000 by 0.5. The result is $4,000.
Example 2: Assume that an individual homebuyer has a modified adjusted gross income of $88,000. The buyer's income exceeds $75,000 by $13,000. Dividing $13,000 by $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $8,000 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,800.
Remember, these are general examples. You should always consult your tax advisor for information relating to your specific circumstances.
Homes that Qualify
The tax credit is applicable to any home that will be used as a principle residence. Based on that guideline, qualifying homes include single-family detached homes, as well as attached homes such as townhouses and condominiums. In addition, manufactured or homes and houseboats used for principle residence also qualify.
Higher Loan Amounts
More good news - there is an extension on the additional tier of conforming loan amounts which had been first established in 2008. This tier of home loans are those greater than $417,000, and with a maximum that depends on the area, but is not greater than $729,750. These loans will again be eligible for rates that are slightly higher than conforming loan rates, but less expensive than the standard "jumbo" loan rates.
Additional Housing-Related Provisions
Tax Incentives to Spur Energy Savings and Green Jobs - This provision is designed to help promote energy-efficient investments in homes by extending and expanding tax credits through 2010 for purchases such as new furnaces, energy-efficient windows and doors, or insulation.
Landmark Energy Savings - This provision provides $5 Billion for energy efficient improvements for more than one million modest-income homes through weatherization. According to some estimates, this can help modest-income families save an average of $350 a year on heating and air conditioning bills.
Repairing Public Housing and Making Key Energy Efficiency Retrofits To HUD-Assisted Housing-This provision provides a total of $6.3 Billion for increasing energy efficiency in federally supported housing programs.Specifically, it establishes a new program to upgrade HUD-sponsored low-income housing (for elderly, disabled, and Section 8) to increase energy efficiency, including new insulation, windows, and frames.
Expanding Housing Assistance-This provision increases support for several critical housing programs. It includes $2 Billion for the Neighborhood Stabilization Program to help communities purchase and rehabilitate foreclosed, vacant properties.
More Help for Homeowners in the Future Another thing to keep an eye on in the coming weeks is President Obama's plan to help struggling borrowers before they are faced with a default on their mortgage.
According to reports, the Obama administration is discussing plans to help borrowers who are struggling to stay afloat, but who have not yet fallen behind on their payments. At this point, details are scarce; however, reports indicate that President Obama is looking to spend approximately $50 Billion to directly help homeowners before they face foreclosure and financial disaster.
While this is good news for individual homeowners, it will likely be good for the housing industry as a whole. That's because, assisting struggling borrowers before they default should help stop the wave of foreclosures, which are estimated to top two million this year. That, in turn, will help stabilize home prices.
The Economic Stimulus Plan is huge, and impacts a number of industries. I've highlighted some of the major provisions that may impact you now and in the future.
As always, if you have any questions or would like to discuss how this may specifically impact you, I'd be happy to discuss this with you. Just call or email me when you have time to get more information..
Crofton, MD This past year was one many of us would like to soon forget. Volatility, the credit crunch, bank failures and a redesign of the entire financial system were but a few things bankers had to address throughout the year. To keep those entertained that drew the short straw and are working today, I thought we might take a look back to try and gain some perspective, as we prepare to usher in what may be an equally challenging 2009.
In banking, we endured the worst global financial crisis in a hundred years, as subprime mortgages, free lending and loose regulation led to the downfall of many major financial institutions worldwide. FNMA and FHLMC were taken over by the US Gov't; Lehman went bankrupt; Bear Stearns collapsed; Merrill Lynch agreed to be taken over by Bank of America; insurer American International Group was propped up by the FRB; the oldest money market mutual fund collapsed; both Morgan Stanley and Goldman Sachs became banks; Washington Mutual and IndyMac collapsed; Citigroup was bailed out by the FRB; Wachovia was acquired; oil hits a record high, then collapses as the financial crisis picks up steam; yields were pushed to zero; stock markets worldwide collapsed; Bernie Madoff was busted for the biggest Ponzi scheme in history ($50B) and the year closed with Chrysler, GM and Ford being bailed out by the government.
