http://www.brokencredit.com

Now the “old” forbearance has been modified to become even more flexible. Mortgage companies, with the current inventory of unsold homes, do not want to foreclose and end up taking an even bigger hit when and if the home sells after foreclosure. The writing has been on the wall for many lenders in this past year, work out the loan or eat huge losses. If someone is in the home and making payments, it can soften the massive write-downs that will follow in this extremely soft market.

Things were going ok for Jim and Terri until the auto accident that put Jim out of work and laid up with a broken leg and a disc problem. What savings they had were burned through in less than a month. The auto insurance covered very little of the medical bills and Jim’s insurance at work carried a sizable deductible. The biggest challenge came for their family when Jim was not able to work for what was predicted for six months. The luxury items were the first to go. Because Jim was upside down on his car that was totaled there wasn’t enough insurance settlement to pay for the debt. Jim was still on the hook for the difference and monthly payments were being demanded by the auto finance company. Jim’s attorney shared that there might be a chance for some type of settlement until he discovered the driver of the other car that had caused the accident was not insured due to a recently lapsed policy. The insurance carrier was not going to pay anything. Jim’s attorney, a high school buddy, was going after the assets of the at fault driver but it would take some time to even begin the process. Jim and Terri had worked hard for five years to buy their first home and were just getting ahead when the auto accident occurred. With several months passing, the young couple was not able to pay even the minimum payment of their four credit cards. The mortgage payment had not been made for the past three months. The phone was now ringing off the hook for medical collections, the auto finance company and the mortgage company was now threatening to foreclose. Terri took a part time job in addition to her full time job as an office manager at a collection agency. She knew that game inside out. With two kids it was becoming very clear that bad things were under way and if something didn’t happen to turn the situation around, her family would be moving back into a small apartment again with trashed credit to boot.

Fortunately, Jim and Terri’s families were close by and could help out with babysitting while Terri worked. Both of their parents were of modest means and not able to offer any financial help but were happy to pitch in with the kids and some of the maintenance work around the house. Jim was flat on his back with recovery time many months down the road. Jim had the phone close to his bed and he had been screening telephone calls for bill collectors and such. On a Friday, Jim received a call from the mortgage company that held their loan and at first Jim was going to ignore it. Jim figured he had quite enough “gut calls” for the day. The caller was in the process of leaving a message on the answering machine and was going on at length over the details of a plan from the mortgage lender that would help Jim and Terri get back on their feet. In the middle of the message, Jim lifted the phone and spoke with the caller. It was a friendly voice. Jim spent almost an hour on the phone with explaining his situation and sharing the tale of woe and their streak of bad luck. The caller’s name was Toby and after the conversation concluded, he suggested he would call back by Monday and would give Jim and Terri a concrete proposal to try and mediate the mortgage short fall. After Jim hung up, he could only wonder if anyone could help him out of this financial mess. Sure enough, Toby called back Monday with a proposal. Toby explained his mortgage company decided to be very proactive with customers who had fallen behind and found it in their best interest to try and bridge the gap between their current situation and possible foreclosures. Another hour was spent going over Jim and Terri’s family budget just to determine the short fall and rank what items could be quickly cut to generate a better monthly cash flow. At the conclusion of the call, Toby suggested that if Jim and Terri could tighten up their budget and eliminate in the short term, cable, cell phones, eating out, sell the one remaining car that had some equity and get a transportation vehicle the bank would substantially help with the payments. This would allow Jim and Terri to bridge to a time when Jim could get back on his feet and return to work. Since the loan in question was an FHA loan, the lender was going to advance an interest free loan in the amount equal to twelve months of principal and interest payments including taxes and insurance. This was made possible by the lender making a “partial claim” to the FHA insurance fund, that is borrower funded, to help Jim and Terri get back on their feet. This was not a gift. Every penny would need to be paid back down the road. When borrowers use the FHA program they normally pay 1.5% of the mortgage amount up front called the UFMIP (Up Front Mortgage Insurance Premium) plus they pay .5% of mortgage amount spread out among monthly payments. The bulk of these insurance premiums are by and large used for foreclosure actions. Loans that are insured by FHA pay the lender the difference of the foreclosure sale and the loan balance plus costs. This can be 25% to 30%+ loss for FHA. The thinking here by FHA is that if they can extend a hand and get these folks back on their feet in say a years time, it would be saving FHA a ton of money. This proactive approach is showing positive results. Jim and Terri seized on the proposal and in time were able to work out their financial situation and Jim was able to return to work. FHA was made whole in time; the credit card companies cancelled the accounts and agreed to take smaller payments for as long as necessary to get them settled at a reduced nominal interest rate. Terri was a good negotiator. Jim’s attorney was able to get a judgment and squeeze enough money out of the ticketed driver and get some funds from the uninsured motorist fund. This allowed Jim to payoff the “up side down” portion of the totaled vehicle with enough additional cash to buy an older pick up truck with the remainder monies. Terri was able to give up her part time job and the family slowly pulled themselves up by the bootstraps and they got back on their feet. The trailing medical bills were negotiated down after several over charges were discovered and a low monthly payment was set up. All in all, Jim and Terri considered themselves lucky in that the mortgage company stepped forward to offer a workable plan to save their home. It could have gone the other way very easily.

