Mortgage by Randy
monthly update to our clients, colleagues, family & friends
By: Randy Mitchelson, November 2010
In Issue 32 We Touch On:
Tighter Lending Rules
Text Message Saves the Day
Consumer Saving Spree
The holiday season is here, ready or not. During this time of giving thanks, I first want to say that I am thankful for my health. 2010 was the first time I have experienced serious health challenges and I am fortunate to have been surrounded by the right people. I want to say thank you to our readers, many of whom are friends and trusted advisers. Your questions and feedback help keep the motivation behind this newsletter. In addition, many thanks to my colleagues who help make this stage of my career so fulfilling and motivate me to rise out of bed each day. I am thankful to be involved in an industry which allows me to bridge my knowledge and experience from the traditional financial services sector into the fast growing world of internet marketing and technology. I am thankful to be associated with impactful volunteer organizations such as Michelle's Angels. Most importantly, I am thankful for my wife and family who support me and through some divine intervention we are all spending more time together thanks to Florida being such an appealing destination.
The current newsletter and all prior newsletters are archived at the Mortgage by Randy blog. Bookmark it and share with your friends and family. You can make your own comments and feedback as well. Time for the news...
Mortgage Market: Perfect Example Of Tighter Mortgage Rules Enacted By Lenders
Mortgage consumers seeking to refinance a mortgage or purchase a property continue to face tough lending requirements established by banks. Despite government rhetoric to encourage lending, the fact is that banks are literally sitting on hoards of cash and tightening lending rules which disqualify more consumers.
For example, a lender recently announced a revised method for factoring a Home Equity Line of Credit (HELOC) into your debt ratio calculation. Typically, when the lender reads your credit report the monthly HELOC payment is listed and that payment is added to your other monthly payments to determine your debt ratio (monthly debt payments divided by monthly income). The revision requires the underwriter to calculate the payment as a minimum 1% of the current outstanding balance shown on the credit report, which is more than reasonable. The revised rule requires that the underwriter use a reasonable figure when including a HELOC payment in the qualification. In the words of the lender, "A $20.00 payment on a $20,000.00 line of credit is not reasonable (even if shown on the credit report) and the underwriter should use the 1% of the outstanding credit or the high credit rule to ensure realistic calculation of debt for the borrower." Here is where the rule gets interesting. "If there is no outstanding balance, use 1% of the "high credit" (full line of credit) as shown on the credit report. If the borrower cannot qualify with that payment, the credit line must be reduced or closed to permit qualification for the loan."
This revision just tightens the noose around consumers that much more. Even if you have no debt, the lender is adding in an assumptive debt to make it tougher to qualify for the mortgage. In the example above an extra $200 per month will be added to your debt ratio calculation even if you have no outstanding balance on your HELOC.
Personal Credit: Text Alert Helps Prevent Credit Card Theft
Isn't it ironic? I was writing articles last week about credit scores and inbetween getting text alerts that Ron Artest is going to try out for the NFL and Pink being pregnant, there was this little gem from my credit monitoring membership:
FRM: Triple Alert Redemption
SUBJ: Your Credit Monitoring Membership
MSG: Triple Alert(sm) Credit Monitoring detected a key change(s) to your credit report. Please log in to view your alert.
Upon logging in I quickly saw that my Visa credit card was reported lost or stolen. Hmmm...the credit card was still in my wallet and after checking with the wife, she had her card in her purse. Here we go again. Another fraudulent attempt by a criminal to steal our identity and get their hands on our credit card.
It does not matter what credit monitoring service you choose. There are several. The point is to sign-up for one and protect yourself and your loved ones from this type of criminal activity. Credit monitoring services provide you with the tools you need to access and monitor your financial and credit information.
Imagine what could have happened if that text alert never arrived. How long would it have taken for us to learn that our Visa credit card was reported lost or stolen? What other personal information had they stolen? Was someone casing our mailbox, waiting for those new cards to arrive? Thank goodness we don't have to find out. The few dollars per month that it costs for this type of service more than pays for itself very quickly.
