Are You in Shock? Did Loan Forgiveness Affect Your Credit Score?

But not in a postive direction?

A consumer or borrower might think that getting rid of a loan would improve a credit score.  But the reality is that in spite of all the talk about helping students, for example, by helping them obtain cancellation of the school loans, just the opposite happened. In fact, I know of a non-student case where a borrower's second mortgage was voluntarily forgiven by the lender, but then that person went to obtain a new purchase mortgage loan approval to buy a second property, and their credit report now showed a foreclosure. And apparently, according to the New York Times, some student borrowers are finding that their loan servicers are reporting they are delinquent in loan payments,  rather than a debt forgiveness.  The next problem is that the loan servicers seem reluctant to correct these reporting errors, and thus the borrower's FICO score drops, and it may be enough to prevent obtaining a credit card, or a loan.

A mortgage borrower could notify the Consumer Financial Protection Bureau, assuming he/she has the documentation that the loan was cancelled. Also, a dispute concerning the reporting error could also be initiated through the credit bureaus. 



Julia Huntsman, REALTOR, Broker | www.juliahuntsman.com | 562-896-2609 | California Lic. #01188996

New Credit Reporting Policy Change May Affect Many Consumers Positively

Equifax, TransUnion and Experience will, as of July 1, 2017, require tax lien and civil judgment data to contain three of four information requirements in order for that information to be included in an individual's credit report.  The consumer's name, address, and either a social security number or a date of birth must be included, and current data not reflecting that information will soon be removed from credit reports.  According to Mortgage News Daily, many liens and most judgments don't currently include that information, and their removal, although sparking a controversy, will probably be viewed as happy news by many consumers.  Already, other types of negative data have been addressed in settlements of lawsuits:

It appears that the changes announced by the credit reporting companies are at least partially in response to a recent report from the Consumer Financial Protection Bureau (CFPB). 

* * * *

The Wall Street Journal reports that settlements of lawsuits brought by various states have already pushed the credit reporting companies to remove some categories of negative data from reports such as information related to library fines and gym memberships, and required changes to the timing of medical collections information.

The net effect is that many consumers will have an increase in their FICO score, perhaps an upward boost of about 20 points.

Top Concerns for the 2016 Market

Although the Consumer Financial Protection Bureau states "no problem", many REALTORs are experiencing delayed closing with the new TRID (TILA/RESPA Integrated Disclosure) rules implemented October 3rd.  For about half of those responding to a survey, closings took up to 40 days to close.  While this may not be of concern to all-cash buyers, buyers obtaining financing and sellers in contract with those buyers may have to be prepared for taking extra time to close, at least while the industry is in the earlier phase of these new mortgage/escrow rules.

Some years ago FHA revised their rules on eligible condo HOAs--Since an entire association was required to become "FHA-approved", and for only two years at a time, the number of approved condos has declined severely.  This reduces the number of eligible buyers for a condominium severely and is a factor everywhere for FHA condo buyers.  Association members are advised to take up this issue with their boards -HUD provides a resource for current status - and apply for renewal.  Some lenders are willing to provide this service without cost, especially if there is an  active buyer for that complex.  Contact me for more information.  VA approvals for condos are also required for VA buyers, and these are another important source of condo buyers.   However, for buyers obtaining FNMA loans there are no restrictions on percent of owner-occupied units, a major qualifier on FHA loans. 

Tight inventories are still a factor nationwide, as buyers can attest to after they have experienced multiple offer situations.  Buyers who are fully approved and prepared to make realistic offers have more success, although the price range under $500,000 in many Southern California cities is competitive.  Below is a trend chart for "months of inventory" for Long Beach.  Neighboring cities are similar.  A 6-month supply (how long the inventory would last at the current rate of sale) is considered the norm, but has not been the norm for several years. The chart shows 1.5 months.


Tight credit standards continue to affect sales.  There was a time when a 700 FICO score meant smooth sailing, but the average FICO score on all closed loans in the third quarter was 723, the lowest level in at least four years, according to Ellie Mae. Two years ago, the average score for denied applications was 729.  In other words, keep up your credit score but minimizing debt and no delinquencies.