Lenders have recognized that the “bottom line strategy” of trying to work with borrowers who are in trouble pays off. From specially trained customer service representatives, like Toby, who are engaged counselors and not just adversaries. A customer service representative armed with tools like forbearance plans, to reworking old loans to new loans, to FHA, Fannie Mae, Freddie Mac, all pitching in to help resolve and mitigate any salvageable financial situations. The borrowers will need to make an effort to meet the lender half way and do what they need to do to keep their home. For any homeowner, financial disaster can be just a car crash away. Fortunately, lenders are now stepping up their efforts to help families in trouble with paying their mortgage. Again, bottom line, the lender and the borrower can win.

Dale Rogers
http://www.brokencredit.com

Lenders have special financing options for those with bad credit; they usually look for some type of collateral, such as money down, or a trade in (car that’s paid off, or has positive equity). The amount of money down that you put towards your auto loan is extremely important this may determine your approval for the loan. Ultimately, the more money down the less the risk for the bank, the lower the interest rate, and greater chance of approval. Special financing options are usually to the benefit of the consumer, which is why it’s offered. This is an opportunity to rebuild ones bad credit and prove themselves credit worthiness to the banks, and lenders. Of course with bad credit, it typically ends up costing you more than the vehicles actual value. Unfortunately, that’s part of a bad credit auto loan, or any other type of loan, mortgage, credit card, etc. But in the end it’s up to you to rebuild, and reestablish your own credit, which will ultimately benefit you in the long run.

Debt to income ratio is another important factor lenders use to determine your credit worthiness. A lower debt to income ratio is always preferred, along with a decent credit standing. A low debt ratio indicates your ability to handle more debt, enabling you to get better interest rates, meaning more opportunities from different banks. In some cases this may allow you to provide less money down or collateral. Although it’s in your best interest to have more collateral if possible, with a low debt to income to get the lowest rates to essentially save more money.

Time on the job is an essential part of getting an approval with the banks, not only does it help your credibility, it may determine the final approval. The longer one has been on the job, the more it benefits, along with income being a variable. This gives credibility to the individual, giving less risk to the bank. Someone with a two-year job history is most likely to get an approval than someone who’s been working less than a year. It shows stability to the lender, proving stable income, and the ability to pay the car. The lender doesn’t want to see this car get repossessed, the less the risk, the more opportunities for an approval. This should also be verifiable income, the bank may ask you to provide your most recent paycheck stubs for final approval along with proof of residence.

Bad credit financing isn’t as hard as most people make it to be. Getting an auto loan with a FICO score less than 620 is easy to achieve, even if you’ve had a bankruptcy! The amount of money down is a huge factor along with credit; its always a possibility to get an auto loan. Whether it may be the help of a friend, or relative co-signing, putting large down payment, or even your work history, it can be done with bad credit or even no credit. In the end you will have a car, along with reestablished credit, increasing your FICO score, enabling you to get much better rates in the near future, proving your credit worthiness!