Economy & Financial Insights: American Consumers Continue Their Saving Spree
Good news continues to surface regarding our collective household budgets. American consumers are continuing their saving spree - hundreds of billions of dollars are being saved and/or used to pay down credit card or other types of debt. At the peak of our most recent economic boom, U.S. households had a negative saving rate (we spent more than we earned on average). We have come a long way. As we head into the holiday shopping season, you might think that this trend would be in jeopardy. However, a recent study revealed that four out of ten consumers are planning to use debit cards and cash to cover holiday expenses this year, up from three out of ten in 2005. There is still a tremendous amount of debt, especially credit card balances, that U.S. consumers must continue to pay down. This sentiment, coupled with uncertainty about their job or lack thereof, will be the main driver of a barely measurable economic recovery and keep us on the fence of slipping back into recession.
Question of the Month: Is A Mortgage Modification Legally The Same Thing As A Refinance?
In a word, "No". They are mutually exclusive processes. A refinance results in a brand new mortgage and note being recorded in the county clerk office whereas a mortgage modification pertains to the original mortgage and simply adjusts the payment by any combination of interest rate reduction, loan term extension or principal reduction. There is not another closing when you modify, but there is with a refinance (and you pay closing costs with a refinance). A mortgage modification is performed by your lender and/or servicer but you could do a refinance with any lender.
Giving Back: Upromise Continues To Be An Easy Way To Generate Funds For College
Our Upromise account is well over $1,000 now and we haven't done anything special or out of the ordinary. The money we accrue will eventually be transferred to our niece and nephew. Our most frequent rebates come from purchases at Publix, Mobil, Expedia and some local restaurants like Perkins. If you or someone you know is saving money for college, Upromise is an easy add-on. Upromise members can get money back for buying groceries, shopping online, eating out, even filling up at the pump. When you join, you can allocate all or part of your Upromise earnings to your own child's account or allocate to a friend (like me!). Send me an email if you would like to join the network.
Need volunteers? Do you have a fundraising event upcoming? Do you have a personal web site where you are raising donations for your cause? Submit the information to firstname.lastname@example.org by the 5th day of each month and we will do our best to include your information in the next issue.
We will make our first trip to Gainesville for Thanksgiving to meet up with the family. Then in early December, finally a tradeshow in Florida - Miami to be specific for AffCon. We'll squeeze one more Disney trip in before Christmas and that should be it for 2010 travel. 2011 is filling up fast with trips to Las Vegas, Nashville, San Francisco & Napa already scheduled for the first quarter. Looking forward to meeting up with friends and colleagues along the way. Happy Thanksgiving.
Mortgage by Randy newsletter, Copyright 2010 Randy Mitchelson. All Rights Reserved.
Randy Mitchelson is a licensed mortgage professional. All material presented herein is believed to be reliable but we cannot attest to its accuracy. All material represents the opinions of Randy Mitchelson. Recommendations may change and readers are urged to check with their financial advisors before making any decisions. Opinions expressed in these reports may change without prior notice. Mitchelson can be reached at 239-851-6738.
You have permission to publish this article electronically or in print as long as the following is included:
Randy Mitchelson, of Estero, Florida, is a business professional, entrepreneur and author with over 15 years experience in financial services. Mitchelson has served in leadership roles for Global & Fortune 500 firms like Bank of America, KeyBank and CIBC.
As a member of National Association of Mortgage Brokers, Randy has earned the Lending Integrity Seal of Approval. He educates both individuals and groups about credit scoring by conducting personalized credit report reviews, action plans and one on one consultations. He is author of the free monthly newsletter, Mortgage by Randy as well as the Daily Dollar newsletter. A licensed mortgage professional, Mitchelson also founded Trinity Home Financing, LLC.
He is owner of Estero, Florida based National Web Leads, LLC, an internet lead generation service matching consumers with lenders for auto, cash advance and other financial products. Through its network of partners, National Web Leads delivers innovative Web 2.0 performance marketing solutions to advertisers and affiliate marketers.
Mitchelson earned his BS and MBA at Rensselaer Polytechnic Institute in Troy, NY. He is a founding member and Finance Chairman of the Southwest Florida Regional Technology Partnership Inc. and Vice President for the Michelle's Angels Foundation Inc. He is married to Susan, a Pharmacy Supervisor in the Lee Memorial Health System in Fort Myers, Florida.