Low appraisals continue to be problematic.  This is a large subject by itself, but the short summary is: Find a good REALTOR to work with, whether you're a buyer or a seller, and avoid over-inflated pricing.

More Trends:

Cash sales continue to decrease; buyers are interested in walkable areas (check the WalkScore for your neighborhood), "green" homes, or older homes with upgraded environmental efficiency, are on the buyer lists in many areas, new home sales are up in some areas (however, older Southern California cities are less impacted by this demographic), rents may increase by as much as 8% in some areas, so buying at today's lower interest rates will still be cheaper than renting.

For a free property search, go to www.juliahuntsman.com Property search page.

Please contact me for a more specific home analysis for your property.  As a licensed REALTOR for over 20 years, I can help whether you have a home or investment property sell.

HAPPY NEW YEAR!

Checking Your Credit Report is Important for Buying Long Beach Real Estate

According to DS News, 22% of Americans have never checked their credit report, according to Findlaw.com survey conducted in March, with about 1,000 participants.

Unfortunately, there is always potential for errors and negative information to be entered onto your credit report. And even though credit reports and scores as they currently exist came into usage in very recent history, after the economic downturn in the 1990s, they now have a major influence in our lives.

Obtaining a mortgage is one of the best known times when credit scores are reviewed, but also employers check credit scores to evaluate job candidates, insurance companies evaluate prospective insureds, and auto loan makers also pull credit.  I was once in the position of paying all cash for an automobile with a guaranteed check, yet the auto dealer still consulted my credit score online before finalizing the deal to make sure my overall profile fit who I said I was--they didn't want another "buyer" driving a new car off the lot on a phony check, never to be found again.

Protecting your credit, and your credit cards, may take additional work.  You may be at risk if you pay restaurant bills--where you have to give up your card momentarily while it's taken away out of your sight by the waiter for processing--and it's out of your hands.  It's an opportunity for a dishonest person to write down your card account number and use it later.  I rarely ever have had such problems to worry about, but this happened to me recently when I discovered my account number had been used by someone else to establish an account for, guess what, checking their credit at an Equifax site and I was billed a small amount monthly.  It went on for some time before I caught it (another reason to balance your account every month) and fortunately I got my money reimbursed.  But of course I had to cancel that card, write checks for a few days, and wait for a new card to be issued.  It was a time in which I was reminded that this is increasingly a plastic card world.  Writing checks is less common, and in fact there are some circumstances where checks or cash are not accepted and merchants want payment only by your credit card.  So keeping your credit in good shape is so important.

My bank offers a service where I now have credit card alerts sent to my email so that I can spot a problem right away--if you have Smartphone or mobile tablet, you don't have to wait until you get to a desktop computer to check your email or messages. It's working great. 

Here is the entire article at DS News.

Tighter Lending Standards Are Making Home Sales More Difficult

Long Beach housing inventory/end of 2012

Although much is being said about the housing recovery, the fact is that mortgage loans are much tougher to get than in years past.

• It's just recently come out that some lenders are loosening up the requirement for equity (30% or more) for owners wanting to keep their current homes, but then, a lot of property owners just getting into the market didn't know about that rule in the first place.  It's one of the many things making it difficult for people to move on, because even if they otherwise qualify for a new mortgage, their property doesn't. 
• Another issue is FICO scores.  Higher than ever scores are being demanded of the "average" buyer and this has impacted the market to the extent that, per Laurie Maggiano of the U.S. Treasury's Homeowner Preservation Office, between 2007 and 2012, new home purchases dropped 30% for those with a FICO score over 780.  In that same period of time, new home sales dropped 90% for borrowers with a FICO score between 620 and 680. "Where are these folks supposed to live?" asked Maggiano.  (At one time, a FICO score of 700 or higher was considered very good for a borrower.)
• And then again, specific lenders have their own overlay of loan requirements.  Fannie Mae and Freddie Mac may accept FICO credit scores as low as 620, and FHA will approve applications with scores as low as 580, yet investors for the loans may require FICOs at least 60 points

Credit Impacts on a Short Sale? You Make the Call

I try to help people with this question: short sale or foreclosure, which is the better option? For most people, my reaction is, “Short sale, of course!” This has been mostly because I was always under the impression that a short sale, although still a ding on your credit, was easier on the score than a foreclosure.