Dale Rogers

http://www.brokencredit.com

Although there is major hand wringing going on with these high risk hybrid subprime (higher credit risks) mortgages there is also an opportunity for many to finance to a lower fixed rate loan. There will be heavy refinances going on with those who can qualify and move into the lower fixed rate loans. This will be an answer for many. If the credit must be tweaked and improved to make that possibility a reality, then so be it. Pay off credit cards, settle collections, pay off judgements, put time and distance from any past bankruptcy actions while improving the debt to income ratios all as a means to better qualify for a low rate fixed rate loan. If a borrower is behind on their payments a lender may offer a “forbearance” option where the payment arrears are set up on a parallel pay back schedule while the normal payment is being made. This is a catch up mechanism. All of these options invoke the stay and fight decision, which comes to the front by selecting these choices. This selection must make sense and there must be a reasonable chance of making it happen. Employment needs to be solid and dependable income steams must be in place. If a part-time job is necessary, it must be done. As far as reducing expenses, trading down cars with large car payments to free and clear transportation may be necessary in the reducing expense mode. Gym memberships may need to be cancelled and settled, any ongoing sundry expenses can be eliminated until the mortgage crisis situation has passed and settled down in a year or two. Cable extras may need to be pared back. Dial up service versus a more expensive high-speed service may need to be likewise pared back. Cell phones may need to be converted to pay as you go throwaways to further cut expenses or eliminate them entirely. Eating out will be a thing of the past for the short term. Packing lunches may be an option. These are all tough options. If after all of this takes place and there is still a desire to stay and a borrower is still under the gun, a Chapter 13 Repayment Plan may need to be selected. This will not cut any mustard with the mortgage lender or other secured debt, but the non-secured debt such as credit cards can be lumped into the BK option. A Chapter 7 Bankruptcy may be selected if the borrower(s) do not make too much money per the new Bankruptcy Law restrictions. This would wipe out all the non-secured debt. It may take a few years to reestablish credit to the point where a new lower rate fixed rate mortgage can be put in place. Over time, values MAY appreciate a bit to assist in qualifying for a loan. If a borrower is not up to any of this, then the flight option can be selected.

The flight option basically comes down to selling the property and taking whatever equity is available and possibly renting or finding a lower priced opportunity in a market populated with the same disparate sellers all begging for offers. When a homeowner gets beat up on the price in selling there is a real possibility in making up the loss on the purchase of a depressed value property. When borrowers select to buy a lower price property then the family budget may be positioned to make a comeback with saving opportunities to stabilize the asset side of their financial statement.

When the stock market is in the full “Bull Market Mode” and keeps running up unabated until finally the “Bear Market” shows up then major corrections are experienced. When the chickens come home to roost and stocks with weak fundamentals, high price earning ratios, low or no dividends, and perhaps bad sales and profit news the stocks fall big time. Some stocks will get pounded more than others. Perhaps it was just a weak quarter or extenuating circumstances with big one time write downs, or it might be a big problem like a Chapter 11 Bankruptcy filing like many of the airlines and other companies are dealing with. When this happens in mass, the Dow Jones Average together with other stocks fall as a group due to fundamentals and consumer perception and confidence. Now, the spill over from the defaults in the Subprime, Fannie Mae and Freddie Mac are impacting the financial markets as well. Investors are nervous. It will be a period of adjustment until this “problem” is handled one way or the other. Much like the RTC fiasco of the Savings and Loans debacle, serious and painful resolutions will be required until these troubled properties get folded back into the housing stock through new family ownership. Supply and demand principles are in full effect.

Much is the same with housing. Stable and steady increases in some communities in the 3% to 5% appreciation ranges have had minor effect in the market depreciation fall with all other things being equal. In other areas where appreciation was hitting 12%-20% per year where investors were flipping left and right and making major hits it was the “new wild west gold rush” of money making opportunities. Many property flippers (buy, fix up and sell) were making $50,000 to $100,000 per deal. Buyers were camping out at builder’s offices to get in on the property gold rush. Builder concessions were non-existent. Builders did not have to offer anything to get buyers through the front door, so they didn’t. Then “It” hit the fan. Reverses occurred. New homes sat vacant. New and resale inventories swelled. Builders were gone with many seeking Bankruptcy protections. Existing homeowners selling their homes remained mired with no sales activity. Sales prices were adjusted down where homeowners absolutely had to sell and move. If owners found themselves in a situation of being upside down (owed more than the home was valued) only a few options were available. (1) Walks away and move out and let foreclosure take its course. (2) Stays in the house until the foreclosure happened and let the sheriff put them out on the curb. (3) Consider “deed in lieu of foreclosure” where the lender takes the property back and avoids a foreclosure action and moves out and moves on. (4) Consider structuring a lease-option with a buyer at favorable terms with hopes of appreciation that will kick in over a two or three year period. (5) Offer sales concessions to buyers paying all their closing costs and prepaid escrow and even hold a second mortgage for any shortfall behind a new first mortgage. (6) Propose to the lender to consider a “short sale” where the mortgage amount is reduced to accommodate a new buyer that puts a new mortgage in place. This particular option does not put one penny in the seller’s pocket, but the property is sold and the buyer can move on. The lender takes the hit, BUT it may be less of a hit for the lender then going to the full foreclosure option. This is by no means an exhaustive list of options but is a few of the more prominent ones.

