Monthly Archive for July, 2010

Over one quarter of consumers with active credit accounts, or 43 million people, now have credit scores below 600. A low credit score is like an albatross that will make it harder for all those people to get loans or credit at favorable rates for months and maybe years to come, if they can get access to credit at all. Here's how it shapes up:

Below 600: 25.5%

600-649: 9.5%

650-699: 11.9%

700 and up: 53.1%

Meanwhile, the definition of sub-prime, which used to mean those with scores of 580 and lower, has been expanded to mean folks with scores worse than 640 or even 660. Which is now more than 35% of the population.

But wait, there's more. The "shadow inventory" of potential foreclosures is still hanging over the country. A foreclosure can drop a credit score by 150 points. And what about the 26 million unemployed souls in the country? Think their credit is going to improve until they get jobs? Once people sort out their finances and get re-employed, their credit troubles will be hanging over them for years.

Will bad credit mortgages become the norm in the near future?

If you need a bad credit home loan today, complete the form on this site. Lenders will go to work for you and see what they can come up with.

It's no secret that your credit rating can come up in your job search. Experts say that 60% of employers check credit before making job offers, and 25% say that a bankruptcy or other severe credit event can keep you from getting a job with them. So those who walk away from mortgages or strategically default would be wise to keep that in mind if they plan on getting a new job in the next few years.

But what about the job you already have? Can you lose it if someone finds out about a foreclosure? What about a bankruptcy? Officially, you can't be fired for declaring bankruptcy. The US Bankruptcy Code section 525 prevents companies from firing or otherwise discriminating against an employed individual due solely to personal bankruptcy. So, the protection that you are hoping to receive from your creditors by filing for bankruptcy is extended to protection from your employer against being fired or otherwise disciplined or terminated at work because you took steps to correct a bad financial situation.

On the other hand, many of us work in what are called "at will" employment states. That means that you can be fired any time for any or no reason. Just not a protected reason, like your race or age or bankruptcy filing. However, as long as no reason is given, you have little recourse. And bankruptcies and foreclosures are a matter of public record, so your boss can find out.

Recently, in the wake of the recession, states have taken steps to curtail this practice. Oregon Legislature recently outlawed credit checks for hiring, firing, promoting, or determining compensation for most workers. Exceptions were made for financial institutions, public-safety offices, and other jobs where credit history is relevant to performance and a background check is disclosed to the applicant or employee.

Washington State and Hawaii already have curbed widespread use of credit checks in making hiring decisions. Other states are considering similar laws, and a bill, HR 3149, has been introduced that would ban employment-related credit checks nationwide except when the job:

• Requires a national-security or Federal Deposit Insurance Corp. clearance.

• Is with a state or local government agency that otherwise requires the use of a credit report.

• Is for a supervisory, managerial, professional, or executive position at a financial institution.

Right now, would a foreclosure cost you your job? It shouldn't, but it could.

According to a recent report from the Boston Federal Reserve Bank, credit card fee structures effective charge the poor in order to reward the rich.

The study found that households earning more than $150,000 a year gain an average annual subsidy of $756 from credit card companies, while those earning $20,000 or less pay out an average $23 a year. How does this happen? Retailers, who can't charge those who use credit cards more, charge everyone more to pay for the 1% to 3% cost of accepting credit cards. Because poor people are more likely to pay in cash, and don't get a discount for doing so, they subsidize the spending habits of the rich. In addition, higher-income folks are 20% more likely to get rewards for using their cards, according to the Fed.

Congress has already limited retailer fees for debit cards. Should it follow suit with credit cards? On one hand, the authors of the study feel that eliminating merchant fees would level the playing field between cash and credit, assuming that prices drop if merchant costs do.Consumers would be better off. On the other hand, others feel that such law could end up fattening merchants' bottom lines and making little difference for consumers. Even worse, card companies could just end up hitting the consumers up for higher fees to keep the money coming in.

What about the other fees charged to consumers? Do poor people pay higher fees and interest? Not according to the Virginia Bureau of Insurance, which claims that its study found no correlation between low income and poor credit. So, while a poor person with bad credit will be clobbered by high fees and interest, so would a rich one. The rich one may be less bothered by it, however.

If you're trying to save your home from foreclosure, you may be desperate. And hearing all the horror stories in the media and from your neighbors doesn't give you a lot of hope for getting a modification. So, when a company promises huge results, fast, shouldn't you jump on the chance before you end up homeless? The FTC says just say no to companies that charge up front.

