If you have a sub-prime adjustable rate mortgage and are behind in your payments or fear that you may have trouble when your ARM resets, there are a number of public and private resources that can help you get through the crisis with your home.
Your Mortgage Lender
The company that holds your mortgage is your best bet when it comes to saving your home. Although is sounds counterintuitive, your mortgage company is also the one that has the biggest stake in making sure you keep your home. They would much rather work with you to keep a long term customer and avoid losing money by foreclosing on your home and hoping to sell it at a bargain price in the worst real estate market in years. It is best to contact them before you fall behind. Ask them if they have a hardship program or if they will restructure your loan.
Hope Now
This is an alliance between HUD approved counselors, lenders and investors that try to keep Americans in their homes by helping them renegotiate their loans.
http://www.hopenow.com
Homeownership Preservation Foundation
This nonprofit organization works with local governments, nonprofits, borrowers and lenders to find solutions for distressed homeowners.
http://995hope.org
HUD Approved Housing Counseling
The U.S. Department of Housing and Urban Development (HUD) sponsors housing counseling agencies throughout the country that can provide advice on buying a home, renting, defaults, foreclosures, credit issues, and reverse mortgages.
http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm
NeighborWorks Center for Foreclosure Solutions
NeighborWorks was created to preserve homeownership in the face of rising foreclosure rates. In conjunction with national nonprofit, mortgage and insurance partners, the Center builds capacity among foreclosure counselors around the nation, conducts public outreach campaigns to reach struggling homeowners, and researches local and national trends to develop strategic solutions. In cities and states with high rates of foreclosure, the Center works with local leaders to create sustainable foreclosure intervention programs.
http://www.nw.org/network/neighborworksprogs/foreclosuresolutions/default.asp
FHA HOPE for Homeowners (H4H)
This initiative from the Federal Housing Administration helps homeowners at risk of default refinance their homes with new 30-year fixed rate mortgages with lower payments. The program is in effect from October 1, 2008 to September 30, 2011.
http://portal.hud.gov
Ever wonder how your credit use measures up to the rest of the nation? This will give you some idea of where you stand.
On average, Americans have 13 credit obligations, including credit cards and installment loans such as mortgages, car loans and student loans. Of these, 9 are likely to be credit cards and the remainder installment loans.
In general, most consumers pay their bills on time.
Fewer than half have ever been reported 30 days or more late on a payment
30% have ever been 60 days late on a payment
Less than 25% have had a loan or account go 90+ days overdue
Under 20% of consumers have had an account closed by the lender due to default
Regarding their utilization of credit, Americans are split.
48% have less than $5,000 in debt including credit cards, car loans, lines of credit, but not including mortgages
On the other hand, almost 37% carry more than $10,000 in non-mortgage debt
Although the typical consumer has access to about $19,000 in credit card credit lines, more than half of them use less than 30% of their available credit. Just over 1 in 7 are using 80% or more of their credit limit.
The average consumer has been managing credit for some time.
The length of the typical credit history is 14 years.
25% have had credit for 20 years or more
Only 5% have credit histories shorter than 2 years
The average consumer has only one inquiry on their credit record within the past year, and fewer than 6% have 4 or more within the year.
A few years ago, Congress passed a law called the Fair and Accurate Credit Transactions Act of 2003, or the FACT Act. This law extends some of the consumer protection measures established by the Fair Credit Reporting Act (FCRA), the main law dealing with consumer credit rights. The FACT Act has as some of its goals to prevent identity theft, improve the resolution of consumer disputes, improve the accuracy of consumer records, and improve consumer access to credit information. Let’s look at the act and some of its provisions.
Identity Theft
There are only a few ways that FACT aims to prevent identity theft from occurring. These include allowing military personnel to place blocks on their accounts while serving overseas and forbidding merchants to print the credit and debit numbers on receipts. This last one will have minimal impact, since most merchants have been printing only the last several digits on receipts for years now.