On the positive side, this is a great time to buy with great interest rates in play. Values are down and good buys can be found. Sellers are motivated and flexible terms can be negotiated. Lenders holding loans on “upside” down properties are willing to make deals to mitigate the loans hanging on the books on a non-performing basis. Much like in the Dot.com era, many investors chasing the “good story” stocks lost big time. Likewise, buyers chasing the “good story” properties with multiple offers on listings and builder inventories will lose as values in many areas have fallen. A real estate value correction is underway. Warren Buffet has made billions seeking out values and taking long term positions. A little of this philosophy will go along way in profiting from future real estate cycles. No one is good enough to determine the absolute bottom or top of the market, but good values will always pay dividends with proper due diligence of the underlying elements. A deal is a deal is a deal. When a deal is found people of action can find rewards and long term returns. There is no reward for overpaying for real estate in the near term. This is a time of incredible opportunities to make sense out of the madness and profit during this period of market correction in this real estate arena.

Dale Rogers
http://www.brokencredit.com

As mortgage financial markets have evolved they primarily were geared to a cookie cutter segment of the market that had established credit. Politically, banks and lenders were buttoned holed and urged to work toward establishing mortgage programs for people who had no established credit, but had a job and some how met their financial obligations every month. Their rent, insurance, groceries, phone, water, sewer, car repairs, gasoline, doctor and dentist bills were paid every month. As an added incentive community investment credits were offered which would be beneficial in the eyes of bank and lending regulators as lenders pointing to those institutions who were helping this community home buying segment and could then make a case for their Federal and/or State charter renewals. It turns out to be a strong incentive to offer community based lending to working people who want to buy a home and have no recorded credit.

So how might this work for a working person with no credit and who wants to buy a home. First, there would be an effort to determine their current housing history. If they have been renting and paying said rent in cash an effort would be made to document the pay history of the rent by way of a Verification Of Rent, called a VOR in the lending trade. The most weight is given to one with a professional manager in place such as an apartment community or Realtor managed property. Verification Of Rent directly from a private individual where cash is exchanged is a bit more of a challenge. However, falsifying a document (VOR) in order to get rid of a bad tenant carries heavy penalties for the landlord. Other types of bill paying would be verified and is called Alternative Credit verifications. Letters from utility companies indicating on time payments of electric, phone, cell, water and such could form a further basis for building an Alternative Credit file. Sometimes potential buyers of a home live with relatives and have no rental history. This too, can be addressed. The other aspect of these community based lending programs is the verification of a job or business or other means of income. This can be done with pay stubs, business bank statements (if available but not required for the self-employed) or what ever means available to verify the existence of some type of employment income. State or city occupational licenses are sometimes used. Verification Of Employment is another way to show periods of employment and income whether it is W-2 or Miscellaneous 1099 income. The whole point of this collection of information is to try and build an Alternative Credit file, which can be utilized to make a lending decision. Just like in the old days, these files are hand underwritten with a human being pouring over all the documents. It is truly common sense lending. Many of these loans require some type of investment on part of the borrower. It could be as little as ZERO, $100, 2.25% or higher down payments. Some borrowers do not have any bank accounts and operate on strictly cash basis. Check cashing services with free money orders is their bank. Lenders call cash on hand as “mattress money”. Lenders can handle this scenario as well. Sellers can pay all or most of the closing costs for buyer/borrowers per lenders.

