Category Archives: Mortgage Management

Steps to Re-Establish and Protect Credit after a Break Up

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Breaking up is hard to do. And going through a divorce is an overwhelming and emotional process. It may feel like there isn’t enough time or energy to accomplish everything and it isn’t uncommon for emotions take over during a divorce while smart decisions are left to chance.

One of the most overlooked aspects of divorce is protecting your credit worthiness. You might be able to run from creditors, but you sure can’t run from a credit score. If you aren’t careful, your spouse’s handling of your once-joint accounts may haunt you. You are borrowing trouble if joint debts which existed before your divorce are not paid off, closed, or transferred. It’s foolish to think because your split is amicable problems can’t occur. In addition, many women discover that their access to credit was through their husband’s credit worthiness and they had failed to establish history in their own name.

Here are steps you can take to protect and establish your credit:

Protect Yourself
Any joint accounts – mortagage, auto loans, bank loans, and credit cards – should be canceled or change to one or the other’s name. This includes credit cards for which you are listed as a secondary card member. This will safeguard your credit record.

Something many people don’t realize is that even though your decree may state your spouse is responsible, the account must be closed and transferred to another account to release you from financial responsibility.

Inform Institutions of Name Change
Many divorced women decide to change their name back to their maiden name. Keep in mind, dropping your husband’s name and using your maiden name will not erase your credit history, as your credit history is attached to your social security number. If you decide to change your name, make sure to inform all financial institutions, lenders, and federal agencies about the change. Don’t forget to change your driver’s license and social security card as well. At the same time, you can inform them of your new, current address so that you can begin to build a solid credit history.

Review Your Credit Report
As early as possible in the divorce process, you should obtain the most recent copy of your credit report from the three main credit bureaus: Experian, Equifax and Transunion. Or you can visit the national website www.annualcreditreport.com. Make sure that everything is accurate and be certain that you understand your own individual credit and accounts and those of your spouse.

Build Credit
It is important to establish credit in your own name, especially if all your previous credit was joint with your husband. While the joint accounts will apply towards your credit history, accounts where you are listed as an authorized user will not. For any accounts that are your responsibility post-divorce, request the institution to transfer the outstanding balance to a new account in your name only.

Establishing credit in your own name will help you make a come-back in the financial market and enable you to purchase a home, obtain loans and other credit accommodations based on your own merit. You will need a very good credit rating to have leverage to negotiate for better terms and lower interest rates.

If you don’t already have credit established in your name, or if your credit history or credit score is insufficient to obtain credit, apply for a secured credit card. Here’s how it works – you put down a deposit equal to your credit limit and you can borrow against this amount just like a credit card. The financial institution will report your payment history to the credit bureaus which will help establish a history.

Create a New Budget
The divorce will change both the income and expense sides of your personal budget. Before you make any financial decisions, you need to establish a new personal budget. Be sure to account for current obligations as well as allocate enough for court-mandated child support or spousal support. Determine how much you can afford to spend each month and remember to be very conservative in your budgeting. You should be able to have money left at the end of the month rather than month left at the end of your money.

Pay Bills On Time
This may sound obvious, however during this overwhelming time as old routines and responsibilities morph into new ones, paying bills can sometimes slip thru the cracks. The most important thing you can do for your credit history is pay your bills on time. The easiest way to avoid late payments is to organize your bills by due date and set up automatic electronic payment schedules.  It takes a little time on the front end, but it sure can pay off in end.

Nothing about divorce is easy…however the sooner you take the steps to protect your credit and develop a game plan to prepare for your new life, the better off you will be.

You can do it!

Elizabeth Rose

A Little Help for the Monkey Business of Mortgage Modification

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Many homeowners today are faced with some difficult decisions in their finances.  And many of these decisions involve the mortgage payment.  One place to turn for help is the Home Affordable Modification Program (HAMP) for a mortgage modification.

Making Home Affordable is the federal program initiated in 2009 by the Obama administration in an effort to help homeowners avoid foreclosure.  HAMP  is the option designed to help financially struggling homeowners reduce their mortgage payment. This program is designed for individuals who are experiencing financial hardship unrelated to unemployment.  It is reported that this program  will help 3 to 4 million American’s avoid foreclosure.  In short, the program reduces your mortgage payment to 31% of your pretax monthly income, which for many people is no small bananas.