The FACT Act does include a number of provisions to assist consumers in dealing with identity theft once it happens:
It simplifies the requirements for you to report suspected identity theft or fraud
It requires credit bureaus receiving a consumer fraud or identity theft complaint to share the information with the other major bureaus, so you do not need to contact each one individually
When an identity theft report is made, the credit bureau is required to inform you that you have the right to receive two free credit reports in the 12 months following the date of the incident report
Automatically exempts consumers who file identity theft reports from having your names sold to third parties soliciting them for credit or insurance for a period of 5 years
Places a requirement for verification on any new requests for credit, additional cards or raising of credit limits for anyone filing an identity theft report
When you report that you may be the victim of identity theft or fraud, an initial block is placed on your account for 90 days. Once you have confirmed that the identity theft has in fact taken place by providing the credit bureau with a copy of a police report, the bureau will extend the block.
Resolving Consumer Disputes and Ensuring Accuracy of Records
Previously, under FCRA, consumers were told to dispute inaccurate information with the credit bureaus, rather than with the actual creditors. You had the option to contact the creditor, but there were no formal investigation requirements placed on the creditor to handle your dispute, unless you took them to court and a judge ordered the creditor to investigate.
Now, you can contact the creditor directly for investigation of erroneous information, and they are obligated to investigate within the same timeframe given to the credit bureaus (45 days after you make the request if you are using a free credit report, and 30-45 days for all other types of investigations, like if you have been denied credit). If they find that they made a mistake, they must correct the information with each credit bureau to which they have previously reported the item.
**Note** Creditors are not required to investigate disputes from credit repair firms or to any disputes they deem as “frivolous.” If they consider your dispute to be frivolous, they must send you a letter explaining why, and telling you what information they need to prove that the dispute merits investigation.
Any financial institution that sends a negative report to the credit bureau about you is now required to send you a written notice that they have done so.
Access to Your Credit Information
All consumers now have the right to one free annual credit report from each of the major credit bureaus. Previously, only some states mandated free access to credit reports, and now everyone in the US has this right; just go to www.annualcreditreport.com to order yours. In addition, specialty credit reporting agencies, which collect information regarding landlord-tenant, employment, and insurance issues are now also required to provide you with a free credit report once a year.
Mortgage lenders must now provide credit scores to mortgage applicants along with tips on how to raise your score, at no charge to the consumer.
The USA PATRIOT Act, whose main purpose is to prevent terrorism, also affects your access to certain credit information, by making it more easily available to the government and by keeping the government’s access to your information secret from you. Previously, the FBI had access to your credit reports, and now, any government agency can access them and you will never know.
With the current financial crisis affecting so many Americans, more and more people are finding themselves in a position where they need to file bankruptcy. In September 2008, 96,000 Americans sought protection under bankruptcy laws, bringing US personal bankruptcies to a minimum of 1,065,000 filings for this year. At the current rate, total filings will be 30% higher than in 2007 and 80% above 2006 figures. The biggest increases in daily average filings are coming from California, at a 76% increase in filings over 2007, followed by Arizona, Nevada and Florida, states hard-hit by falling home prices and rising foreclosures.
Filing bankruptcy is serious business. It is a legal procedure, and will remain on your credit report for at least 7 and sometimes 10 years from the date you file. You can expect to see a sharp drop in your FICO score, sometimes by as much as 100 points, especially if your credit standing was good or excellent before your current financial difficulties. Clearly, this will make it much harder and more expensive for you to obtain credit. However, if your situation warrants it, bankruptcy can give you relief from collectors and bills that you are unable to pay, and the chance to start fresh, to some extent.
If you feel that you may need to file bankruptcy, there are several things that you should do.
Do your homework – Find out about bankruptcy, such as the different types of bankruptcy (Chapter 7 or 13) and its impact on your future finances. Gather the information you need to decide what would be best for you, given your ability to repay your debts, the kind of debts you have, and your long term goals.
Consult with a bankruptcy attorney or a reputable debt counselling organization – Before filing, talk to the experts. Find out if there is any viable alternative to bankruptcy such as credit counselling, where a non-profit organization will help you to organize and consolidate your payments, often lowering or eliminating interest to lower your total payments. Be careful that you choose one that has credentials and history because there are a number of unscrupulous firms out there. If it looks like your best choice might be bankruptcy, schedule an appointment with a bankruptcy attorney and get all the facts.