With all of this gathered, Neighborhood Lending Programs, FHA (although some automatic underwriting now-but hand underwriting available), VA, do not require credit scores. Utilizing Alternative Credit a borrower with a job and NO CREDIT can buy a home with a little work. Even those known as undocumented workers can buy. If there are collections a credit repair program will be required to payoff those collections.

Dale Rogers
www.brokencredit.com

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There was always a push to cut the umbilical cord with the government so that Fannie Mae and Freddie Mac could operate more independently. However, with the recent elections and Congressional change that looks like a no go and rather, there may be more governmental scrutiny and over sight with the two forever connected at the hip to government control. The two 1,000 pound gorillas have the power to wreck havoc through out the financial markets with their super sensitive “curb feelers” are in full receptor mode of operation. Recently, it was reported by one of the top lenders in the country that some borrowers with high scores are falling behind on their payments indicating further stress in the mortgage arena. This news sent further ripples through the markets.

The original intent of Fannie Mae and Freddie Mac was to create a secondary market where loans could be sold in order to free up capital for the mortgage loan originator to make even more loans. Many Savings and Loans in the 60’s would bump into a financial pinch where they had no money to lend. This was called disintermediation as applied to savings and loans. Since that time, the word has taken on several different meanings. Former savers discovered other avenues of investment such as mutual funds and such. In the old days, many mortgage loans were assumable. There were many occasions where savings and loans would suspend any lending until more money came in by way of savings or someone paid their loan off. Creation of the secondary market with quasi-governmental control remedied this situation and then the secondary market became liquid. This newfound liquidity allowed for ready construction and development monies to move forward as well as just regular buy and sell financed real estate transactions. If the money institutions wanted to slow things down with some sort of perceived market risk, they would simply raise the rates and things would tighten all reflecting long-term government bond yields. Thus with this mechanism of the secondary market liquidity and control were brought to the market place.

Now how does this all play out on Main Street USA? Well it looks like with Subprime lending requirements tightening up, and now Fannie Mae and Freddie Mac other avenues will need to be pursued. Any borrower with some credit challenges will need to get their financial house in order to qualify under the tighter loan rules and requirements. Tightened loan underwriting restrictions programs featuring Option ARMs with negative amortization, stated wage earners, No Doc, No Ratio, stated self-employed are all getting a very close look. With accelerating foreclosure rates with many emanating from the subprime and Option ARMs foreclosures, things are a changing. Collections and write-offs may need resolution to qualify for loans. Previously, many subprime loan guidelines would allow those negative credit items could remain open. Until the tide turns the other way, things will be tightening up.

For borrowers who have employment, reasonable credit histories, and within limits debt to income ratios, not much will change. Fully documented loans will still get the best pricing and terms considered by lenders as lower risk. For the other borrowers it will be another story. As work out specialist attack unsold foreclosed homes all “borrower friendly” loans with the cushy terms and conditions will be harder to get. Appraisals will receive even more scrutiny in this market price flux. Anyone who has lived and worked through market cycles this is nothing new. Lenders come and go. Inventory eventually gets sold. Buyers get optimistic and seller’s fall in love with their homes again as prices go up to another level. It may take a year or two, baring any local catastrophes, the real estate market will come back once again.

Per Chairman Bernanke’s remarks to a recent banking conference where he said there needed to be “Legislation to strengthen the regulation and supervision of Government Sponsored Enterprises (GSE) is highly desirable, both to ensure that these companies pose fewer risks to the financial system and to direct them toward activities that provide important social benefits”. Before a recent Congressional hearing Chairman Bernanke stated regarding Fannie Mae and Freddie Mac that there needed to be “measurable public purpose, such as promotion of affordable housing.”

Any way you read interpret the words, it looks like there will be more regulation of the GSE hulking portfolio meisters with more emphasis on social programs that will boost first time home buyers and at the same time try to make said programs more affordable. Many of the state governments have special bonding programs available that can help first time homebuyers in selected price ranges achieve home ownership.
Most of these programs require courses in family budgeting, proper maintenance and care of a home coupled with programs like the Home Buyers Club to work on credit issues that will position borrowers to qualify for the financing. Tracking, borrowers who have gone through these programs and then buying a home using the special mortgage loans have been found to have a lower rate of foreclosure. It may be that there will more of a proactive effort on part of lenders to condition approvals on working on issues of credit and family budgets.

