Great Article Regarding Saving Your Home!!!

Searching the Internet for foreclosure prevention services and knowing what websites and companies to trust is like finding a needle in a hay stack. There are many good companies out there but there also scam artists/ sharks that just want to feed on people when they are vulnerable. So how does someone find legitimate organizations to help them? The best bet is to go with a non-profit HUD approved Housing Counseling Agency. There are also for profit organizations that are really good and have been successful in helping people deal with their mortgage companies and perform successful loan workouts and loan modifications. Be proactive and make the calls you need to make and network with legitimate organizations. Avoid investor advice or I’ll buy your home schemes. They only profit from you losing your home.

A loan workout is an agreement that is negotiated with your current lender that changes the terms of your current loan. Lenders are willing to negotiate when borrowers are facing financial difficulties and can’t obtain other financing alternatives. You must show the lender why it would be in the lender’s best interest to agree to a workout arrangement. If convinced, a lender may be willing to reduce the loan interest rate, reduce monthly payment amounts or change other loan terms.A loan modification generally occurs where the parties to a problem loan mutually agree to workout the problem by creating new and better loan terms. The hope is that the new loan will enable to the borrower to meet their obligations.When applying for a loan modification, make a game plan on how exactly you are going to approach them. These people are trained in minimizing loss for their company and they get paid to by getting the most amount of money out of you as possible or declare that your case is un-workable and foreclose on you. That is how they mitigate loss. If you understand this, then you’ll know that you have to approach them and all conversations very carefully. Everything can and will be used against you.

Items You Will Need When Applying For a Loan Modification AND Foreclosure Pevention Services Document income and expenses. Keep all correspondence (even the envelopes) Before negotiating a deal, gather all the information you need, starting with any correspondence from your lender. That includes anything that you have unopened from the lender. Don’t throw away envelopes from the servicer — postmarks sometimes can make the difference between being eligible or ineligible for relief. Collect everything that relates to income and expenses. Find your last four pay stubs. They want to see at least one month of income. If your income is very sporadic, the support your story by showing how you’re getting paid so we can calculate an average over time. Gather at least three years worth of W2s and tax returns, plus three to six months of bank statements. Find all the mortgage paperwork and add that to the file. Pull together all bills, paid or not, from the times you were falling behind on the house payments until now. Include utilities, auto payments, credit cards, student loans, child support, medical bills. Find the winter and summer heating and cooling bills. You need to also include everything that documents why you fell behind. An employer’s notification of reduced hours or a layoff, an invoice for an auto repair or a furnace replacement, a shutoff notice from a utility.

What to Do When You Call Your Lender: Your lender has two platoons of employees who talk with delinquent borrowers. The first is the collections department, which consists of people who try to pry money out of you and get you current on the payments. The second group consists of the loss mitigation specialists. These departments go by different names, depending on the servicer, including foreclosure prevention, loan resolution and delinquency customer service. We’ll use the most common name for the department: loss mitigation, or loss mit. It can be difficult to get through to the loss mitigation department if collection agents are discouraged from transferring calls. This is one of the benefits of having a helper, such as an attorney or a housing counselor. The first will intimidate bill collectors and the second might have contacts within the loss mit department.The trick with any bank and getting a work out done is learning to navigate their phone system so as to increase your chances of getting a live person. Over the years Ive learned some tricks that help, sometimes you hear options that you know will lead to a person like when it says “to speak to a representative press ___” but sometimes they don’t give you these options (cricket wireless is the worst at this) so you have to think, what options WOULD get a live person. For example often anything that involves new clients signing up will get a live representative…cause they always want new business. You have to be a little savvy though, you cant just tell the sales guy you called them so you could get a warm body to answer the phone! Once you get a live person, you want to be working your way up to a decision maker. This is sometimes harder to do for a homeowner than a 3rd party. Often with the homeowner they get stonewalled at the first level, and sadly the first tier in Loss Mitigation is really a glorified collections department. They are paid hourly employee’s who have very little if not zero motivation to go the extra mile and help you get some needed comfort and relief while resolving your problem. Often they just compound the problem by being rude and demanding, telling people things like “just pay your bills”. So its essential that you get beyond these people and to a specialist. Sometimes to get to this point you have to put up with the hourly employee’s through a process of filling out their forms and information. Providing them with items such as pay stubs, tax returns and a whole host of financial information. Once everything is provided, then some lenders will assign the file to someone higher up in the loss mitigation department.

The MOST crucial element to this whole process is your Budget and if you have dome your due diligence, you’ll be ready . They will ask you for a detailed list of your monthly expenses. If its too tight, you may not get approved, if you have too much extra income you are going to have an outrageous payment plan. Don’t agree to it! The 2nd MOST important thing you can do with foreclosure prevention services is DO NOT SPEND YOUR HOUSE PAYMENTS. Often people stop making their payment because they are falling behind on other bills, or they can't quite make the whole house payment. Over the years more often than not, the people I met with still have an income coming in each month, they just cant meet all their obligations, so while the house is falling behind they take advantage of the fact that they aren’t paying the house payment in order to catch up on other debts. THIS IS NOT WISE AT ALL. Sock away as much of that money each month as you can. Its crucial, here's why;If you don’t pay your mortgage for 3-4 months and your lender decides to negotiate a repayment plan or a loan modification, then they will want what is called “good faith” money for you to come to the table with. Typically this is from 30-75% and sometimes 100% of what you owe in delinquent fees and attorney fees. Often I speak with homeowners who spend all their money and have nothing to work with. If that is the case, then don’t expect them to work with you or you better have a REAAAALLLY good explanation and proof as to why you have no money to bring to the table. We all know life throws curve balls at us, its the nature of the game, you’d better just expect it, cause its coming in one form or another. Whether it be a car breaking down, an illness, injury or death. An accident in a car, you just don’t ever know and its ALWAYS a good idea to have a rainy day fund. The crazy thing about going into foreclosure is that you can actually come out of it better off than you went in sometimes.

Is it Better to Just Walk Away and Start Over? Many homeowners are just in over their heads when the seek assistance form foreclosure prevention services. Many they love their home and their family does too. But what good is it when you are so stressed out that you cannot enjoy your home. Your maxed out and you don’t have a dime to take the kids for an ice cream or the movies. That’s no way to live. This is a serious time to really sit down and see if it’s all really worth the stress and heart ache. If it’s not then maybe it’s time to just throw in the towel and down size. Get something you can afford and enjoy. Just close the door on this time in your life and move on. Sure, it will affect you for years, but place your health and well being before making a house payment. If this is you, you’re not alone. Think about it. Is it all really worth the pain and stress? You’re already down, maybe it’s time to just move on and take that money and get a nice little place to rent and regroup. By saving up your payment for 2-3 months or more depending on the foreclosure time line in your state, you can not only have enough to put together a really nice plan with your lender, but also have some in the bank for a rainy day or worse case scenario, a rental. Often payment plans with the bank can be pricey and very short terms, like 6 months total to repay what you fell behind on. The people I have worked with who took my advice to save up and keep some funds in the bank, were successful 100% of the time at keeping their home. Because they were prepared for life’s curve balls. Even though they had fallen behind in the past, if they had an expense one month, they just pulled a little from the slush fund in the bank to help supplement their house payment that month.The Lender Has Made You a Deal, What Now? Respond to your lender, but don’t be rushed into making a promise that you can’t keep. Before making a deal with your lender, describe your situation to an attorney, accountant or a knowledgeable mortgage person. You need to make sure that it is reasonable and not an agreement that will stop foreclosure for a month or two.Many lenders are likely to offer a forbearance. Theses are only good for a short term band aid and not for the long term. Most commonly, this entails adding a set amount to each month’s payment. A forbearance plan can go as long as 36 months. But many are set to fail and are completely unreasonable for borrowers to pay back. Usually this will require placing the delinquent amount on top of your monthly mortgage payment. If you had trouble making your mortgage payment before, good luck paying your new larger more unaffordable payment.If all else fails, seek out a third party to handle this for you. There are many non-profit housing counselors, attorneys and for profits that are very experienced in loan modifications and loan workouts. Plan to arrive at an agreement, but prepare for the unwelcome news that you’ll have to move out. If you turn over the deed in lieu of foreclosure, or agree to a short sale (in which the lender lets you sell the house for less than the mortgage balance), or are forced out in a foreclosure action, you’ll need to consult a lawyer and maybe an accountant. Don’t give up and fight to stop foreclosure and save your home! If all efforts fail, it’s not the end of the world. Just make sure that you mitigate loss to you and do your best to save what little credit you have left.The most important thing to remember is if you need help then seek trusted foreclosure prevention services ASAP! Good Luck!

Moe Founder & Homeowner Advocate LoanSafe.orgLoanWorkout.org 951-271-6283 Phone 800-734-8819 Fax Moe at LoanSafe.org Email

Loss Mitigation Departments Can Help!

The following article by Joseph Chatham, as featured at http://www.glgroup.com/News/Loss-Mitigation-Efforts-are-Key-to-Foreclosure--Soft-Landing--10058.html , briefly touches on the benefits, motivations, and necessity of "Loss Mitigation" efforts by lenders. I encourage my readers to read the article and, if your are falling behind in your mortgage payments, to contact the Loss Mitigation Department of your lender. TMA features a static "box" on the right hand side of the page providing numerous lenders' loss mitigation department phone numbers. Please see the number of options Mr. Chatham writes about and talk to your CPA, attorney, and your loss mitigation counselor to figure which option is best for you and your family. TMA will work on getting details of each option for it's next few articles.