On the surface, this sounds good…after all, extending a hand to those in need is the heart of America’s generosity. Reducing the monthly mortgage payment sure sounds like a swing in the right direction.  The homeowner keeps their home, the bank keeps the note and their balance sheet in order, and neighbors avoid falling prices around them.  Everyone’s happy.

HAMP’s goal was to put homeowners in a three month trial modification before making a decision. These three months can stretch to six months or longer, just depends on the backlog.  During this trial, the homeowner would have the reduced payment.  (Still sounding pretty good).

Up until June 2010, banks were enrolling homeowners into the trial program without verifying whether they qualified for the program.

Wait a second…qualified?  Yep, a bit of Monkey Business – there are qualification guidelines.

Homeowners are enrolled into the trial and they think it’s pretty much a “done deal”.  Later, once someone checks their eligibility, homeowners who are enrolled but not eligible are turned down for a permanent mortgage modification.  Here’s the big bite…if  turned down for a permanent mortgage modification, the bank demands the homeowner repay the difference between their regular mortgage payment and the modified mortgage payment for every month enrolled in the trial!  Ouch!

Just over one third of households enrolled in trial modification through HAMP have been granted a permanent modification as of November 2010.  That leaves a lot of folks hanging from the trees waiting for an answer or having already received a denial.  That’s a lot of folks.

If you or someone you know is considering a mortgage modification, be sure you grasp the stakes:

  • Your credit rating will drop – the fact you are paying less than your full mortgage payment will be reported to the bureaus which will hurt your score.
  • It will likely take longer than three months to learn if you have been approved.
  • Making your reduced payments on time during the trial period is not assurance of being granted a permanent modification.
  • The biggest stake – If you are turned down for a permanent modification, the bank will demand you pay the difference between your normal payment and the reduced payment for every month you were enrolled in the trial modification.  If you are unable to make that payment, you could face foreclosure.

If you decide to enter into a trial modification, be prepared with patience and understand the guidelines for eligibilty.  They can be found online at Making Home Affordable.  Don’t forget to set aside the monthly difference in a savings account so you don’t have to swing through the trees to come up with the balance due should they tell you “no”.  To learn more, visit Making Home Affordable.

First Time Home Buyers Benefit from New Credit Reporting

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Finally, there is something about the credit bureaus we can cheer about!  Experian has recently rolled out RentBureau® which could help first time home buyers and people who may have no credit history, a skinny credit file, or need some additional positive information to boost their credit scores.

If you are a first time home buyer – this is great news!  In the past, only negative rental payment information – such as collections and evictions were reported to the bureaus.  On-time payment histories were not reported and included in a credit file.

When a renter applies for credit, creditors require a verification of rent.  This may include a phone call to the landlord, copies of cancelled checks, and a written verification signed by the landlord.  While this is just a small task and it does satisfy the requirement, it really doesn’t serve the first time home buyer very well.  Since payment performance is not being reported to the bureaus, those who have a perfect payment historyaren’t benefiting from the possible boost to their credit score.

All that is changing!  Experian will help renters build their credit file by receiving updated rental payment data from their national network of property management companies, putting them in a better position to become a first time home buyer.  Here’s the trick – your property management company must furnish their data to Experian RentBureau®.

For first time home buyers, this could be a home run…and perfect timing as this is a great time to buy a home.  I highly recommend you contact your property management company and request they begin reporting their data.  This will help you when you are ready to transition from renter to first time home buyer.  And hey, you could be the hero of the community as this would benefit your neighbors too!

Is This a Good Time to Buy a Home?

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Is this a good time to buy a home? That question is being asked right and left. And it is a valid question – after all, a lot has changed in the housing market. That change has created a perfect storm to buy a home. But is homeownership right for you?

Here are a few reasons why NOW is a great time to buy:

Home Prices are Lower
The Case-Shiller Index is a widely recognized index and measures price changes by markets. Their most recent report, which was released in December indicated home prices are 8% lower from the previous year for the 20-city composite. The report lags behind the time period measured with Decembers report representing sales data thru October.

Mortgage Interest Rates are Lower
We’ve been beating this drum for a while, but the beat still holds true.  Mortgage interest rates continue to trend just slightly above the lowest point in history. However, as the economy improves, mortgage interest rates will begin to creep higher.