But for some time, other sources have been saying, and according to a recent blog post by FICO Banking Analytics, that there is no real difference in the effect a short sale or a foreclosure has on your credit score. Supposedly, both the impact in points and the time to fully recover is about the same for both events.


But all this time I believed that the short sale was superior to foreclosure, largely because of its less adverse effects on credit. So I was forced to do further research into which was the better option. In doing so I learned about benefits of a short sale I wasn’t even aware of, and found that the FICO blog was not true all the time for everyone.


The fact is, each borrower’s credit situation is different, and the way that a creditor reports a short sale to bureaus is different. The reality is that hundreds of thousands of distressed homeowners who have chosen a short sale have experienced a lesser impact on their credit than those who have chosen foreclosure. One of the differences, for example, is how long the borrower had been delinquent on payments prior to the short sale, along with other credit factors.


And, another very big mitigating factor is that in a short sale, a distressed homeowner may be able to obtain another mortgage sooner than someone who has a foreclosure on his or her record. Did you know that more and more employers pull credit before hiring a potential employee, and a foreclosure might keep you from getting a job. Some employers pull credit reports on existing employees, and a foreclosure may not bode well for job advancement in certain industries.
To see a special report, go to www.juliahuntsman.com/briefcase/29690_526201142402PM32754.pdf  which can be downloaded.

These benefits stacked against the negatives of foreclosure, including the embarrassment of public announcement and literally being kicked out of your home, make, in my opinion, short sale the reigning champion.



Now you make the call!

Consumer Credit: Tips for the Way to Better Credit

In spite of general information available online, many consumers are still "in the dark" about how credit scoring functions and the best actions to take to improve it.
In spite of advice on repairing credit, a tip from an professional who has been in the business for many many years, often the best way to improve your credit is to simply pay your bills on time and reduce your credit line debt as much as possible--your payment history accounts for 35% of your FICO score.
Many consumers have recently experienced reduction of their credit lines, which then increases the percentage of debt, which then lowers their credit score. If a line of credit allows up to $50,000 and the outstanding debt is $45,000, but then the line of credit is suddenly reduced to $30,000, the borrower now appears to have exceeded the credit line. So now, the FICO score may be lowered, even though the borrower is always on time with payments.
Another factor that can impact credit scores is that not all banks report their credit limits for a borrower, but instead reports the highest balance--this actually can end up lowering the borrower's credit score because the debt utilization percentage does not show up. (See Liz Pulliam's "Weird Stuff that Hurts Your Credit.")
Borrowers, in an effort to simplify their credit history, make the mistake of voluntarily closing a credit account. This actually can be a very bad thing, especially if it was established much earlier in the consumer's credit history.  Your credit history accounts for 15% of your score, so you could anticipate seeing that much of a reduction on your score: A score of 750 could be reduced to less than 650. And, for instance, if you had a bankruptcy, you may be categorized with others who have also, but if you have that bankruptcy removed from your record, you will now be compared differently, which can impact your score negatively.
Something else not generally known, is that simply by paying bills on time and reducing debt, your FICO score can also improve in a short period, sometimes in as little as 30 days (or a few months), depending on the various factors of your credit history. The FICO score is a mathematically produced number based on certain elements that are used by the Fair Isaac Corporation, and is very complex, but you can know its basic components:

• Type of Credit:               10%
• New Credit Inquiries:      10%
• Payment History:             35%
• Length of Credit History: 15%
• Amounts Owed:              30%