MortgageMaster

"Loss Mitigation is a process too few understand and that all involved with the mortgage world should become well acquainted with. Effective Loss Mitigation efforts will definitively change the face of this "crisis". Loss Mitigation and the renewed efforts of loan servicers to minimize foreclosures is a much needed breath of fresh air. While all the analysts are searching for the best short plays or the next opportunity for their respective hedge funds, this writer contends that the more powerful and creative the loss mitigation departments, the softer the foreclosures impact on the overall market, and the stronger the recovery of the companies involved. The downward spiral created by the self-fulfilling prophecies of foreclosure doom can be greatly alleviated, and to a great extent stopped, by screaming from the rooftops, "we can try to work this out". Unfortunately, the media loves to focus on the everything bad. As a keenly aware mortgage broker (specializing in sub-prime and Pay-Option-ARM's, nonetheless), I have yet to hear a positive piece on servicers' efforts to help borrowers stay in their homes. Remember, everyone loses in a foreclosure! The clients lose their home. The investors lose. The evil lenders' images are tarnished. Home values suffer. And, lastly, the overall markets decline. NO ONE WANTS TO FORECLOSE. Lenders are eager to help where it makes sense. So, in fact, are non-profits, municipalities, and maybe, some states or the Federal government. Encouraging borrowers to contact their lenders early and proactively may be a huge part of the solution. Unfortunately, most borrowers will not contact their servicers for fear of "tipping them off" and triggering foreclosure activity. If borrowers were to contact their servicers can offer a slew of opportunities to help:

-Loan Modification (called Recast for FHA)
-VA Loan Modification (VA loans only)
-Forbearance
-Deed in Lieu of Foreclosure
-Short-sale
-Partial Claim
-Repayment Plan(s)"

Joseph Chatham
President
Chatham Street Mortgage Services
http://www.chathamst.com/
1-866-4CHATHAM

Subprime Loans = Egalitarian Opportunities

The Following article (published March 20, 2007: http://www.glgroup.com/Council-Member/Joseph-Chatham-138496.html ) by Joseph Chatham brings up the unpopular notion that many borrowers, not all, may bear some responsibility for the loans they took. Although dated, I think it is a good article that brings up the oft overseen benefits of subprime lending; namely, opportunity for tens of thousands of borrowers heretofore unable to access the mortgage monies.

MortgageMaster


"The recent reaction of the media in regards to the subprime “implosion” that we are hearing about is both potentially dangerous to our economy and oftentimes based on half-truths and misinformation. Take the recent headline from USA Today’s Money Section (Friday, March 16, 2007), titled “Some Subprime Woes Linked to Hodgepodge of Regulators“, as an example ( http://www.usatoday.com/money/economy/housing/2007-03-16-subprime-usat_N.htm ). The main gist of the article may be correct: perhaps some uniformity should be required in lending regulations. It is the supporting story that positions the brokers and lenders in a totally negative light that hit home with this writer.

In this article, we visit a disgruntled and “duped” buyer, Andy Sobel, who claims he did not know that he was placed into a interest-only mortgage by his mortgage broker, who, it is inferred, insidiously changed companies sometime after Mr. Sobel‘s loan closed. Furthermore, the lender would not renegotiate the loan (a process called “loss mitigation”) until after Mr. Sobel’s loan turned adjustable and he was three months behind. Mr. Sobel is now in foreclosure because he cannot afford the new payment which followed the two-year fixed-rate “teaser” period.

The journalist who wrote this piece, Noelle Knox, goes on to essentially lambaste the lending industry for shoddy practices and misleading consumers with creatively named “liar loans“, “teasers“, etc. Let’s review some of the half-truths that Ms. Knox and USA Today are putting out there and why, by extension, the media is partially responsible for the “crisis“ we are witnessing:

Mr. Sobel is clearly a bright man, as he is a community organizer for non-profits and he is savvy enough to research and write Rep. Barney Frank, D-Mass., the chairman of the House Financial Services Committee. Aside from the sympathy we feel for Mr. Sobel, and anyone losing their homes to foreclosure, we have to wonder why the author was not up-front about the circumstances that lead to people like Mr. Sobel borrowing subprime mortgages: Poor credit? No/low down payment? Inconsistent work history? “Creative” tax preparation? Etc.? Subprime borrowers created the circumstances that made them subprime borrowers in the first place. The brokers and lenders did not force these borrowers to become subprime.
If we were to listen to the recent media hype and vitriol aimed at the subprime lending world, we would be inclined to completely erase the personal responsibility and accountability of the borrowers and fault the mortgage brokers and subprime lenders for preying on innocents.
At the very least, is the expectation that borrowers read their loan documents asking too much? Are all subprime borrowers unable to “shop” their loans? Can it be that 20% of the borrowing public, or 100% of the sub prime borrowers, is totally duped by the subprime industry? Let us assume that personal responsibility is tossed aside and that the subprime lending world is to remain the focus. Are these lenders the evil, profit-grubbing, and irresponsible predators that the media has painted them to be?

Certainly the principles of lending have been liberalized over the past several years. The four “C’s” of lending; credit, collateral, capacity and character have turned into risk-based models and pricing based on four other letters, FICO. People with high credit scores receive the best rates and programs. People with low credit scores, despite other factors, are relegated to the world of “alt-A” or subprime. Since the infusion of “Wall Street” money incarnated as Mortgage Backed Securities, starting in the latter half of the 1980’s, lenders are not as beholden to FDIC requirements. There are now hundreds of subprime lenders versus a few consumer finance companies in the past. The lending market has been flush with capital. This oversupply of money spurred competition and more liberalization in an effort to get the capital working. Investors willing to take on a little more secured risk with subprime borrowers earned a better yield. Borrowers were willing to pay more to borrow money that was heretofore unavailable to them. It is called the free market and it greatly benefited both parties. Like all markets, however, cycles are inevitable. Dare I say desirable?

The recent softening of the real estate market brought this symbiotic relationship to an end. Prior to the past eighteen months, however, subprime lenders, in fact, have given the opportunity to tens of thousands of subprime borrowers to become homeowners and enjoy all the benefits of home ownership: appreciation, tax deductions, pride of ownership and a roof over their heads. With the exception of the past 18 months, most of these borrowers greatly benefited from more liberal underwriting standards. Many of these borrowers actually listened to their mortgage advisors and “cleaned” up the circumstance(s) that forced them into the subprime category in the first place. These same borrowers, often from the lower and lower-middle classes, refinanced their homes into “A” paper loans and are now sitting on more assets than they ever would have had it not been for the opportunities that subprime mortgages offered! The subprime mortgage provided an entrée into the “American Dream”.
To blame brokers and lenders for providing a loan product in a hot real estate market is like blaming stock brokerages for margin lending during a bull market. The lenders, like the stock brokerages, are providing a product, called leverage, which may greatly benefit the client if applied correctly. If a borrower pays only $5000. 00 in closing costs to purchase a $300,000.00 home and that home appreciates 5%, or $15,000.00, in the course of one year, the client earned 300% on their investment. Yes, they made monthly payments, but they also had a roof over their head and received generous tax deductions as homeowners! Unlike the margin accounts, however, real estate loans have no “margin calls” when the underlying security, the house, goes down in value. The “margin call” on a home loan only becomes due upon sale of the home or default of the payment. In other words, as long as the borrower makes the mortgage payments, they can keep the investment. Alas, here lies the problem.

Mr. Sobel, the borrower from the USA Today article, may be one of thousands who tried to “play the market”: leveraged purchase, low teaser payment, and the hopes of double-digit appreciation. If this gamble worked, as it had for tens of thousands before, this speculative buyer would have made a pretty penny for a nominal investment. Where are the success stories? The gamble did not work, however, for most of the highly leveraged buyers of the past eighteen months, prime or subprime. The difference is that the prime borrowers probably took out longer term loans (>2 years). Subprime loans are designed to provide a reasonable payment for two years while the borrower works on becoming a prime borrower. The USA Today article called these “teaser” rates rather than allow that the low payments bought time for the subprime borrowers until they could clean up their proverbial acts. Prime loans, if not 30 year, fixed-rate loans, are usually five, seven or ten year loans, with a thirty year payments. The prime loans will most likely miss any market corrections as they are longer term and require no immediate action. Prime borrowers can afford to wait the market out. The two year loans, with low initial rates and payments, and often with interest-only payments are the ones causing all the headaches Journalist Knox refers to.

Sub-prime loans often adjust after two years: they are no longer interest-only payments based on a low interest rate. The subprime loan becomes a fully amortized adjustable rate mortgage with rates and payments considerably higher than the one the subprime borrower has become accustomed to. If they did not put down a large down payment and property values remained the same or went down, the subprime borrower’s only choices to make the new payment, renegotiate, or walk from the house.

If they can afford the new payment, great! How about renegotiation?