Cost of Owning is Lower
Overall the cost of homeownership is now less expensive than it’s been at any time since 1963…whoa! Let me explain. The graph below shows the principal and interest payment on a median priced home as a percentage of individual income for each year.
Here are the assumptions:

  • 20% down
  • Prevailing 30 Year Fixed Rate loan


During the 1970’s as interest rates took off along with inflation, so did the cost of the monthly loan payment. Rates peaked in 1981 and began to decline. As they did, payment came back in line over time to the previous historic lows in 2002. As you can see from the graph, today we are at new all-time lows. The cost of homeownership is far below the historical average and lower than 1963.

The real question is…is this a good time to buy a home for you? Buying a home is a personal decision and there are many factors to consider. So it’s impossible to say that it is the perfect time for you. Here are a few questions to ask yourself:

Will buying a home hinder your lifestyle?
Although 70% of Americans still view homeownership as being part of their American Dream, owning a home isn’t for everyone. If you happen to move often, it probably isn’t for you. If you don’t like responsibility, it probably isn’t for you. It is a lifestyle decision.

How is your credit?
Lenders will look to your credit score as part of the qualifying process for a mortgage. They will use your score to determine the answer to two questions: 1) do you qualify?; and 2) at what rate? Guidelines have tightened and the bar for minimum credit score requirements have been raised. Find how where you stand with your credit.

Have you saved for a down payment?
Aside from a VA or USDA loan, long gone are the days of 100% financing. Today you must have a minimum down payment of 3.5% for FHA loans (government insured) or 5%, or maybe even 10% for conventional loans (non-government insured) depending upon your qualification. If you have saved, or can obtain some help from relatives in the form of a gift, this may be a great time for you to buy.

Have you saved for closing costs?
This step is one that is often over looked. It is important that you understand all the costs associated with buying the home – from the lender fees, title company and attorney fees, to appraisal and other third party fees. In addition, be sure to inquire about any Home Owner Association related expenses. Depending upon your loan you may request that the seller pay a certain percentage of the closing costs on your behalf. The percentage allowed is determined by the type of loan.

Do you have a housing budget?
Whoops! Don’t forget this part. Make sure you have budgeted for the mortgage payment, which includes principal, interest, taxes, (homeowners) hazard insurance, mortgage insurance and homeowner association (HOA) dues. While the lender will determine how much house you qualify for, they are not responsible for your ability to budget. You should have a monthly amount in mind – one that you are comfortable with. Make sure you don’t strap yourself and end up house poor – a nice house with no furniture and no life!

For many buyers, the familiar phrase “get in while the gettin’s good” may hold true! If you have the American dream of homeownership, have saved for a down payment and closing costs, have decent credit, and can manage the responsibility…this is probably the perfect time for you to buy a home.

Huh? The Year of the Banks?

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Say Whaaaaattt? Yup, that is what Randy Warren, chief investment officer of Warren Financial Service says! He expects banks to do very well this year saying, “2011 could be the year of the banks.”

He anticipates Banks will step up their lending this year, which in turn will drive up their earnings growth. His investment firm will be “doubling and tripling down on our positions,” said Warren.

And early this week, like the snow from last week, we will have a blizzard storm of earnings reports coming from corporate America. We will hear from Bank of America, Citigroup, Goldman Sachs and JPMorgan Chase, followed by Wells Fargo mid week and Morgan Stanley will finish up the rear.

Banks are also beginning to free up their reserves, money set aside to cover potential losses. JPMorgan released $2B in reserves they had ear-marked to cover credit card losses.

Last Friday, in Larry Hagmans “JR” style, JPMorgan’s brass hinted of a possibility of potential dividend hikes. You might imagine it has some folks raising their eyebrows and shifting their feet with some anticipation. It will be interesting to hear their management commentary this week.

The news is positive for our economy even if it has a bittersweet taste.

Which Jar for Your Mortgage Money?

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Just like your parents, you don’t want a mortgage. You want a nice home for sure, just no mortgage to go with it. Most people absolutely hate having a mortgage and would like to get rid of is as fast as possible. I get it.

And let’s face it, our parents told us to put down as much money as possible and pay it off quickly. They learned this from their parents. By understanding why they had this strong desire to get rid of their mortgages, it might clear things up a bit.