Further, many borrowers think that the credit scores they obtain online from a free credit reporting site is an accurate representation of their score, but in fact, they cannot substitute for the ones lenders must obtain when working with a potential homebuyer or refinance borrower.
Further, many borrowers believe that it is best for them to pay down all debt prior to obtaining a home loan, when that is not always the case.
Another important thing to know is that Fair Isaac Corporation, the maker of the FICO score, changes its model, and may be doing so again at this moment--this can change how much you are going to pay for your home loan. If you are looking into borrowing or refinancing at this time, current information would be extremely important for you.
One company works on "credit mapping" as opposed to credit repair. The borrower is advised to investigate what either type of company could do for them, but in general credit repair companies may cost $800 or more and in certain cases has not helped the borrower through it's actions. Another company uses credit mapping outlines for a particular borrower--at a much lower fee cost--based on their credit report and other circumstances, and what may best work for them, as opposed to the generic information found on sites such as http://www.myfico.com/ .  For more explicit information about credit mapping and general advice, see this article in the Orange County Register published last September.
In summary, you really need to know about your particular situation to best know what to to, before you make a move.
More tips about credit:  Improving Your Credit Score, Recognizing a Credit Repair Scam

FICO Scores May Mean Savings on Monthly Payment of $200

Many buyers, and property owners who want to refinance now, realize that FICO scores are important when it comes to getting a loan. But what exactly is the picture on the benefits to a higher score, and what kind of a difference will it make? Below is a general chart for score categories and interest rates.

The sample breakdown below may not be exactly like this because a borrower's other circumstances with a particular lender or a particular program could vary, so it's important to keep that in mind. But oftentimes prospective borrowers are not aware of how their decision to buy one more piece of furniture, or buying that new car, BEFORE closing escrow, may strongly impact their new monthly payment because they have added more debt.

30 year Fixed Rate Mortgage - $200,000 Loan Amount

FICO Score                APR              Monthly Payment

760-850                     4.466%          $1,009
700-759                     4.688%          $1,036
680-699                     4.865%          $1,057
660-679                     5.079%          $1,083
640-659                     5.509%          $1,137
620-639                     6.055%          $1,206

Chart courtesy of Pat Zaby

For more information on how debt and other credit issues can impact your credit score, I can forward you my Powerpoint presentation.  Also, go to http://www.myfico.com/ for objective information about credit scoring and obtaining a free credit report.

How Does Bankruptcy, Foreclosure or a Short Sale Affect the Borrower?

The FICO® score was established by the Fair Isaac Corporation and is one of several systems which evaluate a borrower's credit worthiness by assigning a numeric value. A score of over 720-740 points is considered the desired range of eligibility for a conventional loan by many lenders. Before the current economic downturn, a score of 680 was acceptable and eligible for many conventional loan programs, but that score now does not meet many, if not most, current guidelines. The borrower should take into consideration that FICO® or other credit scores are now checked when applying for home insurance, rentals, a car loan, and employment, to name a few, an individual's credit worthiness is an important fact of life. When a borrower is considering the best course of action, they often do not realize exactly for how long and in what ways a distressed property situation will affect them.



The pie-chart shows the parts of a FICO® score found at www.myfico.com and the aspects of a credit score. While there are general estimates as to the "hits" to your score for bankruptcy, foreclosure, short sales, and late payments associated with these events, opinions differ and are not exact, in spite of what information you may find on various internet sites. Other factors in the borrower's credit history may also impact the total score.

However, certain Fannie Mae borrowing guidelines are known:

• A 10% down payment purchase of a principal residence is allowed 5-7 years after a foreclosure sale completion date (3 years for "extenuating circumstances").
• A 10% down payment purchase is allowed for a principal residence and other types of properties 4-7 years after a deed-in-lieu was executed.
• 2 years after a "pre-foreclosure" sale (may or may not be same as short sale conditions).
• 4 years after a bankruptcy discharged or dismissed.
• 2 years after a Chapter 13 bankruptcy is discharged or dismissed.

FHA may have slightly more lenient guidelines for post-event home purchases, and the borrower should check with a lender. The idea here is not to give a complete listing of guidelines--a discussion with an experienced lender would be good for that--but to let the borrower know what the timeline will be depending on his/her actions and plan accordingly. The potential tax consequences depending on circumstances of the property should be reviewed before filing for bankruptcy, for example.

The choices in some cases are not avoidable, but in all cases, a borrower should obtain more information to be prepared.