The horrible lenders that would not negotiate with our Mr. Sobel are simply following normal protocol. How are you supposed to negotiate a loan that is not behind? Simply change the terms? It would simply be too easy for borrowers to call and say “I cannot afford this loan! Please renegotiate!” This option would put all the burden and negative consequences on the lender, not the person who chose to take the loan in the first place. Renegotiation, or loss mitigation's, requires that the borrower still be able to make the payment on the negotiated loan, still at higher rate than the prime loans available, but perhaps a workable solution. Loss mitigation efforts may be the saving grace of this “crisis”: keeping people in homes, less short sales, less depreciation, etc. What about the foreclosure option?

Short sales and foreclosures can certainly affect real estate values. I contend that foreclosures are not the bigger threat, but that the overreaction of regulators and legislators is far more of a threat to both the real estate markets and the American Dream.

Ms. Knox contends that a bevy of federal and state regulators supervise lenders. She is correct in this, but is only half correct with some facts; for example, in California, brokers can lend under a Department of Real Estate or a Department of Corporations license(s). However, regional and national differences may necessitate having different regulatory agencies supervising different types of lending or different types of corporate structures. This article is not to rebut Ms. Knox’ contention regarding regulatory agencies.

Assuming the figures shared in USA Today are correct (and, I believe they are), 20% of borrowers in 2006 were subprime borrowers. What we do not know is what percentage of that 20% are two year adjustable, what percentage of that 20% are above 80% loan-to-value, and what percentage of that 20% will have to walk away from their homes. The borrowers that are in real trouble are those who borrowed 100% of the purchase price, greatly exaggerated their incomes, borrowed two-year money, borrowed in the last 18 months and have not improved their credit scores. What percentage of the 20% of subprime borrowers is that? Countrywide(NYS:CFC) recently reported a 19% default on its subprime servicing portfolio. If Countrywide(NYS:CFC)’s numbers are any indicator of the overall default rates, than we can construe that subprime loan defaults represent about 3.8% of all loans. Overall. 3.8% is hardly the crisis that our friends in the media would have us believe. It is, however, the front page, top-of-the-hour news reporting that drives our friends in Washington DC to create over-reactive policy. Exposure-hungry and love-to-create-a-national-crisis-out-of-an-industry-problem congress may choose to severely limit the ability to lend to borrowers with “challenges. Thus, eliminating 20% of our home buyers. THIS IS A REAL THREAT.

Foreclosures, while much higher than in recent years past, are still moderate. Compared to the past few years, the foreclosure rates seem off the charts. Who, however, would allow a foreclosure in the red-hot real estate market of the past seven years? Foreclosures were nearly non-existent. A mild increase would, in percentage-terms, look like a huge increase.

Lastly, Wall Street has rightfully hung many of the subprime lenders out to dry. The only issue is that many of those same funding sources are the ones that were feeding the habit. Lending standards have already tightened substantially in the past several weeks, probably blocking out those who should not have borrowed in the first place. Lenders such as New Century, Fremont and many others will pave the way for more sound lending practices with their headstones. Chances are a few may rise again given their cheap cost and vulnerability to takeovers. Perhaps loans will become less expensive with the Wall Street lending the money directly? Either way, the lenders who chose to lend without regard to sound lending principles are gone or are taking their lumps. The market has corrected its imbalances and we will see it flush-out the problems.
New products and loss mitigation vehicles will replace a good number of the “bad” loans in the market and by August, 2009, most of this mess will be solidly behind us. Thank goodness!"

Pay Option ARMS: A Ticking Time-bomb?"

Article by Joe Chatham, President, Chatham Street Mortgage Services ( http://www.glgroup.com/Council-Member/Joseph-Chatham-138496.html )

Pay Option ARM’s: A Ticking Time-bomb?

As this article states, the past few months have seen a literal implosion of the sub-prime lending markets. New Century, Fremont, ResMAE, Ameriquest, OwnIt, Encore, and Option One are only a few of the well-known companies whose subprime lending divisions are either dead or on life support. If not for opportunistic investment firms acquiring some lenders or providing greatly needed infusions of cash, and if not for some lenders seriously curtailing their lending practices, we may have witnessed the death of the industry as we know it. It will take some time before we see it arise from it's own ashes, but it will. There is simply too much money to be made with good subprime loans. In the meantime, the originators on the street will tell you that despite ample subprime originations and despite lenders advertising subprime lending, there is nobody out there actually funding the loans...at least the ones that NEED to be funded. Higher underwriting standards, fear, and values may eliminate 10-15% of the buying/refinancing public from the mortgage markets. Until underwriting equilibrium is reached, regulatory bodies satisfied, public confidence restored and values stabilized we will witness a virtual halt in subprime lending. Despite the scary prospects of the aforementioned, there may be a larger problem looming in the background: Pay-Option ARM’s.
The Pay-Option ARM was formerly known as the “Neg Am” loan. Any first-year marketing executive on Madison Avenue can tell you that anything starting with “negative” is not positive. The industry threw some make-up on an old pig and renamed it the “Pay-Option ARM.” In the past five years one would have thought that a new product was invented which allowed a client to buy a million dollar home and have the payment of a $400,000.00 home! The Pay-Option solution was, and is, particularly attractive given the soaring housing prices, the need for flexibility, and consumers’ need to further charge-up their unsecured credit debt (tongue-in-cheek)! The Pay-Option allows many borrowers to do all the above and more! As long as homes are appreciating at a double-digit clip every year, the self-styled arbitrageurs are winning…as are developers, mortgage lenders, brokers, and the overall real estate markets.
The only catch is that you will owe up to 125% of your original balance. Wow! Option ARM's are Negative Amortization loans!
The risk of owing more than you borrowed is fine if the borrower understands the risk, is in an appreciating market, can afford the “re-cast” payment, and has the stomach to watch the negative amortization happen month-to-month.
Unfortunately, many of the aforementioned qualities of the ideal neg am borrower (oops, there I go again!), the Pay-Option borrower, are not present on the loans written in the past several years. Lenders, brokers, and Realtors were selling a panacea to the high priced real estate markets; buy a high priced home and have low payments! Unfortunately, there were many unqualified buyers.
The Pay-Option ARM actually offers great solutions for the appropriate borrowers: borrowers whose incomes vary month-to-month, borrowers with income properties, savvy investors, etc. The Pay-Option is actually one of the best loans on the market (I have it on all my properties!), but the way it has been marketed is wrong. Thus, the Pay-Option lenders may be sitting on a time-bomb that’s ready to blow if a number of variables line up: unqualified borrowers, high ( C)LTV loans, depreciating real estate values, and rapid or low re-casts (ie: FED’s 110%).
There is hope, however! Given that most re-casts are at about five years, many borrowers from Q3/Q4 of 2002 through Q2 of 2005 may have the appreciation to get refinance into another loan. The borrowers after Q2 of 2005 may be able to sit out the current real estate “correction”. After all, they should not re-cast until 2010 or 2011. Let us hope, for all of our sakes, that real estate values have bottomed-out (doubtful), that the MTA/LIBOR/COFI/CODI have seen their highs (maybe), that the non-sophisticated neg am borrowers (let’s call it what it is!) will start earning what they falsely claimed (hopefully), and that these same borrowers will start saving (not a chance in hell). Oh well, I guess we may be in this for a while. To be continued…

Bush, Bernanke, BandAids & Bloodletting

Article by Joseph Chatham, President, Chatham Street Mortgage Services, Published September 7, 2007: http://www.glgroup.com/Council-Member/Joseph-Chatham-138496.html

"While I believe the quickest (and bloodiest) solution to this crisis is to let the markets do their mayhem, the proposals and talk, thus far, of President Bush and Chairman Bernanke may provide a a much-needed salve for the jittery markets. The proposals, however, are nothing more than the equivalent of putting a (re)cast on your pinky-finger to fix a broken ARM (pardon the pun...I could not resist). I applaud Bush and Bernanke for calming market nerves with tough talk and baby BandAids. The actions, for the most part, of these two men give the appearance of actually doing something while, in fact, allowing the markets to find equilibrium without rewarding bad behavior. I do have concerns that some of the proposals may, however, worsen the crisis.In fact, one of the proposals may be particularly onerous for the mortgage and real estate markets. The idea to temporarily suspend tax liabilities on short-sales may actually prompt fence-sitters to short-sell instead of keeping their homes. Thus, perpetuating the foreclosure crisis...and thus lowering real estate values. Clearly, if borrowers cannot afford to make their mortgage payment, they cannot afford to pay the taxes on a short-sale. With Bush's proposal, the government will solve the aforementioned dilemma, but they will definitely offer the borrower an easier escape than trying to meet their mortgage obligations. Good politics, bad policy. While, I disagree with the idea of taxing a loss, it is this tax that makes many people "stick it out" and weather the storm.Other mortgage holders may find that they are upside-down and, despite the fact that they can afford the mortgage, they can simply walk away from a bad investment with only a bad credit blemish: "Do I want a credit blemish or do I want to lose $100k while making mortgage payments along the way?" HMMMM? Again, without a consequence of measure, keys will be thrown back to lenders.Increasing FHA availability and lending limits makes sense, particularly in higher priced states like California, New York, Alaska, Hawaii, and Massachusetts. The existing limits should be raised not to $417k, however, but rather to a more realistic number; perhaps $600k? This step alone would allow borrowers in some of the states who are suffering the most in this crisis to put up the good fight by allowing them to refinance or purchase. Thus , eliminating many foreclosures and bolstering an anemic purchase market. FHA is long overdue these changes despite the recent market meltdown. It is a shame that it has taken a crisis to kick these proposals around.Whether or not Bernanke lowers rates should be driven by his overall view of the economy and inflation...not simply the mortgage markets. It is my belief that, if left alone, without rate cuts and policy changes, the lenders would be very creative with their loss mitigation efforts and lending products in an effort to soften the existing crisis.Bush and Bernanke have made laudable efforts at easing our nerves, but it is going to take a lot more bloodletting for this market to hit equilibrium. As I have predicted before, we are probably in for another 20% decline in values before things start to turn around.