In the mortgage trade there is a term called “payment shock”. If a family for example has a current housing expense of $1,000.00 and are trying to buy a home where the new housing expense is going to be $1,800.00 and there is zero savings plan of at least $800/month then “payment shock” will ensue. It the debt to income ratio is close to the higher limit, where will the extra money come from to make this higher payment? Mortgage underwriters are faced with this dilemma every day. If the underwriter approves it, the borrower could be getting set up to fail. Some interactive underwriters will turn the borrowers down with a caveat that the borrowers would have a better shot at a loan if there were substantially more savings. This could be bolstered with a strong family budget that has strong emphasis on savings. This will give the borrowers the cushion needed to weather any financial situation the family might face in the future.

In conclusion, in the near term, subprime loans will be tightening up. Subprime lenders are dropping like flies. Others may be “dead men walking” with time running out. The shake out in the subprime marketing segment is underway. Those subprime lenders remaining will be the ones who adhered to strong lending principals and didn’t drink the flavor of the month cool aid that has led to many bad loans. Fannie Mae and Freddie Mac will be under closer scrutiny with accounting practices and controls as Congress will be looking over their respective shoulders to keep them veering too far off course. Again, it is apparent, that more is expected from Fannie Mae and Freddie Mac programs for first time homebuyers and such. The “My Community Program” will get a bigger push to assist borrowers. For homebuyers, more emphasis will be placed on getting their personal credit histories in shape where collections and write offs will be required to be paid in full or settled for less than agreed, but none the less PAID. Family budgeting and planning will be a prerequisite to getting an underwriter approval.
As an aside, budgeting is good for everyone. The trade off is this: Borrowers will get low down payments and low rate loans IF they will go through special counseling, budgeting, and home maintenance and housing problem solving. Seems like a fair trade. Lower foreclosures will lead to more solid and stable mortgage markets. For now, things will tighten till inventories are narrowed and the foreclosure rates slow. It’s still a great time to buy. Prices are lower. Rates are fantastic and there is plenty of homebuyer help. It is now a buyer’s market in many areas.

Dale Rogers
http://www.brokencredit.com
http://www.sellerhelpsbuyer.com

China recognizing the power of the Internet has restricted its use and has even developed its own system. With a host of Internet monitors trying to get their arms around any communication that will show their government in a bad light is censored. The Chinese are now mastering the online power of satire where if you can’t read between the lines, then your not understanding the writers drift. The cat is out of the bag in China. The Internet is America’s only hope that the Bloggers in China can marshal enough support to prevent their country from taking a wrong turn. The same hope remains for America. The Blogashere and other online activity in the Internet will bring all the governing bodies under close scrutiny for all to see. An informed electorate is America’s hope. Truth eventually will come out. Having all congressional bills and budgetary items online with ALL the sponsors named will point the brightest and most focused stage spotlight to the proponents of pork. Operating in darkness shields the “Porkmeisters” from scrutiny.

If a project is so weak and without merit and the only way for its passage is to stick it on the trailing tail of a bigger bill than that is just so lame and impotent. Yes earmarks and “secret endorsements” lead to runaway spending. Since the line item veto was struck down the executive branch has little option but to rattle the sword and veto the entire bill and hope that it there are not enough additional votes to over ride the veto. Otherwise, Presidents would need to hold their nose and sign it any way. Perhaps it is time to make another effort to take another run at putting the line item veto in place with hopes of getting a better play with the Supreme Court. Until then, we are left to try and shine a light on the budgetary and legislation enactment by putting everything online and let the public see exactly who is doing what. Parading ones voting record and actions can only help to mute the abuses that are currently under way.