The agency banned 8 firms from selling mortgage modification or foreclosure relief services under settlement agreements. FTC alleged that the marketers charged homeowners up-front fees and that their claims of being able to get mortgages modified or prevent foreclosure were false. The settlements are part of the FTC’s ongoing efforts against scams that target financially distressed consumers.

Hope Now Modifications (not to be confused with the Hope Now coalition, which is a voluntary effort by lenders to grant modifications. www.hopenow.com is a legitimate effort, not a scam). Brothers Salvatore and Nicholas Puglia, Hope Now Modifications LLC, and Hope Now Financial Services Corporation are accused of falsely claiming that they could obtain mortgage loan modifications in all or virtually all cases and would refund consumers’ money if they failed, and that they were affiliated with, or part of, the HOPE NOW Alliance, a free federal homeowner assistance program. They also were accused of using or selling homeowners' private information for their own benefit.

Loss Mitigation Services. Allegedly falsely promised that a loan modification was guaranteed if borrowers paid an advance fee of up to $5,500.The company also allegedly misrepresented that it was a department of, or affiliated with, the homeowner's lender or loan servicer. It falsely claimed that consumers would receive refunds if no loan modification was granted. In many cases, there were no loan modifications for consumers, and some lost their homes while waiting for the promised results.

Federal Loan Modification Law Center. FTC charges that the company pushed a so-called "Federal Loan Modification program," charging up to $3,000, much of which they required up-front, but many homeowners received nothing for their fees. The company also stands accused of selling or otherwise benefiting from customers’ personal information, and failing to dispose of customer information properly.

Notice what these dirt-bags all have in common.

1. They all require payment upfront. Unless you are working with an attorney, who keeps your retainer in an escrow fund as required by law, don't pay significant monies upfront. It makes sense -- the only reason to charge upfront instead of one a modification has been procured is that they know they either don't plan to do anything on your behalf or that their service isn't effective.

2. They rely on telemarketing to get your business. Word of mouth isn't cutting it for them, and they lack access to legitimate channels, such as bankruptcy attorneys, HUD counselors, or credit counselors.

3. They don't just stop at ripping you off on the fees you pay. These folks are accused of failing to properly dispose of your financial and personal information (which could leave you vulnerable to identity theft and other frauds), or even selling your information to others who may be up to no good.

If you feel you need outside help getting your mortgage modification done, consider hiring an attorney. Ask these questions when choosing someone to help you, or get a referral from a trusted mortgage counselor, bankruptcy lawyer, or credit counselor.

1. How do you determine if you can assist me with my mortgage modification?

5. How many times have you dealt with my lender? What can I expect from my lender throughout the mortgage modification process?

The just-passed mortgage reform bill contains a little-publicized provision that could make a big difference to those people with bad credit. In the future, if you get turned down for a loan of offered one with worse terms than you applied for, you get a credit report and your credit score. That's a bigger deal than it appears. Here's why.

If you applied for a Fannie Mae loan advertised at 5% and costing one point, and the lender tells you that you only qualify for 5% if you pay 3 points because of your credit, you get your credit report and the score. Why is that such a big deal? Because credit scores drive your mortgage approval and how you are charged more than they ever did in the past. Two or three years ago, the person with a 620 credit score paid pretty much the same for a Fannie Mae mortgage as the person with a 700 credit score.

But today, a one-point increase in your FICO could mean paying thousands more for your loan, thanks to new pricing structures. So one tiny mistake on your credit history could make a huge difference in what you pay; therefore you have a right to see the history and score that has hurt you.

Getting your credit score today, even if you have bad credit, is a start to improving it. And it can be motivating. For example, if all you know is that you were turned down because of your credit history, that's not terribly useful. But if you know that your score was 619 and you needed 620, that's pretty heartening. Make a few more on-time payments, or make an extra payment to reduce the balance on an account, or just put a little more time between your mortgage application and an old collection, and voila! You're approvable for your next refinance. You can also use your score to determine if it might be better to put off refinancing for a few months. Again, if you're just a few points away from being able to save a couple of thousand dollars on your mortgage fees, it may be worth waiting until your score has improved by 15 points.

Take a look at Fannie Mae's Loan Level Pricing Adjustment matrix. Find your loan-to-value and your credit score and see what it will cost you in surcharges. Then see how much you could save by improving your score a few points. For example, the surcharge on a borrower with a 75% mortgage and a 679 credit score is 2.25%. But if her score were to increase one single point to 680, the charge drops 1.25% to 1%. On a $300,000 mortgage, that's a difference of $3,750! Probably worth waiting a couple of months to get that extra point.

If you have bad credit, perfection may be a long way off. But improvement and savings may be right around the corner.

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