A Letter From Santa Claus

I thought a little Christmas cheer and humor would be great during these weird times! Have a wonderful holiday!

MortgageMaster

By Jim Oberweis, The Oberweis Report Santa Claus


My dear Alyssa Bernanke:

I have received and read your special Christmas letter sent Nov. 1. I am so happy to learn, after thinking about your wishes, that you already know the true meaning of Christmas.

Click here for a 30-day free trial subscription to the Oberweis Report.

I know from your letter how much you want to help your father. I have to admit your letter was a challenging one, and I agree your pops has a difficult job. It took me a long time to understand the words you used--inflation, recession and subprime, for example. These are words not often found in Santa's letters.

As for the part about American dollars, well, with this I have some understanding. All around the world, kids don't want dollars this year. At first I was not sure I could help your father. While I am great at guiding Rudolf and Blitzen, economies are another matter. But after I thought it over, I realized that we've learned a lot up here at the North Pole over the years. Please humbly accept these ideas and send my best to your father, Mr. Ben Bernanke:
No. 1: When we make too much of something, nobody wants it anymore. My elves love candy canes. One year I thought I would give them each 1,000. By the end of the season, they were so sick of candy canes no elf would even trade broccoli for them. This sounds like the problem you described with dollars. My recommendation to your dad on dollars: The more he prints, the less people will want them.

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No. 2: When things are free, or almost free, people are wasteful. You told me about his problem with interest rates. I can tell you how it works with children. Kids love toys, but some children have more toys than they need. Kids with more toys than they need don't play with each toy. Some of the toys are wasted; some are even lost. Kids with very few toys usually choose them wisely and take good care of them. My recommendation to your dad: Be careful about letting those interest rates drop too fast. If it's too easy to get money, wasteful spending will surely follow. It's easy to keep kids happy in the short run by giving them lots of toys, but too many toys leads to wastefulness and potential losses over time.

No. 3: Naughty kids only learn when they have to face consequences. I never like to give any child a lump of coal, though coal is worth a lot more than it used to be. Even so, it is still a good way to get the kids to think before they act. If they thought they would get a gift no matter what, we'd have a lot more naughty kids. I'm not sure, but this lesson seemed to fit well with your "subprime" situation. It sounds like those banks were very, very naughty. And some of the people who chose those adjustable-rate loans need to learn that the easy way is not always the best. Even Santa Claus can't always be popular.

No. 4: This year's winners will not be next year's. Every year, parents and kids go wild about a few of my elves' new products. They sometimes forget how many other wonderful gifts come out of my workshop. But I've noticed that over time, the craziness over those top few popular toys goes away. Kids begin to remember their old favorite toys again and begin to trade. Our favorite toys sound like your description of emerging markets. Today, everybody loves them. But maybe your daddy does not have to worry as much as he thinks. Things will change again. Indeed, there's nothing like a nasty November to brighten Christmas spirits. It's better than after-Christmas sales!

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Don't tell anyone, but even I've got my eye on Hasbro (nyse: HAS - news - people ). Heck, given the level of the dollar, I'm even sending some elves back down to America for sourcing.
So, my Alyssa, my Christmas gift to you is this: When times seem bleak, when your confidence is low, when nobody else seems to want you, these are the times when your opportunity is best. So jump on your sleigh! And wait for the day! Just wait, just wait, it will all be OK. Look for the time, and the time may be near, when the time for stocks to be bought will be here.
Remember my cookies, my dear young lady, and have a Mer-r-r-r-r-y Christmas!
With warm regards, your loving Santa Claus

Jim Oberweis, CFA, is editor of the Oberweis Report. Click here for a 30-day free trial subscription.

Fed Would Allow Reckless Lending To Continue, Says Center For Responsible Lending

The Center For Responsible Lending, a well intentioned consumer protection group, has issued the following statement regarding the Fed's proposed actions regarding potentially new restrictions in lending. Please see TMA's article "The Fed's Proposal To Tighten Up Lending", dated December 19, 2007. To restate TMA's position:

1. Prepayment Penalties are a valuable tool that allow borrowers to get loans, get lower rates, and/or to reduce or lower closing costs. While TMA admires the Center For Responsible Lending's mission, to protect the consumer, we feel "The Center" is eliminating tools that can and do help the very constituency they wish to protect. If PPP's are eliminated, lenders will jack up rates to accommodate for their risk and clients will pay additional fees for the higher rates...or not borrow at all.
2. We definitely advocate forthright disclosure of YSP, but not the elimination of this valuable tool: to eliminate this loan feature would hurt the borrower by eliminating valuable and necessary loan options ("Zero Point Loans", broker credits, low fee loans,). In fact, you will find that many lenders will not touch low loan amounts, at all. Instead, upfront disclosure of how much a broker wants to make on a loan (ie-1.5 points) and how he will earn the 1.5 points (ie-1 point from borrower, .5 point from lender) should keep the broker objective. "I am going to make 1.5 points on this loan. I do not care how I am paid, by you or the lender. Here are your options.....".
3. In that it is vague, the verbiage about "pattern or practice" of lending to those without the ability to repay can certainly be tougher. TMA suspects that the verbiage is vague to avoid an onslaught of individual lawsuits in which the lenders, to a huge extent, practiced good lending standards. To prosecute lenders for some bad decisions, without displaying a "pattern or practice" would cause lenders, in an effort to never make a bad underwriting decision, to create such rigid and inflexible lending standards as to virtually halt the lending markets...and thus, the real estate markets. Remember, lending is still a subjective business decision and not all of those decisions, even in the best of worlds, are going to be correct. "Compensating factors" also make seemingly questionable underwriting decisions good. Given the subjectivity of these decisions, to be able to prosecute based on one (or relatively few) loan is unfair. Given the financial lashing that the lending industry taking, TMA's guess is that the same lenders, if they survive, will be far more cautious about who they lend to.
4. Proof of income. It is impractical to require proof of income and assets for MANY BORROWERS: Self-employed, W2'd commissioned employees with uncompensated business expenses, certain ethnic borrowers who work in the "underground" economy, etc. Again TMA understands that abuses that have taken place need to be dealt with but many of the proposals are "throwing the baby out with the bathwater".
5. TMA COMPLETELY disagrees with "The Center" regarding the impounding of property taxes and insurance. This proposal is "nanny-state" policy at its worst. TMA would be shocked to hear of any significant percentage of home buyers who did not know that they are expected to pay property taxes and home owner's insurance premiums. Borrowers must also be accountable for some things. Even if an irresponsible lender failed to note that these items will be due, shouldn't a borrower ask? To babysit all borrowers by requiring impounds is ridiculous. "The Center" says that the the one-year opt out will diminish the policy's effectiveness. What? In case they still don't know that they have these obligations? If a person, after one year, does not know that they have taxes and insurance, something is very wrong. Otherwise, everyone should be able to opt out if they are below 80% LTV (common industry parameters).

