My New Blog

After I put in an application for credit with a lender, including pulling his credit report, my client called me the next day and said that "Heather" left a message on his voicemail that said she was calling about his "loan details" and wanted to make sure he was getting the best possible deal.  After calling him back and getting a little more info, we discovered that Heather 1) doesn't work for me nor the lender in question and 2) Heather was deceptively trying to sound like she was affiliated with my clients current loan request, get my client on the phone, get his information, and try to sell him something different.  Uncool.  I apoligized for the confusion and ultimately my industry.  We did talk about how this current debate goes much deeper, including the credit reporting agencies who sell inquiry information to other mortgage lenders (telemarketing sweatshops) under the guise of consumers right to weigh different loan offers and the federal governments inability to stop this practice.

My clients come to me to shop around, knowing each one of their financial pictures are different, and trusting I will give them many practical and creative solutions at a fair price, with the best rates around.  Getting a mortgage--read:uncovering your financials and credit--is stressful enough without trying to decipher whether the Heathers of the world are actually working with the lender and broker you know.   

1. Call 1-888-5-OPTOUT (1-888-567-8688) or visit www.optoutprescreen.com. When you call this toll-free number or visit the website, you will be asked to provide certain personal information, including your home telephone number, name, Social Security number, and date of birth. The information you provide is confidential, and will be used only to process your request to opt out. Don’t enter any personal information until you have checked for indicators that the site is secure – a lock icon on your browser or a web address that begins https.
   
   Opting out of prescreened offers does not affect your ability to apply for credit or to get it. Your opt out request will be processed within five days, but it may take up to 60 days before the prescreened offers stop coming. If you have a joint mortgage, both parties need to opt out to stop the prescreened offers. If or when you want to opt back in, use the same telephone number or website.
   
   
2. Put your phone number on the federal government’s National Do Not Call Registry to reduce the telemarketing calls you get at home. To register your phone number or to get information about the registry, visit www.donotcall.gov, or call 1-888-382-1222 from the phone number you want to register. You will get fewer telemarketing calls within 31 days of registering your number. Your number stays on the registry for five years, until it is disconnected, or until you take it off the registry.
   
   That said, the FTC wants you to know that many companies use other tools to identify marketing prospects, and that the Do Not Call Registry won’t shield you from all telemarket­ers – for example, those with which you have a business relationship. Even if you opt out of prescreened offers and put your number on the National Do Not Call Registry, you can expect some unsolicited offers.

For more information about the Fair Credit Reporting Act, the law that spells out the terms under which companies can check credit reports, visit www.ftc.gov/credit.

The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint or to get free information on consumer issues, visit ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

Reverse mortgages (also called home equity conversion loans) enable elderly homeowners to tap into their equity without selling their home. The lender pays you money based on the equity you've accrued in your home; you receive a lump sum, a monthly payment or a line of credit. Repayment is not necessary until the borrower sells the property, moves into a retirement community or passes away. When you sell your home or no longer use it as your primary residence, you or your estate must repay the cash you received from the reverse mortgage plus interest and other finance charges to the lender.

Most reverse mortgages require you be at least 62 years of age, have a low or zero balance owed against your home and maintain the property as your principal residence.

Reverse mortgages are ideal for homeowners who are retired or no longer working and need to supplement their income. Interest rates can be fixed or adjustable and the money is nontaxable and does not interfere with Social Security or Medicare benefits. Your lender cannot take property away if you outlive your loan nor can you be forced to sell your home to pay off your loan even if the loan balance grows to exceed property value.

The Fair Credit Reporting Act (FCRA), enforced by the Federal Trade Commission (FTC), is designed to promote accuracy and ensure the privacy of the information used in consumer reports. Under the FCRA, both the credit reporting agency (CRA) and the organization that provided the information to the CRA (usually the credit card company) must correct any errors or incomplete information in your report.

If you do encounter a mistake on your credit report, several steps need to be taken to correct the matter:

1. The first thing to do is get a copy of your credit report from each of the three major CRAs: Equifax, http://www.equifax.com; Experian, http://www.experian.com; and TransUnion, http://www.tuc.com.

2 In a written letter, tell the CRA what information you believe to be inaccurate. Include copies (not originals) of documents that support your position. Provide your complete name and address, identify each item in your report you dispute, and request deletion or correction. Be sure to make copies of your dispute letter and enclosures.

