Blogcritics Author: Mortgage Tips

Announcement: Short-content feeds

Phillip Winn — Sun, 26 Aug 2007 12:00:00 EDT

Sunday, August 26, 2007, marks the switch of all Blogcritics.org article feeds from full-content to short-content. This is the result of several converging factors, and is unfortunately a permanent decision (as permanent as any decision can be on the web, that is). We are aware of all of the reasons that this is a Bad Idea, and we are aware that some of you will be quite upset about having to click on something to read the free content, and we're sorry. Unfortunately, despite great effort, full-content feeds are not currently economically viable. Two other factors are involved: full-content feeds have resulted in an unprecedented level of content theft, with BC content appearing on many websites, usually spam sites, without attribution or permission. This duplicate content causes a cascading set of problems, not the least of which is that search engines generally aren't favorable to duplicate content, and don't always guess correctly. Finally, our RSS advertising partner is strongly in favor of short-content feeds. We hope that you'll continue to subscribe to BC via RSS, and when an article grabs your eye, it's only a click away, still free on the BC website. Thank you for your understanding.

Why You Should Keep Three Lines of Credit Open and Active

Mortgage Tips — Fri, 23 Feb 2007 11:18:24 EST

You probably don't need another excuse to use your credit card, but keeping three lines of credit open and active is often a requirement by many mortgage lenders as a basic qualifying guideline. The requirement usually calls for a minimum 24-month history on three trade lines that are currently open.Many banks and lenders assess potential borrowers' credit profiles, focusing largely on credit score, but also on credit history. While a high great credit score is favorable, it's what's behind that credit score that's really important. A consumer may have credit scores in the 700s, but if they have limited credit history, a bank or lender may still deny financing if they feel the borrower hasn't shown a history of supporting large amounts of debt for a considerable amount of time. After all, a three-digit number doesn't always give you the complete picture. A borrower with one active credit card with a $1,500 limit that is paid on time each month for two years will likely have a reasonably high credit score, quite possibly in the 700s, but why would a bank or lender provide financing on a $500,000 mortgage to a consumer who has only used a $1,500 credit card to prove their debt worthiness? Even if the borrower has three credit cards with $5,000 balances, if all are recently opened, the bank or lender will have a tough time determining the dependability of the borrower over the long term - yet another reason why financing will often be denied. That's why it's important to open credit lines, and keep them open and active, while periodically raising credit limits to increase the total amount of debt you can support and simultaneously increasing your available credit percentage. Don't even think about closing credit card accounts or other lines of credit that you've had open for a number of years, as you'll simply throw away positive credit history and increase your chances of being denied when you finally find the home of your dreams.

The author is an Account Executive with a wholesale mortgage lender, providing insight and clarity in an often confusing and turbulent industry. Educate yourself: Get mortgage tips, download mortgage calculators and get student debt help.

Credit Cards Versus Debit Cards

Mortgage Tips — Tue, 6 Feb 2007 06:48:24 EST

If you're thinking about buying that plasma screen, going on a shopping spree, or even buying a cup of coffee, think credit card - not debit card.These days most consumers are issued debit cards from their primary banking institutions, which usually carry a Visa or MasterCard logo. While these debit cards look, feel, and work like credit cards, they often don't carry the same protection or rewards of a traditional credit card. With credit card fraud on the rise, it's best to use a payment option that offers the maximum protection under federal law.Just last week TJX announced their customer data had been hacked into over the last six months, and that shoppers using credit or debit cards at their family of stores were at risk. The scary part is that those who used debit cards may not receive the same protection as those who used credit cards, such as the ability to dispute charges. On the same token, debit cards are also tied to consumer bank accounts, which put them at even greater risk of losing money and leaking sensitive information.Security aside, consumers miss out on cashback rewards or travel points if they opt to use their debit card for day-to-day purchases. A debit card provides convenience, but little else. Credit cards offer security and rewards. Always choose your credit card first, assuming you can pay it off each month to avoid finance charges. While a debit card has the advantage of allowing you to spend only what you have, it may not be the safest or most economical option in your wallet.