MortgageMaster

WASHINGTON, Dec. 18 /PRNewswire-USNewswire/ -- The Federal Reserve
Board (FRB) is uniquely positioned to restore confidence in the housing
market because it is the one federal agency with the authority to set
standards for all home loan originators. Unfortunately, the proposed rules
issued by the FRB today represent yet another missed opportunity for the
agency to rein in practices that have hurt millions of American families.
The FRB's rules are riddled with loopholes. Rather than eliminating the
root causes of the subprime foreclosure crisis, which in turn would
encourage a truly competitive market for home loans, the FRB's proposal
permits many dangerous subprime lending practices to stand. An unregulated
market has led to irresponsible lending practices where lenders often don't
even assess ability to repay. The resulting high rate of foreclosures due
to this abusive lending may well bring this country into recession -- yet
the FRB has chosen to issue rules that leave out many loans or will be
unenforceable.
For years, mortgage lenders have operated on an uneven playing field:
Banks and other depository institutions are supposed to abide by sensible
lending rules, even though regulators haven't always enforced them. Finance
companies that often specialize in subprime loans don't even have basic
guidelines to follow. It is hard to fathom why the government gives a
competitive advantage to one set of lenders over another when both have
helped produced this epidemic of unsustainable loans. Rather than
correcting perverse incentives to engage in reckless lending, the FRB
proposed rules are extremely weak in the three most important areas it
considered:
Prepayment penalties. Prepayment penalties on subprime mortgages trap
families in bad loans or penalize them for improving their credit record.
Rather than banning this "exit tax" on all subprime loans, the FRB only
limits penalties slightly on adjustable-rate mortgages, and otherwise
allows prepayment penalties to remain effective for five full years, with
no limit on their size.
Yield-spread premiums: In the subprime market, prepayment penalties and
kickbacks to mortgage brokers ("yield-spread premiums," compensation to
mortgage brokers for signing up borrowers for higher interest loans when
they qualify for a less expensive loan) go together. The Fed's proposed
rule leaves yield-spread premiums intact by simply requiring written
disclosure -- which unscrupulous lenders can easily bury among the myriad
disclosures and paperwork already required.
Ability to repay. The current mortgage crisis is largely due to lenders
making loans to families without ensuring that the borrowers can afford
them. The FRB is proposing rules they have previously issued in regulatory
guidance to depository lenders, but they have made this rule virtually
meaningless for most subprime lenders since the rule will not be
enforceable. Victims will be required to show that the lender made
unaffordable loans not only to him or her, but also in a "pattern or
practice" to other borrowers -- a standard of proof that makes it very
difficult to win a case even when violations have been flagrant. The FRB
acknowledged this very point in a report to Congress in 1998, when it said:
"As a practical matter, because individual consumers cannot easily obtain
evidence about other loan transactions, it would be very difficult for them
to prove that a creditor has engaged in a "pattern or practice" of making
loans without regard to homeowners' income and repayment ability." Further,
even this weak standard does not even apply to non-traditional loans such
as payment option ARMs.
On two other issues, the FRB's proposal is somewhat better:
Verification of income. The rules represent a step forward by
addressing that lack of documentation of income that has caused significant
payment problems on subprime loans, but the FRB failed to extend this rule
to non-traditional mortgages, even when a borrower could easily provide a
W-2 form or other proof of their income. This loophole defies common sense.
Escrow of taxes and insurance. A common deceptive lending practice is
to market loans with an artificially low monthly payment by excluding
mandatory tax and insurance costs. While we applaud the FRB's proposal to
require the escrow of taxes and insurance for subprime loans, we are
concerned that this sensible rule would not also apply to non-traditional
mortgages, such as payment option adjustable-rate mortgages, and the fact
that there is a one-year opt-out will reduce its effectiveness.
The Center for Responsible Lending is continuing to analyze the
proposed rules and may have further comments in the near future, and we
will submit formal comments to the FRB in March 2008. Meanwhile, these
proposed rules highlight the importance of pending legislation in Congress
to assist homeowners with subprime mortgages who are facing foreclosure
today and strengthen consumer protections that will protect homeowners with
subprime loans in the future.
About the Center for Responsible Lending
The Center for Responsible Lending is a non-profit, non-partisan
research and policy organization dedicated to protecting homeownership and
family wealth by working to eliminate abusive financial practices. CRL is
affiliated with Self-Help (http://www.self-help.org/), one of the nation's
largest community development financial institutions. For more information,
please visit our website at
http://www.responsiblelending.org/issues/mortgage/.

The Fed's Proposal To Tighten Up Lending Standards

Dear Readers and Bloggers,


The recent rash of proposed regulations and legislation regarding the mortgage industry is dizzying! It goes to demonstrate the sort of mishmash of oversight that mortgage lenders, brokers and conduit lenders have dealt with in the past! Perhaps, as it has been suggested many times recently, we need to get all these agencies together with professionals from the lending industry and create a uniform code that avoids confusion and diluted oversight. In the meantime, however, I will try to address each set of new proposed or enacted regulations as they come. Please read the respective statements of Chairman Bernanke and Fed. Governor Kroszner's : http://www.federalreserve.gov/newsevents/press/bcreg/bernankehoepa20071218.htm and

http://www.federalreserve.gov/newsevents/press/bcreg/krosznerhoepa20071218.htm

This full press release from the Fed, http://www.federalreserve.gov/newsevents/press/bcreg/20071218a.htm , is a pretty simple synopsis of what Chairman Bernanke and his brethren are proposing to prevent the current crisis from happening again.


The Fed is allowing 90 days for "Public Comment" and will then tinker with the proposal as it deems fit. I am hopeful that all of my readers will read the information carefully and and recognize both the positives and the negatives. It is important that all of you contact the Fed with your comments and concerns at:

http://www.federalreserve.gov/generalinfo/foia/usr_agrmt.cfm?url=ElectronicCommentForm.cfm?doc_id=R-1305%26doc_ver=1%26name=Regulation Z - Truth in Lending%26date=20071218a

The following is the text of a Fed press release entitled "Highlights of Proposed Rule to Amend Home Mortgage Provisions of Regulation Z" as released by the Fed on December 18, 2007. Please note my comments/analysis in YELLOW CAPS.

"The proposal would establish a new category of “higher-priced mortgages” that should include virtually all subprime loans. (Higher-priced mortgages would be those whose annual percentage rate (APR) exceeds the yield on Treasury securities of comparable maturity by at least three percentage points for first-lien loans, or five percentage points for subordinate-lien loans.) The proposal would, for these loans:

*Prohibit a lender from engaging in a pattern or practice of lending without considering borrowers’ ability to repay the loans from sources other than the home’s value. EXCELLENT.

*Prohibit a lender from making a loan by relying on income or assets that it does not verify. THIS CAN REALLY HURT LENDING AND REAL ESTATE SALES. WHILE I UNDERSTAND THE ABUSES THAT HAVE OCCURRED IN LENDING, THE FED IS NOT CONSIDERING HOW MANY OF THESE "SUBPRIME" BORROWERS ARE ACTUALLY SELF EMPLOYED, HAVE GREAT CPA'S, GREAT WRITE-OFFS, AND LOW BOTTOM LINE EARNINGS! IF WE CURTAIL THE ABILITY OF THE SELF EMPLOYED TO BORROW BY LIMITING THEM TO DEBT RATIOS BASED ON NET INCOME, WE ARE LIMITING THEIR PURCHASING POWER. THE PROPOSAL DOES NOT INDICATE IF COMPENSATING FACTORS ARE TAKEN INTO CONSIDERATION. FOR EXAMPLE, A BORROWER CLAIMS $10,000.00 IN INCOME, BUT HIS NET INCOME REFLECTS $7,000.00 PER MONTH. THE SAME BORROWER, HOWEVER, HAS $300,000.00 IN ASSETS IN THE BANK AFTER PUTTING DOWN 30% ON A PURCHASE. THE BORROWERS CREDIT IS A BIT "DINGED-UP" BECAUSE HE OWNS HIS OWN BUSINESS AND HAS TAKEN SOME HITS IN THE PAST. BASED ON THIS PROPOSAL, THE BORROWER LOSES ROUGHLY $1,200.00 A MONTH IN ABILITY TO PAY ($3K X .40 =1200) OR $200,000.00 IN PURCHASING POWER! IT IS CRITICAL THAT "STATED" PROGRAMS STAY IN PLACE. REQUIRING COMPENSATING FACTORS (SAVINGS, LTV, ETC), THOROUGH UNDERWRITING PROCEDURES, ALTERNATIVE FORMS OF INCOME VERIFICATION, ETC., CAN ALLOW THESE PROGRAMS TO STAY INTACT WHILE MINIMIZING ABUSE.

THERE ARE MANY, MANY SELF-EMPLOYED BORROWERS AND THIS PART OF THE PROPOSAL WILL REALLY AFFECT THEIR ABILITY TO BORROW AND, CONSEQUENTLY, THEIR ABILITY TO PURCHASE/REFINANCE HOMES. THIS IS NOT GOOD FOR THE REAL ESTATE MARKET.

*Restrict prepayment penalties only to loans that meet certain conditions, including the condition that the penalty expire at least sixty days before any possible payment increase. THE CONDITIONS HAVE NOT BEEN CLARIFIED. THE PURPOSE OF THE PREPAYMENT PENALTY (PPP) IS TO INSURE THAT THE LENDER MAKES A CERTAIN YIELD. YES, THE PPP CAN BE ADDED TO A LOAN TO LET THE LENDER RECOUP MONIES THAT THE LENDER PAID THE BROKER IN EXCHANGE FOR A HIGHER INTEREST RATE. THE PPP CAN ALSO BE APPLIED BECAUSE THE LENDER GAVE THE BORROWER A BETTER INTEREST RATE AND WANTS TO MAKE SURE THEY STAY IN THE LOAN FOR A WHILE, THUS INSURING AN ADEQUATE RETURN. THE PPP CAN BE APPLIED IN ORDER THAT THE BORROWER CAN DO A "NO POINT, NO FEE" LOAN. THE PPP CAN BE APPLIED TO HELP THE BORROWER MAXIMIZE THEIR DOWN PAYMENT BY WAY OF BROKER CREDITS. AS YOU CAN SEE, THE PPP CAN WORK FOR OR AGAINST THE BORROWER. BY POTENTIALLY DISALLOWING THE PPP, THE FED IS FORCING LENDERS TO RAISE RATES (TO INSURE DESIRED YIELDS). THIS PROPOSAL WILL REMOVE SOME KEY DECISION-MAKING OPTIONS FROM THE BORROWERS IN ADDITION TO LOWERING THE LOAN AMOUNTS BORROWERS CAN QUALIFY FOR. AGAIN, NOT NECESSARILY A GOOD THING FOR THE BORROWERS, THE LENDERS, OR THE REAL ESTATE MARKET.