3. Send your letter by certified mail, return receipt requested, so you can document what the CRA received.

4. The FCRA mandates that all CRAs reinvestigate the items in question — usually within 30 days — unless they consider your dispute frivolous. They also must forward all relevant data you provide about the dispute to the credit card company. After the credit card company receives notice of a dispute from the CRA, it must investigate, review all relevant information and report the results to the CRA.

5. If the disputed information is found to be inaccurate, the credit card company must notify all nationwide CRAs so they can correct this information in your file. Disputed information that cannot be verified must be deleted from your file.

6. When the reinvestigation is complete, the CRA must give you the written results and a free copy of your report if the dispute results in a change. If an item is changed or removed, the CRA cannot put the disputed information back in your file unless the credit card company verifies its accuracy and completeness, and the CRA gives you a written notice that includes the name, address, and phone number of the credit card company.

7. In addition to the CRA, you should also write to the credit card company about the error. Again, include copies of documents that support your dispute. If you are correct — meaning the information you disputed is found inaccurate — the credit card company cannot use it again. Further, at your request, the CRA must send notices of corrections to anyone who received your report in the past six months.

Note--I was proud to have this article featured in the August 2007 Financial Planning Association of Minnesota newsletter... 

Some mortgage lenders and brokers are falling over each other to advertise No Fee Mortgages or No Closing Cost mortgages.  I've even heard unscrupulous advertisements stating that "paying any closing costs" during a mortgage transaction is "too much."  These ads, in effect, say lenders, appraisers, and title companies will work for free if you just ask them to.  (Not to mention having the government waive their various real estate transactional taxes!)

This is, of course, just marketing designed to get the consumer in the door to get them emotionally tied to buying a new home or the cash out that can come from refinancing.  To get to the bottom of this, let's examine three phrases which are commonly thrown around in mortgage advertising and often confuse the public:

• No Cash to Close-this just means that any costs associated with the loan are financed into the new mortgage (no adjustment to rate)
• No Fee Mortgage-this often means the lender waives its upfront fees, but has the consumer pay for the appraisal, title, and transactional taxes (slightly higher rate)
• True No Closing Costs-the lender pays all costs associated with the transaction (significantly higher rate)

These are all legitimate ways to structure the financing of a real estate transaction. The first is quite commonly done.  The only drawback in doing so is that the consumer will be charged interest on those costs over the life of the loan.  The second two involve having the lender increase the rate offered to the consumer to make the loan more profitable for sale on the secondary market. This profit then can pay for some or all of real estate transactional fees for the consumer.  Which combination is best?  Of course, the one that costs the consumer the least amount of money to secure the house and the loan!

First, let's break down the costs of a real estate transaction into costs that won't change and costs that are variable.  The costs that won't change are appraisal, title fees, transactional taxes, and deposit of initial funds into the hazard insurance/property tax escrow account.  These should be very similar with each bid you get.  The two things that CAN vary significantly are the rate and here is the key to this--fees to the broker/lender.  They are called a number of different things--application fee, broker fee, origination fee, discount points, etc.  Sort out the third party fees and total the fees to the lender.  These give you the cost of getting the rate.

Let's remember, rates and upfront lender fees on a real estate transaction have an inverse relationship.  When one goes up, the other goes down.  So, what you and your clients have to decide is which combination of rates and fees make sense to keep both the cost of the transaction and the cost of holding the loan as low as possible.  This relates to timeline.  How long will your or your client hold the loan.

And here lies the guessing game.  How long are you or your clients going to hold this loan?  Remember--life happens--divorce, job transfer, better schools district.  The fact is, most consumers are moving more--about every 7 years.  The average life of a loan is about half of that!  However, each consumer's situation is different and the lender's profit is typically unaffected by each of these scenarios.

Take the transactional costs associated with each mortgage offer and divide it by the cost savings monthly of taking the lower rate.  This will give you the number of months to break even in each case.  If you or your client is planning to hold the loan longer than the break even point, they will be then saving money monthly after that point.