Make sure your creditors are accurately reporting the bankruptcy filing – After you file bankruptcy, get a copy of your credit reports and check to make sure that only the debts that were included in the bankruptcy filing are reported as being discharged through bankruptcy. Also, look at the accounts that are included in the bankruptcy and make sure they all show a balance of zero.
Note the date that your bankruptcy was filed – The credit bureaus have specific rules about how long a bankruptcy can remain on your credit report. Generally, Chapter 7 and 11 bankruptcies stay on for 10 years and completed Chapter 13 bankruptcies remain on the reports for 7 years from the date of filing, not the date of discharge. If the bankruptcy remains on your report past this time, you need to dispute it with the credit bureaus.
After the bankruptcy, you should start re-establishing credit as soon as possible. If there are any tradelines (credit cards, lines of credit, car loans, etc.) that you have retained from before the bankruptcy, make sure you keep paying them on time. You may want to get a secured credit card, or rebuild your credit slowly with unsecured cards in small amounts, steadily increasing your credit line by establishing and maintaining an excellent payment history.
Over 1 million Americans are projected to file for bankruptcy in 2008, making bankruptcy and foreclosures a hot topic lately. Filing bankruptcy can give you relief from bills and collectors in the short term, but how can you climb out of your credit hole and re-establish yourself on firm ground? Here are some tips to minimize the pain associated with bankruptcy and raise your credit scores.
When you file bankruptcy, you will probably see your FICO score drop, sometimes dramatically. The better your credit was before the bankruptcy, the more it will drop once you file, sometimes by as much as 100 points. Bankruptcies will stay on your credit reports for 7 (for completed Chapter 13) or 10 years (for Chapter 7 and 11). However, the damage is the worst right after you file. As the years go by, the effect of the bankruptcy on your overall FICO score will diminish.
First, look at what you still have. If you have retained any credit lines, credit cards, installment loans or any other type of tradeline from before your bankruptcy, make sure you continue to pay them on time. If you have a car loan and you are still making payments, make sure you reaffirm your loan with your lender. Basically, all this means is that you send a letter to your bank or finance company telling them that you intend to keep the vehicle and continue making payments on it. These older accounts that are still open and in good standing will help you to rebuild your credit.
Next, establish new credit lines. You will most likely not qualify for a low interest rate, and it may take time for a major bank to approve you for a mortgage or other loan. However, there are some banks that will offer you a credit card with a small credit line, such as $300 or $500. Certain banks, such as Capital One and Orchard Bank are willing to take a chance on people post-bankruptcy, as are local credit unions if you are a member.
Another option is the secured card. This is when you open a savings account with a bank and the credit card is linked to your account. If you don’t pay, the bank can take the payment out of the balance in your savings account, using it as collateral. The more you put in the savings account, the higher your card’s credit limit. Use your cards sparingly and above all, pay them on time! Once you show the card companies that you are responsible, they will periodically raise your credit limit. If you have been paying on time and they have not raised your limit, ask them to do a review of your account and raise your credit limit.
Be rigorous about paying your bills on time. Keep your credit going forward clean by paying all bills on time. If you have financial trouble in the future, make sure you communicate with the creditors and try to negotiate lower payments. Avoid having accounts go into collections by communicating with creditors and also trimming expenses to fit into your budget. If you can do this, creditors will view your bankruptcy as an extraordinary event in your life, rather than a symptom of your inability to manage your money.
Make sure that your bankruptcy and all of your accounts are listed properly on your credit reports. Because a bankruptcy has such a large impact on your FICO score, any mistake in how it is reported on your credit report can have disastrous consequences.
Things to look out for: accounts that were included in your bankruptcy should have a zero balance. If there is any other balance listed, it is a mistake and needs to be corrected. Also, if there are accounts that were not included in the bankruptcy, check to see that they do not incorrectly say they were part of the bankruptcy.
