Yearly Archive for 2010

When does an $11 charge cost $4,500? When it's an old medical bill, that's when. Mortgage brokers and lenders are reporting that these tiny amounts, often bills the homeowner is completely unaware of, are costing people the chance of refinancing to a lower mortgage rate or are adding thousands to the fees.

Here's a typical case: The homeowner goes to the doctor and is told that she will be billed for any balance after both of her insurance companies pay their share. Months go by and the doctor visit is completely forgotten. As if often the case, the medical billing form drops the ball, and the doctor's office changes firms. Two years later, the third billing firm's computer kicks out a statement that never makes its way to the homeowner. It turns up years after the fact when the homeowner applies for a refinance and discovers that this "collection" has caused her credit rating to drop from 757 to 682. Suddenly the fees on a $300,000 refinance balloon from $0 to 1.5 points, or $4,500!

Inaccurate, disputed, and or just plain missed medical charges have been turning up all over and derailing refinancing nationwide according to many industry insider and the Washington Post. Why is this a factor now? Because of risk-based pricing, which was implemented in recent years and adjusts what people pay for a refinance according to their credit scores and other factors.

If you think this may be a problem for you, there is some potential relief on the horizon, A bill wending its way through Congress could provide relief for homeowners with medical-debt troubles. The Medical Debt Relief Act, which passed the House this fall and is now in the Senate, would remove settled medical debt from credit reports after 45 days, instead of the customary seven years.

The FHA Short Refi program, which has been a dismal failure because not a single lender including Fannie Mae or Freddie Mac has signed on (there have been less than 40 applications nationwide for the program so far even though the Administration expected over a million to qualify for it).

The program was designed to allow underwater homeowners who are current on their home loans to refinance to an FHA loan at 96.5% of the property's current value, requiring the old lender to write off that excess. Naturally, lenders did not exactly jump at the chance to exchange a performing loan for a loss.

Now, the Obama Administration wants to force Fannie and Freddie to play ball. However, the lending giants other regular, the Federal Home Loan Finance Agency, does not want to allow participation because in this case it's the taxpayers who would be shouldering the loss, not banking shareholders. So the bottom line is who benefits, and who loses? Should the taxpayers have to pay to let some homeowners off the hook?

Without anyone being forced to participate, the odds of success are pretty low. Since its roll out in September, the program has helped three borrowers, FHA said. Not three million, not three thousand, not three hundred. Just three.

With millions of Americans facing the impending loss of unemployment benefits, it is important that those who are unemployed or may soon be understand what steps they need to take to keep from losing their homes.

The Home Affordable Unemployment Program (or UP) was put in motion back in May, and as of August 1, unemployment benefits will only be considered for the UP program and not for HAMP applications. The Home Affordable Unemployment Program (UP) offers qualified borrowers a forbearance plan to temporarily reduce or suspend their mortgage payments.

If you face the loss of benefits and have a mortgage then you must act now to save your home. The most critical fact for you to keep in mind is that ONCE YOU ARE MORE THAN 3 MONTHS LATE ON YOUR MORTGAGE YOU ARE TOO LATE TO QUALIFY FOR THIS PROGRAM.

Servicers must offer a UP forbearance plan to a borrowers meeting the following criteria:

• Home must be your principal residence and a one to four unit property.
• Mortgage must have been originated before January 1, 2009 and the current unpaid principal balance can't exceed $729,750.
• The mortgage must currently either be in default or on the verge of default.
• The mortgage must not have previously been modified under HAMP or received a previous UP forbearance.
• You must request the UP before three monthly payments are due and unpaid. You can request this by phone, mail or email. If it were me though I'd want to be able to prove exactly when I made my request.
• You must be unemployed and have received at least 3 months of benefits (although this requirement can be possibly be waived by the lender) on the date you request the UP and you must document that you will receive benefits in the month of the Forbearance Period Effective Date even if the unemployment benefits are scheduled to expire before the end of the UP forbearance period.
• The servicer must evaluate you for the program within 10 days and if they make a determination by the 15th your effective date would most likely be the 1st day of the following month.

There is no directive within the HAMP guidelines for the unemployed who have lost their benefits prior to applying for the program, and the guidelines do state that you must document that you will receive benefits in the month of the Forbearance Period Effective Date so apply BEFORE you lose your benefits.

If you have credit problems, you may be intrigued by those ads promising to "cut your credit card debt in half,"or "slash your debt to pennies on the dollar," or "free you from the clutches of debt," yadda yadda yadda. Or, driven to insanity or suicide by your friendly mortgage servicer, you may cave and just turn the whole HAMP mess over to a smiling suit who promises you a mortgage modification with a 2% rate, a principal reduction, and a trip to Disneyland. And that's fine; these folks are still free to make all the dubious claims they want, and you are free to believe them (it's easier though after a couple of drinks).

What these companies can no longer do, thanks to Federal Trade Commission (FTC) regulations, is charge you upfront for these services.

