Mortgage by Randy
monthly update to our clients, colleagues, family & friends
By: Randy Mitchelson, November 2008
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In This Issue We Touch On:
Hope
Interest Rates on the Rise
Government Tosses Another Hail Mary
Standing in the doorway of the terrace outside our Capitol where our next President will take the oath of office, I imagined the scene. Millions of people will watch both in person and on television. Many of them will be full of hope and optimism. The voices of cynics will still be heard. However, it is inevitable that our society will experience a mood swing and in fact we are now slowly, very slowly, initiating that mood change. There is still economic pain and turmoil yet to hit our headlines. There are still companies to hang their "going out of business" signs. Despite this, there is a burgeoning sentiment of hope among our masses.
People are adjusting to their new reality and learning to live within their means. We are saving a little money and paying down debt. Instead of deriving pleasure from buying new plasma TVs, fancy SUVs, McMansions and Starbucks, people are rediscovering the enjoyment of family, parks, painting and redecorating their existing home and some are even able to finally afford the purchase of a modest first home. Trends must change and just as our string of boom years came to and end in 2006, so must our current phase of bust years. Exactly when no one can say, but as we look ahead to a new era in our country's leadership, the overgrowth is being trimmed and seeds are being planted which will reinvigorate our tired society and inspire our collective creativity, productivity and genius.
We had hoped to distribute this month's newsletter across our new email delivery service. However, we are not quite ready. The subscription notice will be arriving in your inbox later this month.
The current newsletter and all prior newsletters are archived at our blog space mortgagebyrandy.spaces.live.com. Bookmark it and share with your friends and family. You can enter your own comments and feedback as well. Time for the news...
Mortgage Market: Government Introduces Consumer Friendly Format of GFE and HUD-1
After more than three years of debate, revisions and feedback, the mortgage industry was issued an edict this week to adopt new versions of two critical documents in the mortgage process. First, The Good Faith Estimate (GFE) provides consumers with reasonable estimates of the costs of the loan early in the process. The revised form is now more conversational and generally easier to read for the consumer.
However, one change creates an uneven playing field between mortgage companies and banks and will create confusion for the consumer.
To explain this in detail requires a little background. The primary way a mortgage company earns a fee for the work on a loan is to mark up the wholesale rate they have access to by a reasonable margin. This is similar to your supermarket buying milk or bread from farms and bakeries at a wholesale price and marking it up to a retail price that is competitive in the market. In the past, the mortgage broker fee was disclosed in different ways to customers, using different formats or sometimes never at all. That was unfair and now the consistent method of disclosing this fee will make it a better experience for consumers and keep mortgage companies honest.
The issue is that banks, which are regulated differently than mortgage companies, do not have the same requirement to disclose the fee they expect to earn when they sell your mortgage. As a result, consumers who compare 2 identical loan programs offered by a mortgage company and a bank may be led to believe that the mortgage company is charging more fees. Why this discrepancy? Compared to the mortgage industry, the banking industry is a very large and powerful lobby in Washington (just look at political campaign donation records).
The second form that was changed is the HUD-1 statement, which is the document you review at the closing table. This form itemizes all the final numbers line by line. What is nice for the consumer is that the line items on the enhanced form can be easily matched to those originally quoted on the GFE. The major drawback is the same as explained above on the GFE relating to the disclosure of the fee the mortgage company earns.
The National Association of Mortgage Brokers will continue to voice its disapproval of this edict and there is the benefit of time since these two new disclosures are not required to be used until January 2010.
Personal Credit: 6 Steps To Remove Inaccurate Collection Accounts From Your Credit Report
Even people with outstanding credit can end up with a collection account on their credit report. Many times these happen as a result of a medical expense that the insurance company did not fully cover. Or, when people relocate, sometimes a final bill from the former utility company gets paid but credited to the wrong account. Here are 6 easy steps to follow if the first phone call fails to resolve the situation:
1.Send a letter requesting validation to the collection agency via registered mail (keep the receipt)
2.File a dispute with all three credit bureaus (via registered mail)
3.Wait 30 days to hear back from the collection agency. In some cases they will not respond or they will respond to confirm receipt of your original letter. A satisfactory response includes:
a. proof that the collection company owns or has been assigned the debt,
b. complete payment history, starting with the original creditor, and
c. copy of the original signed loan agreement or credit application
4.If you are not sent satisfactory proof, send the collection agency a copy of your receipt for your registered mail, a copy of the first letter you sent and a statement that they have not complied with the FDCPA and are now in violation of the Act. Tell them to immediately remove the collection listing from your credit report or you will file a lawsuit because they are in violation of FDCPA, sec 809(b).
5.Wait 20 days to hear back after you send this second letter. They will either honor your request or continue to ignore it.
6.If they ignore it, simply send copies of all your documentation to the credit bureaus with a new cover letter clearly explaining what you have done so far and requesting the removal.
Congratulations! You have now cleaned your credit report with the only expense of the postage and your time. Credit repair companies will charge you hundreds or thousands of dollars to do this same thing on your behalf, but it is within your control to handle the situation.