The other thing to consider her is products' availability and lender's risk.  These tie to the fine print you see on the bottom of all mortgage ads.  These ads again offer quite a low interest rate for consumers that fit neatly into a box with all positive lending criteria that decrease a lender's risk of doing a home loan.  Positive lending criteria include low loan to (house) value, good credit/assets, measurable job history and income.  If you or your clients don't fit neatly into that box, it helps to know a good mortgage consultant who can think ahead through the underwriting process and make sure the rate quoted at the start of the process matches the liability level of the overall file.  This insures no surprises during the verification process and final rate offer from the lender.  As well, a good mortgage consultant will always present you or your clients with the best way to structure their financing cost based upon the consumers various lending criteria (income/assets/credit/equity position) and estimated timeline for how long they plan to hold the loan.

Generally speaking, improvements that increase the market value of a property will increase the appraiser's estimated market value.  The following are typical improvement that will increase the estimated value of your property:

• Added rooms or garages
• Substantial moderization of kitchens or baths
• Central air conditioning
• Fireplaces
• Decks
• Extensive remodeling

New paint, professionally done neutral decor, and landscaping are often cited as ways to increase your listing price if you are selling.  I've seen it happen.  Although it may not effect the appraised price of your home, it doesn't hurt. 

Remember, if you are remodeling or fixing up the house for resale, keep things neutral.  This may insure that a greater number of people will like the new rooms, etc.  If you plan on staying for awhile, go ahead and paint that bathroom red!  

Some improvements don't necessarily add to your homes value.  New water heater, roof, porches or steps, plumbing or electrical.  Homes are supposed to have these in working order.  Again, however, a combination of these all done at once can be attractive to a buyer and can improve the price you get for a home you are selling.      

By guest Dian Hymer

Few homeowners cheer when home prices soften, but a soft market can actually benefit homeowners who have been waiting for a prime time to move up to a larger home or to a more expensive home in a better neighborhood.

Let's say home prices declined 10 percent in your area during the past year. This decline affected all price ranges equally. So, if you owned a house that was worth $600,000 last year, it would be worth only $540,000 today.

However, if the trade-up home you hoped to buy was out of reach financially at $1.5 million, you can now buy it at a discounted price of $1.35 million. Although you lost $60,000 in value on the home you want to sell, you'll pay $150,000 less on the home you want to buy. So your transaction costs will run $90,000 less than they would have a year ago.

This sounds great on paper. However, there are several variables to consider before forging ahead. In the first place, the depreciation rate may not be equal across all price ranges. In many areas the low end of the market has been disproportionately hurt by the recent subprime mortgage fallout.

Depending on where you live, you could find that your house has lost more than 10 percent in value, particularly if it's in a housing development with lots of unsold inventory and a high foreclosure rate. A trade-up home in the same area could have held its value better than your low-end house, making it more, not less, expensive to trade up this year.

Another factor is that the middle price ranges -- the prime move-up segment of the market -- has been plagued with financing difficulties since the credit crunch hit in August 2007. Jumbo loans -- for amounts over $417,000 -- generally have a higher interest rate and more stringent lending criteria.

According to DataQuick Information Services, approximately 57 percent of the home loans issued between January and July 2007 in Alameda County in the East San Francisco Bay Area were jumbo loans. In October 2007, the percentage of jumbo loans in Alameda County dropped to about 36 percent. Jumbo financing may become easier to obtain when investors regain confidence in the home mortgage business. Until then, trading up is fraught with difficulties in the current market.

HOUSE HUNTING TIP: For years, trade-up buyers have preferred to buy their new home before selling the old one. Today, it's easy to make an argument that the more prudent way to make a trade-up move is to sell your home first before buying a new one. In addition to more rigorous financing qualification, it's difficult to know in advance how long it will take to sell your home and for how much. The inconvenience of renting for awhile may be far less onerous than the financial misery you could experience if you buy first and discover you can't sell your old home.

Back in the soft market of the 1980s, some trade-up buyers who bought first ended up having to sell the trade-up home they'd just bought because they were unable to sell their old home. In one case, the trade-up buyer ended up moving back into the house that she'd hoped to sell, forfeiting the $50,000 she'd spent on buying the new home, which included the cost of interim financing.

THE CLOSING: There will be plenty of opportunities to buy good properties at fair prices in the current market. Just make sure that you don't jeopardize your financial security in doing so.

Dian Hymer is author of "House Hunting, The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide," Chronicle Books.