All told, financial firms posted $1 trillion in credit related losses during the year. Historical events included the election of Barack Obama (elected as the 44th and 1st African American President), the resignation of Fidel Castro as President of Cuba; the resignation of New York Governor Eliot Spitzer (soliciting prostitution) and a brutal terrorist attack in Mumbai, India killed 200. Science and technology continued to advance, as NASA's Phoenix spacecraft became the 1st to land on the northern polar region of Mars; the Gamma-ray Large Area Space Telescope was launched; the proton beam was circulated for the 1st time in the world's largest particle accelerator (Large Hadron Collider); the SpaceX Falcon 1 became the world's 1st privately developed space vehicle successfully to make orbit; surgeons at London's Moorfields Eye Hospital perform the first operation using bionic eyes and the space shuttle was launched on its 124th mission.
On the big screen, the year went to Batman "The Dark Knight," which shattered box office records to become the year's highest grossing film. Meanwhile, on the small screen, the year was dominated by Tina Fey. Her show "30 Rock" won the Emmy for Outstanding Comedy and she also showed her acting prowess with a spot-on portrayal of VP candidate Sarah Palin on "Saturday Night Live."
When it came to pop culture, we bid a sad but fond farewell to famous people including Paul Newman (actor), Heath Ledger (actor), Isaac Hayes (musician), Bernie Mac (comedian), Sir Edmond Hillary (mountaineer), Bobby Fischer (chess master), Charlton Heston (actor), Sydney Pollack (director), Yves Saint Laurent (fashion designer), Bo Diddley (musician), Jim McKay (sports caster), Tim Russert (political journalist), George Carlin (comedian) and Michael Crichton (writer).
In sports, China held a spectacular summer Olympics that will be difficult to beat; Danica Patrick became the first woman to win an IndyCar race; the New York Giants upset the previously unbeaten New England Patriots; track star Marion Jones was stripped of her 2000 Olympics gold medals (after admitting to using steroids) and swimmer Michael Phelps won a record 8 Olympic gold medals (passing Mark Spitz with the most gold medals ever won in the Olympics).
As we prepare for 2009, we have no idea what it will bring, but we know Monarch will continue to grow and thrive. I thank you all for your hard work and commitment in 2008 and wish you a happy, healthy and prosperous New Year. Let the party begin.
While the mortgage market continues to generate a lot of chatter in both the media and in Washington, interest rates are currently near or at all-time lows. If you or anyone you know are looking to take advantage of these low rates, let me explain why now is the time to act.
Lately there has been talk about the 4.5% 30-year fixed rate mortgage. Will it become a reality though? Right now, no one really knows. Homeowners who could benefit from a lower interest rate need to know that even if 4.5% becomes a reality from Washington's actions, it would only be available to home buyers, not homeowners seeking to better their rate. If you need to refinance, you will be left out.
You also may have heard about Hope for Homeowners, which is a program approved by legislators to help distressed homeowners. However, regardless of its best intentions, the program has not been embraced by investors, and it is not available to many it could help.
The bottom line is, the Fed announced recently that they are going to buy up to $600 billion in mortgage-backed securities. This has already driven rates to historical lows. In January, the SEC is meeting and information may be released that could have a significant bearing on rates, potentially for the worse.
Waiting to obtain the best rate is only possible for those with loan applications already in process. Interest rates are incredibly volatile and fluctuations that used to take months are now occurring in just days or even hours. If you don't have an application in process, you could lose out.
We are already seeing lender backlog due to low interest rates. In 2003, with rates at these same low levels, we saw some lenders taking up to 90 days to close a loan.
Home loan rates are currently in the mid- to low-5% range. Home values are currently at 2003-2004 levels, coming down significantly from their high point. If you-or friends and family members you know-are contemplating seeking financing, now is the time to act.
With a first time home buyer tax credit of up to $7,500 and low or no money down programs available for many people today, now is a great time to buy a home.
If you have any questions about how we can help you, call us today.
Disclaimer: ActiveRain Corp. does not necessarily endorse the real estate agents, loan officers and brokers listed on this site. These real estate profiles, blogs and blog entries are provided here as a courtesy to our visitors to help them make an informed decision when buying or selling a house. ActiveRain Corp. takes no responsibility for the content in these profiles, that are written by the members of this community.
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