There are huge challenges ahead for America in the Social Security and Medicare sectors that need adjustments NOW. Additional taxation will further burden the middle Americans who have enough on their plate as it is. The Fair Tax or other tax alternative may give the financial income to not only fund these needed programs but eat away the swelling national debt and make America competitive on the world stage. One major benefit would be to remove the need for any lobbyist looking to buttonhole an elected official to get their client a tax loophole. No corporate or individual taxes would do away with pork-laden bills and stealth riders, as there would not be any IRS code to modify. The safety net for low income families will offset any increase to the family budget for a national sales tax and have built in protections against additional burdens to the lower income segments. This program can make a lot of sense but will be fought tooth and nail by all the special interests protecting their little corners of the world. Term limitations could put a dent into the “Career Politicians” where pay backs and back scratching are the rule. Having fresh faces each term would be a learning curve for each with no long-term memory to resource of who is owed what favor. Fresh ideas, fresh approaches with new points of view. That is the base of attraction for Barak Obama. Thus far, appears untethered to special interests and is outside of the old party machine. Obama has shown the ability to reach across the aisle to Senator Tom Colburn, the biggest thorn in the “Porkmeister’s” side to put the budget and bills on the Internet for ALL to see. It will take fresh thinking and fresh ideas with a flow of fresh blood. America was founded based on a “can do” attitude. Lately, the country is reeking with negativism and frankly its becoming tiresome. When lawmakers are below attorneys in the polls the electorate are on to them. Changes must come. Special interests must be put aside and some new “Mr. (Ms.) Smiths Must Come To Washington”.

If the tough issues are not addressed soon, families will be increasingly under financial pressure with their very credit and financial foundations at stake. Things have to change. Unfortunately, the situation many times needs to get really bad before it gets better. With enemies trying to destroy our way of life, we must become strong again from within. A return to looking at making the tax system fair and removing much of the special interest lobbying efforts to grab a loop hole at the tax payers expense would be a good start. The Fair Tax could do just that. Will this be an easy sell? No way! It will be tough to do. It will impact the “Porkmeisters” and many of the lobbyists trying to buy influence. Term limits with real limited campaign budgets will broaden the citizen pool with people who want to compete on the basis of ideas not how much cash they can raise. When some campaign budgets approach the governmental budgets of some countries, it’s time for a change. It now is a campaign of exclusion for lack of a large cash stash to run for office. After the term is up, the elected “new blood” needs to go back to work where they were making a living before. No where was this valued citizenry participation meant to be a “life time calling”. Serve the term, do great work and go back to work. No full retirement for part time effort that has not measured up, representatives need to pay Social Security just like other Americans, no special parking spaces, nothing. To serve in an elected capacity is a privilege not another entitlement. Serve one term and go home and get back to work and encourage others to run and serve. Pass it on and keep it going. Definitely, becoming a “Porkmeister” and all that it brings with it is not the goal. Making America a better country needs to be the only goal through positive and innovative thinking and bringing in fresh blood to the fray. Limiting campaign spending, reducing term limits, passing the Fair Tax, bringing back the line item veto, putting the budget and bills on internet with ALL sponsors being identified will be a good start. Will the real America please stand up.

Dale Rogers
http://www.brokencredit.com

“Jaw Boning” in the past has given various businesses cause to pause while considering their actions less new restrictive legislation is laid over their operations and bringing another degree of complication to what seems like an already profitable enterprise. Baring that, legislation may follow. If nothing else, it brings unwanted negative attention to their methods and abuses. The abusive credit card company names will be bandied about creating negative press that may effect their future bottom line. It gives a broad-brush swipe at the industry, which is never a good thing.

The Government Accountability Office (GAO) reports there were about 690 million credit cards in circulation meaning credit card toting consumers have more than one card. The GAO is always measuring the past and in 2005 there was about $1.8 trillion on charge cards. Other agencies report that the average credit card debt is a little over $5,000 per household. The report shows that a little over 50% of the credit card holders pay off credit card balances every month. So on the whole, it looks like the majority of American families are not overburdened by credit card debt. Those families who are appear to be relegated to higher rates with some pretty outrageous terms. Things such as penalties and late fees range from $40 and up for making a late payment and other charges. In some cases this will trigger a higher interest rate if not paid on time. These interest rates can be more than 30% or more figured on an annual basis. Much of the government figures come from GAO and the banking industry.