Building Good Credit by Raising Credit Card Limits

Mortgage Tips — Tue, 23 Jan 2007 04:20:26 EST

If you currently use credit cards, you need to know how to get the most out of them. One important tip that many credit card holders aren't aware of is the ability to raise their credit limits.For every credit card you own, the issuing creditor or bank has set a certain limit based on your spending habits, credit history, and stated household income. While you likely know this, you may not know that you can raise these credit limits, usually after holding the credit card for just six months.If you log-on to any one of your given credit card account websites, you'll probably find an account services section which will offer certain credit management tools. In this section you should see a link that says something like "increase your line of credit." If you click on that link, you'll be able to request a larger line of credit for the specified credit card.Generally you can choose any credit limit you'd like, although requesting something outrageous will likely get rejected. Let's look at an example:Current credit line/limit: $5,000 New requested credit line/limit: $7,500You'd be asking for a $2,500 increase, which isn't unheard of, and should typically be approved. Even if it's not, your credit card company will usually counter that offer with something that will still boost your current credit limit. Once you fill in the required information you simply need to click submit and either wait 24-48 hours for an answer, or you may get lucky and get an approved credit line increase right on the spot.Why would you need a credit line increase, especially if you don't spend up to your current limit? It's all about increasing your available credit and showing creditors you can support a large amount of debt. A creditor would rather give a loan to a consumer with a $30,000 credit line with only $500 outstanding as opposed to a consumer with a credit line of $5,000 with $500 outstanding.Your credit score will also rise over time due to the higher percentage of available credit. Using the example above, the first borrower would have roughly 98.5% available credit, and the second borrower would have 90% available credit. Remember that total available credit is an important factor in determining your credit score. The higher that percentage is, the higher your credit score will be. Keep in mind that your credit score may fall in the short term as you make new inquiries for extended credit, but over time it will build a stronger credit profile.

How to Fix Bad Credit

Mortgage Tips — Wed, 25 Oct 2006 14:56:36 EDT

You don’t need to look for credit help. It’ll find you. Usually in your spam e-mail inbox or junk mail in your home mailbox. The problem is most of the so-called credit help will usually do your credit harm if you’re not careful. There are a number of credit services out there that offer credit rebuilding, rapid rescoring, improved Fico scores, and credit counseling.They all make big promises and seem like a great idea. Who wouldn’t want to boost their credit score 20 points in 48 hours? But most of the time credit scores are an accurate measure of your borrowing history, and little can be done to change them instantly.Sure you can improve your credit scores over time with a conscious effort and determination, but quick-fix credit repair solutions aren’t the best way to tackle credit issues.If you really want to fix bad credit you need to analyze the root of your credit woes. Get your hands on a free credit report. This is the only legitimate free credit report service provided by the government to consumers. Many other credit companies owned by the three bureaus masquerade as free credit report companies, but they will carry a fee or offer a free introductory period with a money-back guarantee. Look closely and you will see that many big name credit report companies are owned by the three credit bureaus, which also happen to be publicly-traded companies.I’ll admit it. I used one of the pay services years ago to check out my credit score. I did so assuming I would cancel the service after the 30-day trial period. When I purchased my free credit report my Fico score was somewhere around 660. I didn’t know much about Fico scores at the time so I investigated further.After a bit of exploration I found a medical collection on my account. I knew this had to be an error since I had never used any medical services in the past. Luckily I was able to use a tool included in my free credit report package to challenge the inquiry. Although the process took over 30 days to reach a resolution, it was eventually removed from my credit report and my score jumped up to 700. Of course I ended up paying for a month of the service for about $29.99, but in hindsight it was worth it.While this story may make me look like an advocate for the paid credit repair services, it must be taken with a grain of salt. The program was really only useful to me because there was an error on my credit report. Had there been any substantiated derogatory accounts and late payments on my credit report I wouldn’t have been able to simply clear them away with credit tools. Sure I could have challenged them, but probably with little success. All I’d really get out of the service would be the credit report itself along with weekly reports of any changes.The point of my story is that credit repair programs are only useful if you legitimately find something wrong and need it fixed immediately, or if you plan on paying down debt on some credit lines. If time isn’t an issue, and there aren’t any inaccuracies, it’s really pointless to use credit help programs. You might as well just order the official free credit report and analyze ways to organically raise your credit score. This includes lowering outstanding balances, paying off credit cards, raising credit lines, and avoiding late payments and collections. Also avoid opening any new credit accounts if you want your credit score to keep moving up. New credit always brings your score down a bit in the short-term. All of this takes time, but is the most effective way to fix bad credit. And you’ll learn to manage your credit. For free! Rapid rescore programs are another scrutinized credit service that I’d like to highlight here. As I mentioned before, if there are legitimate mistakes on your accounts, rapid rescoring can be helpful in quickly updating the three bureaus' information. Rapid rescoring is also useful if you pay off some big chunks of debt and want that to be reflected on your credit report immediately. It does come with a cost though, and I find it hard to believe that these companies can give you a solid estimate of how much your score will move. And if you follow my advice, you shouldn’t put yourself in a position where you need to do last minute credit rescoring. You should obtain a credit report months before you set out to purchase a property to avoid any late surprises.As far as credit counseling goes, it is something that in my opinion should be avoided at all costs. While it will lower your monthly payments, your credit report may still show the accounts included in your credit counseling program as late if the payment you make is less than the minimum payment. And on top of that, most credit counseling programs don’t allow you to open any new credit accounts for a certain period of time as stated in the credit counseling contract. You definitely won’t be able to get a mortgage, so take extreme caution when going into contract with one of these companies.The summary:Fix bad credit in the following ways:Pay off debtRaise credit linesResolve accounts in disputeRapid rescore programs if there are errors or if you pay off debtAvoid the following:Closing credit accountsMaxing out credit accountsOpening new credit accounts before or during mortgage application processCredit counseling programs