Loan Pre-Approval and Credit Scores

So often I hear from prospective buyers that they are afraid the loan pre-approval process will lead to a drastic lowering of their FICO (credit) score because, of course, their credit record must be viewed in the process.
So here it is from the horse's mouth: "Shopping around for an auto loan or mortgage shouldn’t hurt, if you keep your search to six weeks or less", per Craig Watts of Fair Isaac Corporation, the company which developed the FICO credit scoring system used throughout the world of credit.

Other factors that make up your score are length of credit history, how many accounts you've recently opened, balance due on your credit lines and the total amount available to you (keep your balance under 50%), and your payment history counts for 35% of your score. Many times people do not realize that having a 30-day late pay recorded on your credit history can be almost disastrous for some loans, or that the big car purchase or the last minute furniture purchase before you closed escrow may send your credit score over the cliff at the last minute before you close escrow. Yes, the lenders check your credit report once again just before the schedule closing to make sure you're still in good shape.

There are more impacts to your credit score, for instance in a short sale or foreclosure, but this article gives a good basic outline so you know what to expect.

Remember, getting pre-approved for a loan should not be impacting your score negatively, and should not be a reason as to why you can't go forward with the process. Also, if your score does fall for some reason, it will come back up within 60-90 days at a certain rate once you start eliminating the problem. It's important to talk with the loan officer first to find out what is needed or must be changed for qualification for a loan--another mistake people make is going ahead and taking certain actions, such as cancelling a credit card after they paid it off, which actually may hurt rather than help them. So don't be afraid to ask a professional first about what the best course of action might be in terms of qualifying for the loan.

Foreclosure Debt Forgiven; New FICO Score System

The name of the little photo to the right is "holiday deer", and I hope you can also think of it as "Holiday Cheer" with the recent news on debt forgiveness.

At least if you do have to take the bad credit hit for a foreclosure or short pay, the new law signed yesterday by President Bush removes certain taxes that used to apply. So the good news is for renegotiated loans where more was owed than the current value of the home ("short pay'), the borrower will not have to pay income tax on the difference.

A sign of when things are going to bottom out is when there are signs of things getting better, and one of those signs with loans might be that there are more fixed rate loans taken out in the first half of 2007 compared to the first half of 2006. See this Mortgage Bankers Association article. Fixed rate loans are most certainly a sign of better financial health for many borrowers who will thus be avoiding the spiking of their monthly loan payments 1 and 2 years after taking out their loans.

If you're contacted by someone saying he/she will get you out of foreclosure, please read this article about foreclosure scams. This includes DO NOT sign over your property or sign a quit-claim deed, and do not pay someone to renegotiate your loan with the bank (you can do this yourself for free, or ask your REALTOR to help you). Foreclosure in California follow a very specific process--do not allow yourself to be taken advantage. Read my earlier post about knowing your rights if a Notice of Default has been filed on your property.

More news is about your FICO score, as calculated bv the Fair Isaac Company who invented the index most commonly used throughout the loan industry, the insurance industry, the car industry, and anyone else who wants to figure out if you're a good risk or not. Keep your credit as clean as possible, because that will help you get a better loan at a better interest rate if you are trying to refinance or purchase. This new model will be rolling out in the Spring, but may be used before that in the loan industry (it's hard to know), but take a look at the samples in the box under Figuring Your Credit Score as these may be a hint of things to come.

Long Beach long beach real estate 'Voice this!

Local Credit is Very Global

What constitutes news and relevant information about real estate? About you as a real estate consumer? Well, a lot of things, not just pictures of residential property. Someone was recently upset because of an article about vehicle license renewal and what may happen if you’re stopped and maybe you just haven’t paid your overdue fees yet because you thought you had until the end of the due month on your license tag, and the fact that police have immediate access via computer to see if you’ve paid your annual fees on the due date. If it went unpaid (not that we must assume the worst, but here it is), notice of that goes to the Franchise Tax Board where it would ultimately appear as a tax lien connected to you. Then think about your credit report and what gets reported on it.