If you need assistance finding an address for a collection agency, or researching if they are licensed to do business in your state, let us know and we can help. Also, if you ever need templates of letters, we can help there too. Finally, if you feel like you need to file a lawsuit against a collection agency, we can provide tips for that as well. As always, for only $99 we will conduct a credit report analysis using data from all 3 credit bureaus, reduce all the critical information into an easy to read one page format and provide you with a personalized action with steps you can take to improve your credit scores.
Economy & Financial Insights: Feds Toss Another Hail Mary To Assist Delinquent Borrowers
As housing prices have fallen, delinquencies on mortgages have tripled, not just for subprime and Alt-A (the level just below good credit), but also for prime mortgages, according to James Lockhart, Director of the Federal Housing Finance Agency. Past issues of this newsletter have discussed several government mortgage assistance programs (see Mortgage by Randy Newsletter, August 2008). For several reasons these programs have not helped a lot of people (namely, banks have to volunteer to participate).
This week we were introduced to the latest installment of "help is on the way" in the form of a new loan modification program to get struggling homeowners into mortgages they can afford. The catch? Allow me to quote Director Lockhart, "It is an achievable goal if homeowners, banks, mortgage servicers, investors, Fannie Mae and Freddie Mac all work together." That is a BIG "if" and recent history has already taught us that many banks and mortgage servicers are not being cooperative in helping the volume of homeowners that our government envisions.
Another fact that puts this program in proper perspective is that Fannie Mae and Freddie Mac control only 20%of all delinquent mortgages. As a result, 4 out of 5 struggling homeowners cannot even get to first base with this program. To narrow the funnel of those who can be helped further, this program is limited to homeowners that are ALREADY at least 3 or more payments behind. What about all those hard working people out there that are busting their tail and making sacrifices to make EVERY payment on time? No help for them....just have to keep scratching and clawing while those that have failed to make their payments get interest rates lowered, terms extended and cash flow freed up to buy Christmas presents. Only in America! I have heard many voice their concern over President-Elect Obama's plans to redistribute wealth, but those same people need to realize that it is already happening under the watch of the current administration.
Question of the Month: The Fed Keeps Cutting Rates So Why Are Mortgage Rates Going Higher?
The short answer to this question is the basic economic law of supply and demand. When an item is in short supply, the price of that item rises; when plentiful, the price falls. In the case of bonds, a lack of supply causes prices to rise. An increase in price means that the ultimate return to the investor is lessened, so their yield is lower. Lower yields mean lower mortgage rates. This is the case with mortgage bonds. An excess of supply at the same time as declining demand means there will be more bonds available than buyers. The prices of the bonds will decline to help attract investors to buy them, which makes the yields higher. Keep your eyes on the yields of Treasury Bonds, which have an influence on fixed mortgage rates. Hundreds of billions of dollars of new bond issuance will be coming to pay for the various government "bailout", "rescue" or "support" programs. This is also the case with mortgage bonds - too many sellers and too few buyers in the market these days - keeping prices low and yields (and mortgage rates) high. Rates probably won't decline very quickly.
Giving Back: Supporting our Communities - Beware Of D.O.G. (Dialers Obtaining Gifts)
The height of the charitable giving season is now upon us. Our telephones will be ringing off the hook from organizations appealing to our hearts during the holiday season in hopes of earning a share of our wallet. Most legitimate fundraising organizations DO NOT conduct telephone calling campaigns to raise money. To make your giving decision more confusing, the organization names often have to do with cancer relief or support of the state troopers. Although these organizations are, by definition, legal, non-profits, it does not mean that they are worthy of your donation. There are some organizations where almost 80 cents of every dollar they receive goes toward "administrative" costs which is accounting code for payroll!
During these tough economic times, it is wonderful that you want to give, but do so wisely. Ensure that your money is put to the best use in organizations that manage their donations so that 80 cents or more of every dollar ends up in the hands of those who deserve or need it most.
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 randy@mortgagebyrandy.com by the 5th day of each month and we will do our best to include your information in the next issue.
Your Frantically Trying To Finish Christmas Shopping Advisor,
Randy
Mortgage by Randy newsletter, Copyright 2008 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.
EASY UNSUBSCRIBE from Mortgage by Randy newsletter: send email to randy@mortgagebyrandy.com with UNSUBSCRIBE in the subject line.
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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 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 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, accessible at mortgagebyrandy.spaces.live.com. A licensed mortgage professional, Mitchelson also founded Trinity Home Financing, LLC.
He is founder of Estero, Florida based National Web Leads, LLC (www.nationalwebleads.com), an online lead generation service matching consumer finance lenders with customers. Through their network of partners, National Web Leads, LLC delivers bleeding edge Web 2.0 software solutions such as lead generation platforms and real time desktop widget and mobile reporting tools.
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 (www.swfrtp.org) and Strategic Planning Director for The Michelle's Angels Foundation (www.michellesangels.com). He is married to Susan, a Pharmacy Supervisor in the Lee Memorial Health System in Fort Myers, Florida.
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