A Little Lesson About Loan Officers In An Imperfect World

Mortgage Tips — Fri, 13 Oct 2006 06:14:58 EDT

Over the past five years the mortgage industry has seen an explosion in growth. With super-low rates and a vast array of programs available, new purchases and refinances surged. And along with that boom came an influx of young, uneducated workers joining the ranks of veteran mortgage men and women. It seems like everywhere you turn these days, you hear people talking about mortgage. And if you ask around, you'll likely have at least one friend or family member actively working in the mortgage industry. The potential to make a ton of money with little experience or education has brought in an entire new breed of workers to the mortgage industry. And brokers, banks, and lenders took on as many of these employees as possible. One position in particular requires very little experience or training, if any at all. This position also doesn't require a college degree to gain employment in this scorching hot industry. The position? Loan officer.Loan officer is a fancy way of saying salesman, or better yet, telemarketer. Loan officers rarely get paid a base salary, and the only compensation they receive comes from the commission on funded loans.Sure, the motivation is there. They must fund loans to make money, and will surely work hard to make that happen. But would you trust someone who knows a fraction more than you do about lending to handle your mortgage? When homeowners put their trust into a loan officer who simply called them out of the blue on a random lead, they are definitely taking a risk. Sure, everything may work out, but it can really be dumb luck. And that's not the way one should approach the largest financial decision of one's life.Loan officers can present themselves in a well-spoken manner and may make all the promises in the world. But while they have the motivation and the charm, they may not have the expertise to get your mortgage closed efficiently and effectively, or even legally. Potential homeowners often put their trust in these loan officers, thinking they must know what they’re talking about if they’re working at a reputable mortgage company. But the simplicity of acquiring one of these positions would surely make homeowners think twice. Many high school dropouts turn to the mortgage industry as a place to do business. And often, brokers couldn't care less about who is working below them. As long as they have a warm body making calls and bringing in deals, they’re happy. Brokers usually won’t take the time to educate their loan officers beyond the basics about sales, as their main priority is getting them on the phone.This can be quite detrimental to a potential homeowner looking to purchase a property. Loan officers may give them false hopes or misleading information that will lead to huge problems and big losses down the line. Common mistakes by rookie loan officers can kill your credit, boost your interest rate, or put you in a loan program you never wanted. They may also rip you off in an effort to make a quick one-time profit, with no intention to work on a long-term relationship. The lack of education in this industry is so bad that I’ve even come across brokers who didn’t know the simplest facts about mortgage, yet somehow obtained a broker's license. It can be quite shocking knowing these people have the fate of borrowers in their hands.So do your part by researching the company you decide to do business with. Ask for references, if need be, and learn as much as you can about mortgage and credit. Ask questions, and quiz your loan officer. The mortgage industry is known for its uncertainty, but you can give yourself peace of mind with a little time devoted to research.Take a look at a less opinionated take on the position of a loan officer from the U.S. Department of Labor.It's a bit of a perfect world description of what a loan officer should be, but rarely what they tend to be.