*Require that the lender establish an escrow account for the payment of property taxes and homeowners’ insurance. The lender may only offer the borrower the opportunity to opt out of the escrow account after one year.

THIS IS RIDICULOUS. BORROWERS OUGHT TO BE ABLE TO DECIDE WHETHER THEY WANT THEIR MONEY IN THEIR ACCOUNTS EARNING INTEREST OR IN AN ESCROW ACCOUNT. TRADITIONALLY, IF THE LOAN AMOUNT IS OVER 80% LOAN-TO-VALUE, THE LENDERS HAVE REQUIRED IMPOUNDS. THIS PROPOSAL IS OVERKILL.

The proposal would, for these and most other mortgages:

*Prohibit lenders from paying mortgage brokers “yield spread premiums” that exceed the amount the consumer had agreed in advance the broker would receive. A yield spread premium is the fee paid by a lender to a broker for higher-rate loans. GREAT. THE CALIFORNIA "MORTGAGE LOAN DISCLOSURE STATEMENT " ALREADY DOES THIS. IT IS A GOOD IDEA TO ADD TO THE HUD "GOOD FAITH ESTIMATE".

*Prohibit certain servicing practices, such as failing to credit a payment to a consumer’s account when the servicer receives it, failing to provide a payoff statement within a reasonable period of time, and “pyramiding” late fees. EXCELLENT.

*Prohibit a creditor or broker from coercing or encouraging an appraiser to misrepresent the value of a home. EXCELLENT.

*Prohibit seven misleading or deceptive advertising practices for closed-end loans; for example, using the term “fixed” to describe a rate that is not truly fixed. It would also require that all applicable rates or payments be disclosed in advertisements with equal prominence as advertised introductory or “teaser” rates. EXCELLENT.

*Require truth-in-lending disclosures to borrowers early enough to use while shopping for a mortgage. Lenders could not charge fees until after the consumer receives the disclosures, except a fee to obtain a credit report." EXCELLENT.

I am concerned that, in an effort to protect the consumer, the Fed is drafting good politics and bad policy. Unfortunately, most government entities know little about the finer points of the businesses that they regulate. The lending industry is taking some very serious blows (fatal for many!) and is losing billions of dollars. The viciousness and efficiency of the market will naturally create the necessary changes to lending. I believe that the survivors are already changing or have changed their procedures to reflect a more responsible and ethical lending environment. For the most part, I do not believe too much government involvement will help the matters. That being said, the lenders cannot expect a bailout, either.

How To Read Your Credit Bureau

Dear Readers and Bloggers,

The following article by Melanie Cossey is a simple yet comprehensive explanation on how to read a credit bureau. The first step is, of course, to order a copy of your credit ratings from the three major bureaus: TransUnion, Experian (formerly TRW), and Equifax. Please go to the archives and see the article on "How To Get Your Credit Bureaus For Free" dated December 11, 2007 for more information on obtaining your copies. Please note my comments, in YELLOW CAPS, throughout this article.

MortgageMaster


"Comprehending a Credit Report" by Melanie Cossey

Obtaining a credit report is an excellent way to begin taking control of your financial future. It's recommended that you review your credit report once a year, not only to be aware of your standing with creditors but to also keep abreast of errors and fraud. AS A MORTGAGE PROFESSIONAL, I HAVE REVIEWED THOUSANDS AND THOUSANDS OF CREDIT BUREAUS OVER THE LAST COUPLE OF DECADES. JUST AS OFTEN AS NOT, THE OFFENDING CREDIT ITEMS (CALLED LINE ITEMS) ARE IN ERROR. SIMILARLY-NAMED DEADBEATS MAY BE CORRUPTING YOUR SCORE, POORLY EXECUTED CAR TRADE-IN'S BY THE DEALER, MEDICAL BILLING ERRORS, AND ANNUAL FEES NOT COLLECTED ON ZERO BALANCE CREDIT CARDS ARE AMONGST THE WORST OFFENDERS. IT IS CRITICAL TO STAY ON TOP OF YOUR CREDIT RATINGS: THEY ARE FRAUGHT WITH ERRORS! However, once your report arrives you may have trouble making sense of it. How are you to read and understand a credit report?

There are three major credit reporting agencies that issue credit bureau reports; Experian, TransUnion and Equifax. It is recommended that you obtain reports from all 3 credit report agencies as they most likely contain varying information since creditors subscribe to agencies on a purely voluntary basis. The credit reports provided by each of the different bureaus may present somewhat differently but generally speaking the information will be broken down in much the same way. There are four main parts to the credit report: personal profile, credit history, public records and inquires. Check each section carefully for any errors. Note any errors you may discover on a separate piece of paper as you read over your report. Personal Profile: At the top of the credit report you will find all your basic information such as your full name, current and previous addresses and employers, social security number, and date of birth. Your spouse's name may also appear if applicable. In addition, you may notice several variations of your name listed. This can occur when creditors record the information incorrectly. These discrepancies are usually left on your credit report. It is important however, to ensure that your address is correct. An incorrect address could alert you to a possible identity theft. Credit History: The next section is your credit history. This provides you with an itemized list of your current active, past closed accounts and their balances or arrears. Listed first is the name of the creditor and your account number for each bill--sometimes the account numbers may appear partially obscured for security purposes. These debts could include real estate mortgages, credit cards, car loans, or medical bills. There will be a column for identifying the nature of the account; Joint, Individual, Undesignated, Authorized User, Terminated, Maker, Co-signer or Shared. There will also be a notation of the date when the account was opened, number of months the account payment history has been reported and date of last activity. The report will show your high credit limit or the maximum you are allowed to borrow, if applicable. There is a column for Terms which indicates the number of instalments or monthly payments remaining on the account.The next few columns will show the balance remaining on the account, any past due amounts and the status of the accounts.

There are two types of accounts; instalment and revolving. An Instalment account means that there are fixed payments and a specific ending date, such as with a car loan. A revolving account is one with no fixed ending date as with credit card debts. Creditors like to see few revolving debts.The credit report will indicate the different types of accounts and also may assign it a numerical ratings system. You may see such symbols as R1, R2, R3 or I1, I2, I3.The R or I indicates Revolving or Instalment and the numbers indicate the payment history of the account as follows;

0- account hasn't been used yet (OR DID NOT REPORT THAT MONTH)
1- paid as agreed
2- 30 plus days past due
3- 60 plus days past due
4-90 plus days past due
5- 120 plus days past due
7- Collection account or bankruptcy
8- Repossession or foreclosure
9- Charged off or bad debt

The credit report will also show a record of any debts that have been turned over to a collection agency. It will show the date the collection was reported, the name of the company handling the collections and the company or lender that the loan was originally issued with and the balance remaining on the account.

"Public Records": These are reports obtained from local, state and federal courts. They will indicate records of bankruptcies, tax liens and monetary judgments. Overdue child support records may also be shown. These public records will remain part of your credit history for seven to ten years and reflect negatively on your total credit score.

"Inquiry Section": This section reveals any parties that have obtained a copy of your credit report over the last two years. There are generally two types of inquires, hard and soft. A hard inquiry is one initiated by you, whenever you apply for a loan or fill out a credit application. A soft inquiry comes in three forms; companies that wish to offer you promotional applications for credit, current creditors that are monitoring your account or credit bureau inquires requested by you, the consumer. These soft inquires do not show up on credit reports that businesses receive, only on copies provided to you. Although many lenders will view too many inquiries on your report as negative, it is important to note that two or more 'hard' inquires within a 14 day period count as just one inquiry (ONLY IF FOR AUTO OR MORTGAGE FINANCIANG. UNSECURED CARD INQUIRIES STILL COUNT FOR EVERY INQUIRY).

"Credit Score": The credit report can also reveal your credit score. A credit rating scores is a means of calculating an individual's credit risk to determine how likely they would be to make good on a loan. The score is a three digit number ranging between 300 and 850. The higher your score, the better it reflects on you as a borrower. A good credit rating score will enable you to negotiate for better interest rates.

Disputes. What if you should find an error on your credit report? Once you have discovered an error, contact the credit bureau that issued the credit report and state in writing what you found to be inaccurate. You will find the contact information listed at the top of your credit report.The credit reporting companies must reinvestigate the claim within 30 days. They will then contact the party that submitted the item and attempt to resolve the dispute as quickly as possible. Remember, you have the right under the Fair Credit Reporting Act to dispute any inaccurate or fraudulent information that may appear on your credit report, and should do so in a timely fashion.Once you learn to read and understand a credit report, you are moving towards a more secure financial future. Obtain your report today!

President Bush's Speech Re: "The Mortgage Crisis"/COMMENTS

Hello Readers and Fellow Bloggers,

I have included the text of President Bush's recent speech regarding the mortgage crisis along with my own analysis in YELLOW CAPS. Please feel free to write in any questions that you may have. In the meantime, if you try to call the helpline, 1-888-995-HOPE, you may be disappointed; the operators are not familiar with the plan and offer only generalized ideas. I will address this later on in the article.

"Good afternoon. Before turning to the situation in the housing market, I send my sympathy to the families of those murdered in Omaha, Nebraska, yesterday. I was in Omaha just before the shooting took place, and I know what a difficult day it is for that fine community. The victims and their loved ones are in the prayers of Americans. The federal government stands ready to help in any way we can. And our whole nation grieves with the people of Omaha.