Think about your credit score being a reflection of financial events connected to you. Did you know that when you apply for insurance, or a bank account, your credit report is viewed? Then think about the fact that mortgage loan underwriters also take a look at that credit report, including recent events of all kinds just before they decide to give you a loan. The workings of our bureaucratic world are very important to know about when it comes to getting a loan. That way, when you get the loan, you can get the house. You may obtain your free annual credit report at http://www.annualcreditreport.com/.

Long Beach

First Time Homebuyers in Los Angeles and Orange Counties

There is a NEW First Time Buyer Program Available, through funds raised by Realtors and their Pacific West Association of Realtors who have contributed over $300,000 to this program--the “Opening Doors” program applications are available as of Monday, 2/25/2007. If you, or a member of your family or one of your friends, is a first time buyer, they may be able to take advantage of a new program that will give $5,000 up to $15,000 towards down payment costs.

Yes, there are guidelines and here are some basic guidelines:

Current upper sales price limits are $568,601 (non-targeted) for Orange County and $564,264 (non-targeted) for Los Angeles. Targeted areas have higher sales prices (geographic areas and income qualifications defined by California Housing Finance Agency).

Property areas must be within Anaheim, Anaheim Hills, Brea, Buena Park, Cypress, Fullerton, Garden Grove, La Habra, La Habra Heights, La Mirada, La Palma, Lakewood, Long Beach, Los Alamitos, Norwalk, Orange, Pico Rivera, Placentia, Rossmoor, Santa Ana, Seal Beach, Signal Hill, Stanton, Tustin, Villa Park, Westminster, Whittier, and Yorba Linda and nearby county areas.

Income limits generally are: Current limits for Orange County are $97,320 (1-2 persons) and $113,540 (3+ persons), and for Los Angeles County are $83,160 (1-2 persons) and $97,020 (3+ persons).

Minimum FICO score of 620 for all applicants.

This program is designed to help people who want to buy. For more detailed information, a lender referral, active listings, or an application form, please contact me immediately!
Long Beach, Homebuyer

Rear View Mirror is Always Clearer Than the Windshield

Among the ten biggest homebuying mistakes: Waiting for a better market and interest rates.

You only have the market you're living in right now, and that market is also tied to whatever the economy around you is doing. Think about how long you plan to live in that property, and find the best loan for it. In the past, 30-year mortgages were just about the only choice. But the national average shows that most people move again in about 7 years, whether it's due to job choices or a growing family. Getting a good interest rate is tied to your debt and to your FICO score, and as long as you have lower debt and a good credit score, you will probably be able to pick out a 5 or 7-year fixed rate which could save you money on your payment. Even if you have to pick a more costly loan to buy a property in the naer term, you always have the choice of refinancing when the market becomes more advantageous. Remember, real estate happens in cycles, and you can't predict the future. The opportunities you see before you right now may actually work out the best for you in the long run. That is why waiting for a better market is only waiting. People typically look backward later on and see what it was they missed, and then find it all too easy to live in the past. Take a careful look now and do the work that is necessary to make the best choice possible.

Southern California, Homebuying

Lenders Tightening Up--Take Care of Your Credit Ranking

It just can't be emphasized enough to keep track of your FICO score, because the name of the game is the higher your score, the more choices you will have and the better rate at a lower cost you will get. As more subprime lenders change their lending guidelines and cut back, as today's announcement concerning Washington Mutual's subprime division Long Beach Mortgage indicates, buyers who want to buy need to learn about what goes into the FICO score. For instance, length of credit history accounts for 15% of your score, and your payment history accounts for 35% of your score, as the graph shows. Keeping your balance owing on a credit card, for instance, to less than 50% of your total credit allowed is also a scoring factor.

No point in going out and buying that new car just when you want to shop for a mortgage loan, because you could be loading yourself up with too much debt. The mortgage industry started using this scoring system in the 1990's, developed by the Fair Isaac Company, and they have specific score breakdowns showing the likelihood of a 90-day late in the near future according to your credit score. If your score is 700 or over, it's 288 to 1; if your score is 600 the likelihood is 4.5 to 1. There are more features, plus the fact that your score comes from 3 agencies and each may be a little different, so lenders develop loan qualifying criteria based on your high and mid-scores. If you want more information, please contact me.

Long Beach, subprime