Pick-a-Default-or-a-Foreclosure Mortgage

Mortgage Tips — Fri, 6 Oct 2006 17:29:59 EDT

Pick-a-pay mortgages, otherwise known as negative amortization loans, have surged in popularity in the last five years -- so much so that they've been highly featured, and in turn scrutinized, from USA Today to the cover of Business Week. The pick-a-pay mortgage is a complicated loan. Most consumers don't really know what they're getting aside from the super low minimum payment option, mainly because brokers and loan officers tend to push that aspect of the loan above all else.Pick-a-pay mortgages carry four "flexible" payment options, including:- Minimum payment (usually as low as 1%) - Interest-only payment - 30-year fully amortized payment - 15-year fully amortized paymentThe minimum payment is the focal point of all the scrutiny. If a borrower decides to pay the minimum payment, they essentially pay less than the actual interest rate on the loan. In doing so, they defer the actual interest owed. The owed interest begins to build up on top of the existing loan balance until a set limit is reached, which ranges between 110-125% of the original loan balance. Once this limit is reached, the borrower loses the ability to use the minimum payment option and the loan recasts with a new minimum payment that will be substantially higher than the 1% start rate.This is the point where serious problems arise. For example, a $500,000 loan amount with a 7.5% interest rate would carry a 1% minimum payment of $1608.20, while the interest-only payment would be $3,125.00. If the borrower chooses to pay the 1% minimum payment each month, they would be tacking on nearly $1,600 in owed interest each month. To add insult to injury, the interest rate is adjustable, so that payment will likely keep increasing as the index goes up the life of the loan. To make matters even worse, once the borrower loses the ability to the pay the minimum payment, they owe anywhere from 110-125% of their original loan balance, so they're faced with a substantially higher monthly payment on a higher overall loan balance. In the above example, a borrower would lose the minimum payment option in three to five years if they chose to pay the minimum payment each month. At that point the loan would recast and they'd likely find themselves in a big hole with an unmanageable mortgage payment. This wasn't a problem in the last few years as house values increased year after year at a higher rate than associated interest rates, but things have changed. Values now are either stagnant or dipping. There isn't an easy exit strategy anymore. Those looking to refinance or sell may have to bring money to the table, an option many of these homeowners simply don't have.Many might ask why these mortgages were ever created and where they went wrong. The simple truth is these mortgages were originally created as a means of flexibility, not a way of avoiding your actual monthly mortgage payment. In a perfect world, a borrower would pay the minimum payment one month, then the fully indexed rate another month, as needed. Typically, borrowers with little self-control began exploiting the system by paying the bare minimum every month. At the same time, brokers and loan officers began pushing these loans hard as banks offered rebates of up to 3.5% on the back-end. Ultimately the borrower is responsible for his or her own fate, but the misdirection from brokers, loan officers, and banks should be taken into account as well. More documentation should be available to those selling these loans and those buying into these programs. The ironic part of all this is that the pick-a-pay mortgage program extended the refinance and purchase boom longer than it could or should have gone. Once these loans recast in the next few years, most homeowners will likely refinance into a fixed rate mortgage, essentially creating a new mortgage boom.

Mortgage Applications Up As Interest Rates Finally Come Down

Mortgage Tips — Wed, 4 Oct 2006 21:18:27 EDT

As expected, cooled inflation and subsequent lower interest rates lifted mortgage applications from their summer slump last week. The Mortgage Bankers Association reported that loan application volume rose 11.9 percent last week from the previous week as rates neared their lowest level in almost a year. The refinance index rose 17.5 percent to 1970.8, while the purchase index rose 7.6 percent to 404.6, according to The Mortgage Bankers Association.While this data is reassuring, the increase in applications isn't a sure sign of a recovery. An increase in mortgage applications will definitely lead to more funded loans, but it's not an absolute science.The quality of new applications needs to be considered. For instance, many applicants are simply attempting to refinance their mortgage after failing to sell their property for as long as a year. And many of these homeowners will find a series of hurdles in front of them as they try to close these deals with banks and lenders who frown upon their failure to sell on the open market. New purchases are still very light, and many who do apply for a mortgage are under-qualified or simply lack the income to take on a mortgage payment in the current market. With interest rates in the low six-percent rage on fixed products, and dipping into the fives on adjustable-rate products, there is definitely opportunity for a resurgence, but until housing prices come down to reasonable levels, we will continue to see a lull in the mortgage industry. The current housing market is so overvalued that those looking to refinance will find their values coming in short, and those looking to purchase new homes will likely have trouble qualifying with prices still at all-time highs. The simple fact of the matter is that many potential homeowners cannot afford a home at today's market prices. And until that is corrected, we will see fewer mortgage applications turn into fundings, regardless of increased volume.