I just had an important discussion on the housing market with Secretary Paulson, Secretary Jackson and members of the mortgage industry.

The housing market is moving through a period of change. THIS IS VERY OBSERVANT, MR. PRESIDENT! "PERIOD OF CHANGE" IS A NICE EUPHEMISM FOR FOR AN "ALMOST COMPLETE MELTDOWN", HOWEVER. In recent years, innovative mortgage products have helped millions of Americans afford their own homes — and that's good. Unfortunately, some of these products were used irresponsibly. Some lenders made loans that borrowers did not understand, especially in the subprime sector. Some borrowers took out loans they knew they could not afford. And to compound the problem, many mortgages are packaged into securities and sold to investors around the world. So when concerns about subprime loans begin to mount — began to mount — uncertainty spread to the broader financial markets.

Secretary Paulson and Secretary Jackson and Chairman Bernanke are monitoring developments in the housing market and working to limit the disruption to our overall economy. Data released this morning confirmed the difficulties facing the housing market. Yet one reason for confidence is that the downturn in housing comes against a backdrop of solid fundamentals in other areas — including low inflation, a healthy job market, record-high exports. TRUE. America's economy has proved itself highly resilient — and it is strong and it is flexible and it is dynamic enough to weather this storm. NATURALLY AMERICA'S ECONOMY WILL WEATHER THE STORM. THE QUESTION IS HOW LONG IS THE STORM AND HOW SEVERE.

For individual homeowners, the problem is more difficult. Many of those feeling financial stress have an adjustable rate mortgage, which typically starts with a lower interest rate and then resets to a higher rate after a few years. Many of those borrowers cannot afford the higher payments. And now some are fearing foreclosure — which is a terrible burden for hardworking families and a source of concern for entire communities and neighborhoods across our country.

The rise in foreclosures would have negative consequences for our economy. Lenders and investors would face enormous losses. So they have an interest in supporting mortgage counseling and working with homeowners to prevent foreclosure. DISTRESSED BORROWERS READ: LOSS MITIGATION SHOULD BE INTERESTED IN NEGOTIATING AND KEEPING YOU IN YOUR HOME! LENDERS READ: FLEXIBILITY AND COMPASSION MAY HELP ALLEVIATE YOUR OVERBURDENED REO DEPARTMENTS. EVERYTHING I AM HEARING FROM DISTRESSED BORROWERS IS THAT THE LENDERS ARE BEING DIFFICULT. HOPEFULLY, THIS WILL CHANGE, AS IT IS NECESSARY TO HELP SMOOTH THE PATH OF RECOVERY.

The government has a role to play as well. IDEALLY, NOT. NECESSARILY, PROBABLY. We should not bail out lenders, real estate speculators or those who made the reckless decision to buy a home they knew they could never afford. Yet there are some responsible homeowners who could avoid foreclosure with some assistance — and in August, I announced a series of targeted actions to help them. My administration has moved forward in three key areas.

First, we've launched a new initiative at the Federal Housing Administration called "FHA Secure." This program gives the FHA greater flexibility to offset refinancing to homeowners — to offer refinancing to homeowners who have good credit histories but cannot afford their current payments. In just three months, the FHA has helped more than 35,000 people refinance. And in the coming year, the FHA expects this program to help more than 300,000 families. GOOD START, BUT RAISING THE FHA LIMITS TO $600,000.00 WOULD HELP A HUGELY SIGNIFICANT LARGER AMOUNT OF BORROWERS. AS IS, THIS IS MOSTLY "THROWING MAKE-UP ON A PIG" AS MY GRANNY USED TO SAY. RAISING THE LIMITS WOULD ALSO HELP IN THE "HIGH PRICED" STATES WHERE FORECLOSURE RATES ARE AMONGST THE HIGHEST IN THE NATION (ie: CA, FL). PER AN E-MAIL I RECEIVED FROM FROM SENATOR BARBARA BOXER (CA-D), CALIFORNIA IS ESTIMATED TO HAVE APPROXIMATELY 500K FORECLOSURES OUT OF AN ESTIMATED 2MM, NATIONALLY! THE GOLDEN STATE FULLY REPRESENTS 1/4 OFF ALL FORECLOSURES!

Second, in August, I asked Secretaries Paulson and Jackson to work with lenders and loan servicers and mortgage counselors and investors on an initiative to help struggling homeowners find a way to refinance. They assembled a private sector group called "HOPE NOW Alliance" — their leaders are with us today. HOPE NOW is an example of government bringing together members of the private sector to voluntarily address a national challenge — without taxpayer subsidies or without government mandates. I'm pleased to announce that our efforts have yielded a promising new source of relief for American homeowners.

Representatives of HOPE NOW just briefed me on their plan to help homeowners who will not be able to make the higher payments on their subprime loan once the interest rates goes up — but who can at least afford the current, starter rate. HOPE NOW members have agreed on a set of industry wide standards to provide relief to these borrowers in one of three ways: by refinancing an existing loan into a new private mortgage, by moving them into an FHA Secure loan, or by freezing their current interest rate for five years. ASIDE FROM MY CONCERNS ABOUT THE LEGALITY OF INTRUDING INTO INVESTMENT VEHICLES (MBO, CDO'S, ETC.); ASIDE FROM MY CONCERN ABOUT INTRUDING INTO GENERALLY FREE MARKETS; ASIDE FROM MY CONCERN THAT WE ARE REWARDING BAD BEHAVIOR (BY NOT ALLOWING THIS TO RUN ITS NATURAL AND LOSS-FRAUGHT COURSE); I AM CONCERNED THAT IF THE BORROWERS CANNOT AFFORD THEIR PAYMENTS NOW, WILL THEY BE ABLE TO AFFORD THEM IN FIVE YEARS? ARE WE POSTPONING THE INEVITABLE ANOTHER FIVE YEARS...ONLY TO FIND OURSELVES IN THE SAME POSITION IN 2012-2013? THE HOPE , I SUPPOSE, IS THAT BORROWERS WILL BE EARNING MORE AND THAT VALUES WILL HAVE APPRECIATED IN THE NEXT FIVE YEARS AND ALL WILL BE SOLVED. BLOODY THOUGH IT MAY SOUND, ADAM SMITH'S "INVISIBLE HAND" MAY BE MORE EFFICIENT AT TURNING THIS MARKET AROUND IN A SHORTER TIME FRAME AND WITH GREATER EQUILIBRIUM THAN GOVERNMENT INVOLVEMENT.


Lenders are already refinancing and modifying mortgages on a case-by-case basis. With this systematic approach, HOPE NOW will be able to help large groups of homeowners all at once. This will bring more relief to more homeowners more quickly. HOPE NOW estimates there are up to 1.2 million American homeowners who could be eligible for this assistance.

Public awareness is critical to this effort, because the group can only help homeowners who ask for it. So HOPE NOW recently mailed hundreds of thousands of letters to borrowers falling behind on their payments, and they have set up a counseling hot line that Americans can call 24 hours a day. I've directed Secretaries Paulson and Jackson to expand the public awareness campaign. And I have a message for every homeowner worried about rising mortgage payments: The best you can do for your family is to call 1-800-995-HOPE. That is 1-800-995-H-O-P-E. (FYI: THE CORRECT NUMBER IS 1-888-995-HOPE). THIS PART IS NOT TOTALLY CLEAR. THE PRESIDENT SAID THAT "...LETTERS HAVE BEEN SENT OUT TO BORROWERS FALLING BEHIND ON THEIR PAYMENTS..." BUT, ACCORDING TO TWO SEPARATE COUNSELORS AT 1-888-995-HOPE, ONE OF THE CONDITIONS FOR "RE-LOCKING" THE BORROWERS' RATES IS THAT THESE BORROWERS MUST BE CURRENT ON THEIR MORTGAGE PAYMENTS!? IF THIS CONTRADICTION IS CORRECT, AND BORROWERS MUST BE CURRENT, THEN MANY OF THE PEOPLE WHO NEED HELP NOW MAY NOT BE ELIGIBLE TO GET IT (AND A LOT OF MONEY WAS WASTED ON POSTAGE TO THOSE WHO "BORROWERS FALLING BEHIND ON THEIR PAYMENTS"!).



THE GIST OF THE PROGRAM IS THIS:



1) THE BORROWER NEEDS TO BE CURRENT ON YOUR MORTGAGE (STILL NOT CLEAR).

2) THE LOAN MUST HAVE BEEN CLOSED BETWEEN 1/1/05 AND 7/31/07.

3) THE LOAN MUST RE-CAST BETWEEN 1/1/08 AND 7/31/2010


BEYONG THESE VERY BASIC CONDITIONS, THEY ARE SUGGESTING THAT BORROWERS CONTACT THEIR LENDER'S LOSS MITIGATION DEPARTMENTS. I ALSO WANT TO NOTE THAT FOR THOSE WHO HAD 2/28'S (TWO YEAR FIXED) THAT WERE ORIGINATED BETWEEN 1/1/05 AND 12/31/2005 WILL NOT BE ELIGIBLE FOR THIS PROGRAM! THUS, A SIGNIFICANT PORTION OF THOSE WHOSE LOANS HAVE RECAST IN THE PAST YEAR (2007) ARE NOT ELIGIBLE. I GUESS IS THAT THESE BORROWERS ARE ALREADY BEING "WRITTEN-OFF"?