Back in the day (1920’s and 1930’s) the bank could call the note and come get the house on a whim. There was no protection. And when the stock market crashed, you can bet that is exactly what they did. Millions of hard working American’s lost their homes. This perpetuated the mindset thru generations to come.

Thankfully, and with good reason, Congress changed the rules decades ago. Banks are no longer to demand that you repay your mortgage loan immediately. As long as you make your payments, the bank can do nothing but wait on the next payment, and the next.

So how is it really possible that carrying a mortgage can be a good thing? It may sound counter intuitive, but try to suspend your disbelief for a moment and let’s dive in.

Your mortgage is a financial tool, and if you know how to use it properly, it can help you grow your wealth to get to financial security faster. This isn’t about pulling money out and investing it somewhere else so it can grow. I’m not talking about equity repositioning. This is about improving cash flow so you put money in places where it can grow at a greater pace than the cost of the mortgage.

Money doesn’t grow in a house, just like it doesn’t grow on trees. The home will appreciate no matter how much cash you have invested in it.

If it is financed, yes it will cost you money. At the same time, the financing allows you to keep your cash available for opportunities.

Try this on: Let’s say you have two jars…

One jar is covered with a lid and you save the 5%* cost of your mortgage.

The second jar has no covering and everything you put in there will grow at a rate of 7%, 8%, 9%. Plus you can reach your hand in at any time and grab some of your money back if there is an unforeseen circumstance.

The lid on the first jar prevents you from accessing your savings.

Which jar do you want?

You might be asking… “but in this market, where could I get that kind of rate of return?”

Let’s look at some real data to answer that:

  • The S&P500 gained 15.1% in calendar year 2010.
  • The long term average of the past 50 years (1961-2010), the S&P gained an average of 9.7% per year.
  • Over the last 26 years, through 12/31/10, the S&P 500 is up +1,086% total return (yes, one thousand plus percent!) or an annualized 10% per year.

Statistics don’t lie. Isn’t it funny how people will flock to the stores and buy, buy, buy when there is a fire sale? But in the financial markets they sell as soon as the prices drop instead of buying more for less.

If you responded to a downturn in the market with a knee jerk reaction and pulled your money out – you may have missed the very best days and that could have cost you big time! If you missed just the 3 best trading days of 2010, your return fell to where you only gained 3.4%.  This cements what Warren Buffett says, “our favorite holding period is forever.”  You have to be invested at all times, for the long haul.

Values matter at time of retirement, when you are ready to start withdrawing. Until then, if they drop, relish the opportunity and buy more. Keep your money, let it grow and work for you. Invest for the long haul. As for Mortgages, money is awfully cheap right now, plus their could be other benefits depending upon your circumstances.

Yikes, Grandpa is probably flipping out in his grave at this point. But let’s face it, times have changed. And if the majority were right about money, then the majority would be wealthy, like Warren Buffett and Bill Gates.

*for illustration purposes

Buying a Home for the Holidays…

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Oh there’s no place like home for the Holidays…The holiday season is often hectic with festive decorating, shopping for gifts, attending holiday parties, and so on, as we practice our family traditions. But when we slow down a moment, we generally acknowledge that the season is really about friends and family and the memories we create.

There’s no place like home for creating memories. And no place like home for the holidays. While it may sound a bit crazy to add this to your shopping list… this holiday season could be the very best time in history to give yourself the gift of a new home.

While there are a number of advantages to purchasing a home, and especially during the holiday season, there is a confluence of factors that make this years season a bit more special than past years.

Rates at Historic Lows
Interest rates have been dancing around the all-time-low mark for some time. But did you know that rates hit the lowest ever in October? This season, rates are about 0.5% lower over this time last year – which translates to a payment savings of approximately $60 per month on a $200,000 mortgage for qualified borrowers. While $60 might not seem huge, add that up over time!

Today’s low rates give you an increase in buying power no matter your price point. There was some speculation that rates may move lower, however inflation fears and concerns of this new QE2 stimulus has pushed rates higher for the past month. As rates increase, and they will continue to do so…your buying power will diminish.

Home Prices at All-Time-Lows
Once school begins in the Fall, the real estate market tends to slow down and by the holidays, it is at a snails pace. The lack of buyer demand is reflected in home prices as sellers become anxious. Homes are more affordable now than at any other point in time since 1970 according to the National Association of Realtors’ housing affordability index. During the holidays sellers may reduce prices further or offer additional incentives.