You should not be surprised if, after the bankruptcy drops off (7 or 10 years after filing), your FICO score actually goes down. That is because the FICO model compares your credit to others who have filed bankruptcy while you are in that 7 to 10 year window. Your relative credit behavior dictates your score. Since on average, people who file bankruptcy may have a harder time managing their money, it is like grading you on a curve. Once the bankruptcy drops off, you are once again compared to people who have not filed bankruptcy, so the bar is raised. However, if you follow these tips scrupulously, you should bounce up pretty quickly and be able to qualify for credit at a reasonable rate.
If you considering buying a home for the first time, there are a lot of things to consider before you make the plunge. Buying a home is usually the biggest investment you will make, and you owe it to yourself to find out about and evaluate all of the opportunities and risks you will be taking on if you decide to do it.
Are you better off renting? Like anything, there are advantages and disadvantages to buying a home. On one hand, when you buy a home, you are eligible for a tax break on your income tax, but on the other hand, you will have to pay property taxes, and sometimes homeowners or condo association dues. When you purchase a home, you will be building equity, and if you keep it for a long time, eventually, you will pay off your mortgage. But when you rent, you do not need to manage many repairs and maintenance issues and costs, and some utilities may be included in your rent payment that you would have to pay separately if you buy a home. If you are considering buying a home now for the first time, you may be able to get a low price because of the collapse of the real estate market. But you will have to make sure you have a substantial down payment (usually 20% of the purchase price and sometimes more) and you will may not be able to qualify for a low interest rate because of the credit crunch. Run the numbers to get an idea of what makes sense given your current financial situation and goals.
How is your credit? Now, more than ever, your credit history is extremely important, as lenders clamp down on any loans they view as risky. Even consumers with good credit can find themselves being rejected or offered a lower rate than they might have gotten just six months ago. Get a copy of your credit reports and FICO score. If there are any items that are questionable, you may want to talk to a reputable credit repair firm to help you clean up your credit so you can qualify for a better interest rate. Your other options are to dispute the derogatory credit marks yourself or just wait it out until you have a chance to improve your credit history.
How much can you borrow? There are two things to consider here: how much you can borrow and how much you should borrow. The first question can be answered using your debt-to-income ratio. Take your proposed mortgage monthly payment, add any car payments, credit card payments, student loan payments and any other payments you have on debt. If this number is more than 36% of your gross monthly income, lenders will be reluctant to give you a mortgage for that amount and you will need to look at a smaller mortgage payment, on a less expensive home. The second question is a matter of personal preference. Ask yourself how much debt you are comfortable with.
How much are you willing to stretch for your dream home? What is your short-term and medium-range financial outlook? If you have been told that you are being groomed for a higher paying job, maybe it makes sense to go for it. On the other hand, if you are in a company or an industry that has been or is planning to cut back, now might not be the time to think big.
How much will you save in taxes? Even if your mortgage payment is more than you have been paying in rent, it may be worth it because of the tax break you get on your personal income tax. Speak to a tax professional to determine your savings. Be sure to factor in the property tax you would now have to pay every year, to get an accurate picture.
Once you have done this exercise, you should have a pretty good idea if this is a good time for you to buy a home, and about what price range you should be looking in. Good luck
Your credit report is one of the most important documents in your life, impacting your mortgage, auto and credit card interest rates, your insurance policies, and even your employment. But did you know that 70% of all consumer credit reports contain significant errors that might adversely affect the granting of credit?
1st Rate can help. We are a boutique firm specializing in helping Americans restore, manage and build their credit. We are not an automated “dispute mill” and we do not masquerade as a law firm. We have helped hundreds of consumers just like you remove erroneous, outdated and misleading information from their credit reports so that they could improve their quality of life.
Depending on your situation, this may be all you need. But if you are interested in proactively establishing good credit, protecting your credit and identity, reducing your overall debt and interest, and creating a secure financial future, we have unique knowledge and tools that can help you accomplish each of these goals in a quick and affordable way. These services are not offered by the majority of credit repair companies and law firms, including the largest and best known because they require a level of expertise, care and commitment that are in short supply.