Third, the federal government is taking several regulatory actions to make the mortgage industry more transparent, reliable and fair. Later this month, the Federal Reserve intends to announce stronger lending standards that will help protect borrowers. At the same time, HUD and the federal banking regulators are taking steps to improve disclosure requirements — so that homeowners can be confident they are receiving complete, accurate and understandable information about their mortgages. GOOD. DISCLOSURE IS ALWAYS GOOD AS LONG AS ALL LENDERS (lenders, brokers, etc.) ARE ON THE SAME PLAYING FIELD AND HELD TO THE SAME STANDARD. UNFORTUNATELY, OUR LEADERSHIP, BY WAY OF HR3915, VOTED TO ALLOW BANKS TO NOT DISCLOSE HIDDEN "REBATES" WHILE REQUIRING BROKERS TO DO SO. IN FACT, BROKERS, IN SOME CASES, CANNOT TAKE REBATE, BUT DIRECT LENDERS MAY CONTINUE TO DO SO...WITHOUT DISCLOSURE. THIS IS UNFAIR.

As we take these steps, the Department of Justice will continue to pursue wrongdoing in the banking and housing industries so we can help ensure that those who defraud American consumers face justice. WILL THE GOVERNMENT ALSO PERSUE THE BORROWERS WHO KNOWINGLY BENT THE RULES?

These measures will help many struggling homeowners — and the United States Congress has the potential to help even more. Yet in the three months since I made my proposals, the Congress has not sent me a single bill to help homeowners. If members are serious about responding to the challenges in the housing market, they can start with the following steps. POLITICAL JAB. NOT ENTIRELY TRUE: HR3915 PASSED TO TRY AND HELP. HR3915 IS MOSTLY POOR POLICY, BUT IT MAKES FOR GOOD POLITICS!

First, Congress needs to pass legislation to modernize the FHA. ABSOLUTELY!!! In April 2006, I sent Congress an FHA modernization bill. This bill would increase access to FHA-insured loans by lowering down payment requirements, allowing the FHA to insure bigger mortgages in high-cost states, and expanding FHA's authority to price insurance fairly, with risk-based premiums. EXCELLENT! AGAIN, A HIGHER, MORE REALISTIC, LENDING LIMIT ($550 TO $600K) WOULD GREATLY INCREASE LIQUIDITY AND ALL BORROWERS' ABILITIES TO GAIN ACCESS TO QUALITY MORTGAGES. This bill could allow the FHA to reach an additional 250,000 families who could not otherwise qualify for prime-rate financing. Last year, the House passed the bill with more than 400 votes, and this year, the House passed it again. Yet the Senate has not acted. The liquidity and stability that FHA provides the market are needed more than ever — and I urge the United States Senate to move as quickly as possible on this important piece of legislation. TOTALLY AGREE!

Second, Congress needs to temporarily reform the tax code to help homeowners refinance during this time of housing market stress. Under current law, if the value of your house declines and your bank forgives a portion of your mortgage, the tax code treats the amount forgiven as taxable income. When you're worried about making your payments, higher taxes are the last thing you need. The House agrees and recently passed this relief with bipartisan support. Yet the Senate has not responded. This simple reform could help many American homeowners in an hour of need and the Senate should pass it as soon as possible. ALTHOUGH I DISAGREE WITH PAYING TAXES ON LOSSES, IN GENERAL, THE TAXATION ON SHORT SALES HAS HISTORICALLY MOTIVATED DISTRESSED HOMEOWNERS TO DO WHATEVER WAS NECESSARY TO KEEP THEIR HOME. WITH THIS PROPOSAL, THE ONLY THING HOLDING THE DISTRESSED BORROWERS FROM MAILING IN THEIR HOUSE-KEYS IS RUINING THEIR CREDIT. "BAD CREDIT? FEED MY KIDS? HMMMM? WHAT SHOULD I DO?" THIS WILL INCREASE FORECLOSURES. ASIDE FROM THAT, I THINK THIS IS A GOOD IDEA: PEOPLE WHO CANNOT AFFORD THEIR PAYMENTS CANNOT AFFORD A HUGE TAX LIABILITY.

Changing the tax code can also help state and local government do their part to help homeowners. Under current law, cities and states can issue tax-exempt bonds to finance new mortgages for first-time home buyers. My administration has proposed allowing cities and states to issue these tax-exempt mortgage bonds for an additional purpose: to refinance existing loans. This temporary measure would make it easier for state housing authorities to help troubled borrowers — and Congress should approve it quickly. GREAT IDEA!

Third, Congress needs to pass funding to support mortgage counseling. Nonprofit groups like NeighborWorks provides essential service by helping homeowners find affordable mortgage solutions and prevent foreclosures. My budget requests nearly $120 million for NeighborWorks and another $50 million for HUD's mortgage counseling programs. Congress has had these requests since February, yet it has not sent me a bill and they need to get the funding to my desk. WHY NOT LET THE LENDERS HANDLE THIS? THEY HAVE A VESTED INTEREST IN FIXING THE PROBLEM.

Fourth, Congress needs to pass legislation to reform Government Sponsored Enterprises like Freddie Mac and Fannie Mae. These institutions provide liquidity in the mortgage market that benefits millions of homeowners, and it is vital they operate safely and operate soundly. So I've called on Congress to pass legislation that strengthens independent regulation of the GSEs and ensures they focus on their important housing mission. The GSE reform bill passed by the House earlier this year is a good start. But the Senate has not acted. And the United States Senate needs to pass this legislation soon. AGREED.

The holidays are fast approaching and, unfortunately, this will be a time of anxiety for Americans worried about their mortgages and their homes.

There's no perfect solution, but the homeowners deserve our help. And the steps I've outlined today are a sensible response to a serious challenge. I call on Congress to move forward quickly, and join me in delivering relief to homeowners in need — so we can keep our economy healthy and the American Dream alive.

God bless. "

HOW TO GET YOUR CREDIT BUREAUS FOR FREE

As an experienced mortgage professional with almost two decades of originating under my belt, I can assure any of our readers that being proactively aware of your credit is half the battle in getting a good mortgage. I pull my own credit twice per year, without all the fees, and occasionally find errors that I need to correct. If you are applying for a purchase loan and are in escrow, IT MAY BE TOO LATE TO CORRECT ISSUES! Do not wait! Instead, pull your credit regularly, fix it (if necessary), and become aware of the triggers that are used for credit scoring. The following article, by Wesley Atkins, is an easy read with simple directions. Get your credit reports and if you have any questions, please feel free to contact the MortgageMaster!


Article by Wesley Atkins

Wesley Atkins is the owner of http://www.credit-cards-advisor.com/ - which aims to get you fitted with the best credit cards to suit your situation. With numerous credit card articles and easy online credit card applications you will never choose the wrong credit card again.

"The Easy Way To Gain Access To Your Free Online Credit Report "

When you apply for credit, those lending you the money want to know if you are going to pay them back. One way they decide if you are a good risk is to see how you’ve dealt with other people’s money. They find this information in your credit report.

Your credit is reported to three main credit bureaus and these bureaus then rate you. If you are planning to apply for credit, it would seem that knowing what is being said about you would be a good idea. This way, you can take care of any problems and be aware of them before you begin.

It’s Easy

Getting your hands on your credit report is easy. All you need to do is call the number of the credit bureau and follow their directions:

Equifax Options P.O. Box 740123 Atlanta, GA 30374-0123 http://www.equifax.com

Experian Consumer Opt Out P.O. Box 919 Allen, TX 75013 http://www.experian.com

Trans Union Name Removal Option P.O. Box 97328 Jackson, MS 39288-7328 http://www.transunion.com

However, it is even easier to do online. Simply go to the listed website and get started. Here are a few things you will need:

# Full name – this includes middle, maiden, Jr., Sr.

, and III, etc

# Social Security number – you must have one in order to do this online

# Driver’s license information – your DL number plus state

# Current address and your address within the last five years – if you have had more than one in the last five years, you will need to have each of them

# Date of birth

# Signature – for online requests, you will have to type your name and follow their instructions

# Home telephone number

# Employer – if you are employed

# Credit Card or Debit Card to pay the fee – it is usually $8 to $10

Coming Free to Your Area Soon

Beginning in December 2004, you will be able to get a free yearly copy of your credit report. Then getting your credit report will be even easier. Instead of having to go to the three major bureaus, you will be able to go to a centralized source with a toll free number or a website.

Schedule for Phasing In Access to Free Credit Reports:

December 1, 2004: Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington, and Wyoming.

March 1, 2005: Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota, and Wisconsin.

June 1, 2005: Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Mississippi, Oklahoma, South Carolina, Tennessee, and Texas.

September 1, 2005: Connecticut, Delaware, District of Columbia, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, Vermont, Virginia, and West Virginia, Puerto Rico, and all U.S. territories.

Getting your credit report online is easy and getting easier all the time. It is in your best interest to check out your credit reports yearly so that you can check for errors, and recognize problems quickly enough to correct them.

Reprinted with permission from http://www.articleus.com/ - Free articles and blogs"