Lawrence Yun, chief economist for National Association of Realtors said home sales still remain subpar. He explained, “The housing market is trying to recover on its own power without the home buyer tax credit. Despite very attractive affordability conditions, a housing market recovery will likely be slow and gradual because of lingering economic uncertainty.”

Sellers Are Motivated
With the current economic slowdown many sellers are willing to negotiate – not just on price, but also may be more open to entertain request for other concessions such as appliances, or paying closing costs. In addition, they may be eager to get the home sold prior to the holidays to avoid scheduling their holiday plans around viewings by prospective buyers. This may give you extra bargaining power.

Once home prices stabilize and begin to improve, these same sellers will be less willing to bargain. As Warren Buffet has said, “be fearful when others are greedy and greedy when others are fearful.” Once the market begins to improve, Sellers may become greedy as buyers panic to secure home purchases as prices start to climb.

Plenty to Choose From
While real estate is local, most markets remain saturated with inventory. Being in the buyers shoes right now is akin to being a kid at Christmas – all the choices make it a bit overwhelming.

If you’re serious about buying a home, the first step is to define what you are looking for in a home and at what price (and get qualified!). Once you find it, be willing to negotiate a fair deal and grab it. Waiting around for things to improve from here could cause you to lose the opportunity on that “perfect home”. It’s important to remember you are not looking solely for the best deal…but the best home.

Tax Advantages
Buying a home can give you a tax break. Here’s how: Mortgage interest (including points) and real estate taxes are tax deductible. That doesn’t sound very sexy, but it adds up. Since most of what you pay for your mortgage in the first years is interest, on a $200,000 mortgage at 4.25%, you get to deduct about $700 a month in interest. That reduces your taxable income by about $8,400 a year. If you’re in the 25% tax bracket, that deduction is worth about $175 a month.

To see the benefit, you can either wait for a big payout after you file your income-tax return, or adjust your withholdings and keep your hard earned money. Your employers benefits department can help you with this.
Closing on a home purchase before the end of the year may provide you some additional tax deductions for the current year. You may be able to deduct any money you pay for points to reduce the interest rate on your loan. Consult your tax advisor to see how the mortgage interest deduction applies in your situation.

Getting Started…
Buying a home during the holidays could benefit your wallet for years to come, and there may not be a better time than now. If you are thinking of purchasing a home during this holiday season, get started now and discuss your options with your loan professional.

While interest rates and housing remain at historic levels, keep in mind: They won’t stay this way forever. Spend time reviewing your situation today. After all, there has never been a better time in our history to purchase a home.

Printing Money Leads to Higher Mortgage Rates

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Mortgage Interest Rates have taken a beating since November 4th, reaching their highest level since August. What we are seeing is a result of Quantitative Easing, round 2 (QE2). As I began writing, I watched this hilarious video QE Explained, which is an entertaining explanation of what’s happening. Enjoy.

So…now that you know all about QE2…how does this relate to mortgage interest rates?

Part of what we are seeing play out is the old-timer-trader adage “Buy on the rumor, sell on the news,” as previously discussed in an earlier post. QE2 was anticipated well in advance and investors jumped in and gobbled up debt prior to the announcement. Now we are seeing a sell off driving mortgage interest rates higher.

Keep in mind that the Fed’s goal for QE2 is to create inflation, lower the unemployment rate, and boost Stock prices. Inflation is the arch enemy of bonds and will drive mortgage interest rates higher as it begins to present itself. Once the inflation genie is out of the bottle, it can get out of control very rapidly, which will drive mortgage interest rates higher.

And if there isn’t enough nervousness already, this past Sunday former Fed Chair, Alan Greenspan warned of a looming bond crisis on “Meet the Press” which sent shock waves thru the markets when they opened Monday morning. Greenspan warned that the US is on a path that could lead us to a Greece-like story.

At the same time, we are seeing hints of improved or decent economic data which puts upward pressure on mortgage interest rates.

There is an expression – “don’t fight the Fed” – everything the Fed is trying to accomplish in QE2 is not bond or mortgage interest rate friendly and goes against any meaningful improvement in the Bond market. So the advice for now is to keep your seat belt on, this could be an extremely bumpy ride!