One of the biggest complaints against these outfits (besides the inevitable dinner-time calls) was that they made extravagant promises and then once they had extracted a sizable fee from the customer they did nothing. So now they have to do something before they can collect from you. Specifically, they have to "successfully renegotiate, settle, reduce or otherwise change the terms of at least one of the consumer's debts" before collecting anything.

But it's still buyer beware.

The FTC's new debt settlement rules cover telemarketing by for-profit debt settlement services, credit counseling services and debt negotiation companies as well as companies falsely claiming to have nonprofit status. However, the rules do not apply to in-person or Internet-only sales. Nonprofit credit counseling services are not covered in the new rules, according to the FTC.

Mortgage modification scammers also run out of town.

The LA Times reports that the con artists who have been making big promises to desperate folks and scamming them out of big upfront payments will have to find a new business model.
Under new rules, companies that offer mortgage relief will have to contact your lender or servicer and then furnish to you a written proposal describing the key changes to your mortgage terms that the note holder is willing to make before any money can be collected in advance.

Modification companies also will be required to make clear that they have no connection with any government agencies or program (no more of those cheesy mailers from "Federal Mortgage Modification Department"), and that you're free to reject any offer from the lender with no requirement to pay a fee.

Once the felons, scammers and dirtbags that comprise 90% of these industries go back to televangelism or fencing mufflers, the firms remaining in business might actually be able to help you.

A report by Community Research for Action found that home buyers in areas with high minority populations were more likely to get FHA mortgages designated "high cost." This also held true for those buying in lower-income neighborhoods. And yes this blows big green boogers but it's not the point of this blog post.

Lenders tried to explain that people with lower credit scores paid higher rates, but the data collected by the government did not bear this out -- even people with good credit were likely to get a "high cost" loan if they bought homes in certain areas. High cost loans are defined by by the Federal Reserve as having APRs of 3 or more percentage points higher than the current rate on a Treasury security of the same length. So, with 30-year Treasuries hovering around 4.1%, that means high-cost FHA loans are any with an APR of 7.1% or higher.

Kicked When Down?

Interestingly, while conventional mortgage lenders impose risk-based pricing adjustments, charging borrowers with smaller down payments or lower credit scores more than borrowers with good credit and big down payments, FHA requires no such surcharges. And all loans that conform to FHA guidelines are covered by FHA mortgage insurance, so a riskier loan presents no added expense or risk to the lender originating the loan. So there is no reason that an FHA borrower with a lower credit score would need to pay a higher interest rate. Even if the lender could prove that the borrowers in poorer neighborhoods also had lower credit scores, in the case of FHA financing there is still no compelling reason to price these borrowers differently.

So if it's not due to credit issues, what gives? Do these folks walk around with Kick Me signs taped to their backs?

Kick Me

Shopping for a mortgage when you have bad credit is no fun. Bad credit mortgage lenders all have their own rules, and you may have to apply with several, going through an uncomfortable process of airing your dirty financial laundry, and maybe getting turned down a few times. So maybe when someone says he or she can get you a loan, you are so happy that you don't hold the lender's feet to the fire and shop for the best rate you can get. Or maybe you're under the impression that the government regulates the pricing of government loans -- why not, they are called "government loans," duh... And perhaps some loan agents understand that denizens of certain neighborhoods are less likely to negotiate their best deal on a mortgage or just want to get an uncomfy process over as fast as possible. And so they get away with charging some people more than others.

Kick Butt

It's up to you to compare mortgage rates between lenders. And it's not even that hard. Try the form on this site for starters. See what's available. And don't be so freaking grateful to be approved that you don't look out for numero uno.

Government loans are sold by private lenders. You have to shop. FHA just insures the loans, it doesn't lend you the money. That's done by private lenders who charge whatever the market will bear. It's up to you to compare lender pricing and choose the best deal you qualify for. And don;t let anyone tell you that you have to pay a higher FHA rate because you have bad credit.

Kick Back

Yes, for non-FHA loans there may be risk-based pricing adjustments if you have bad credit or a smaller down payment or need a cash-out refi. But thanks to new mortgage reforms, your loan professional cannot earn a higher commission for selling a loan to a clueless person than he or she does selling a loan to a savvy person. So you will be able to get away with being a bit more clueless than you could have in the past. You do need to shop several lenders to see who's offering the bestpricing, but you won't need to negotiate beyond that.

If you are trying to get a mortgage modification, should you listen to your mortgage servicer and do everything you're told? Maybe not. According to a Washington Post article, testimony in a Senate banking committee hearing points to a big problem with the advice that troubled homeowners get from mortgage servicers. Here are a couple ...

You have probably heard how difficult it is to get a mortgage approved if you need to refinance a jumbo mortgage -- pay stubs, tax returns, bank statements, divorce decrees, 8th grade report cards, DNA samples..... That's because jumbo mortgages are not bought and sold by Fannie Mae and Freddie Mac, and so they are ...