A couple other hand grenades are known as the concept of “universal default”. If you are late on one card, the “universal default” provision will kick in and all the other cards will be accelerated to a higher rate. Another little time bomb is the practice upon a consumer being late there is invoked a “double-cycle” billing period where instead of having the 30-day grace period the interest goes back to the date of the previous bill and interest is popped on the former grace period. If this is combined with say a $40 late charge plus “double cycle billing” and perhaps the “universal default” provision suddenly a consumer is going under the gun. When the Bankruptcy Law was changed recently pushing more debtors into Chapter 13 Repayment Plan pretty much set up the stage for a quasi-indentured servant status. Working basically for the company store a consumer can not get readily ahead. It’s almost like waving temptation in front of a credit-addicted consumer who looks at easy credit as being never ending. When the rubber finally hits the road and the final straw breaks the camel’s back and not one extra dollar is available to make even the minimum payments, then its “Houston We Have A Problem”. Prior legislation accelerated the payback minimum payment. Formerly, a $5,000 credit card balance might have had a $120.86/month minimum payment at 29% would be paid off in 30 years. That’s assuming no additional purchases were made. Now that the term has been reduced in the 60-month range so that minimum payment would have to be $158.71/month to give the consumer a chance to pay it off. However, if charges are added back by constant purchases there will never be a dent made in the debt.

From Carl Levin’s statement at the Hearing of Permanent Subcommittee on Investigations conducted on March 7, 2007 consumers shared the horror stories in dealing with the credit card companies. The committee focused on three aspects of the credit card industry. The hearing discussion included grace periods, interest rates and fees. In regard to grace periods, it was brought out that many consumers operate under the assumption that they have a grace period before interest is charged. As it turns out there is no grace period on purchases IF there is a balance on the card. Their discussions that the majority of U.S. credit cardholders carry unpaid charges. In those instances, there is no grace period. The money meter starts running at the point of sale.

Interest rates were the next topic with regard to carry over balances was put up for discussion. The example used showed a consumer who had a zero balance one month and makes a major purchase for say $5,020 the during next billing cycle period and pays $5,000 payment. The example then goes on to show even though a $5,000 payment was made and there was a $20 remainder balance the interest was charged on the whole amount of $5,200. Not too many consumers have a handle on this little “money niche” practiced by the credit card issuers. The next month would be additional monies owed called “trailing interest”.

Credit card fees very difficult to get a total handle on its application. The Government Accountability Office (GAO) “identified a host of fees imposed by the credit card industry.” GAO found that late fees averaged $34/month with over the limit fees were average $31/month. Some credit card company policies allow them to repeatedly pile on over-limit fees. One consumer example testifying before the committed shared their experience where the purchases exceeded the limit three times for a total of $200 he was charged over-limit fees 47 times and paid $1,500 for this “infraction”. Other fees range from a $10 to $15 fee to pay a bill over the phone. All of these fees are lumped to the base balance for calculating the running interest charges. It was found that some of these fees and charges pushed the balance past the over-limit amount thereby triggering even more consumer pain. In this case, it had nothing to do with new purchases. Some late fees are caused by late posting on received mail.

Credit card issuers like to tout the high risk of lending in the plastic arena, however the numbers show that 95% to 97% of consumers pay their bills as agreed. The conclusions of the hearing showed the credit card issuers maintaining a profitable lending position and have realized better margins than commercial banks. The proof in the pudding of this high profit enterprise indicates more than 8,000,000,000 (billion) pieces of mail were sent out soliciting more credit card business.

The hearings will continue. The major players include Bank of America, Chase and Citigroup with over 200 million credit card accounts among them will be brought before the committee to discuss credit card practices. Chase preempting the new hearings has indicated they will stop collecting the added “double-cycle” billing. “Jaw Boning” is at work. Senator Carl Levin is on the case and credit card companies are running for the hills. The light is being shown in the dark corners and consumers are cheering him on.
Go Carl! Go Carl! Go Carl!

Dale Rogers
http://www.brokencredit.com

Now with subprime under extreme pressure and many lenders in this product area have shut their doors and simply gone out of business. With heavy foreclosures the secondary market buyers have turned a cold shoulder to any new loans with high-risk parameters. Fannie Mae and Freddie Mac have been reeled in to further limit high-risk loans in their portfolios. Any volatility in their respective combined 1.3 trillion portfolios would cause tremendous financial fallout in the other financial markets. Federal Reserve Chairman Bernanke is urging more conservative lending and to maintain a little steadier course steering out of the big risk waves which could bring harm to all US markets and beyond.

What tends to quickly glaze the eyes of lenders and mortgage brokers combined with frequent head slaps to the forehead are the incredible required levels of company qualification and compliance just for the privilege of doing any FHA business. This is very expensive to stake out this privilege. If FHA would chose to streamline broker participation and high compliance costs, more loans would be originated. Thus, when subprime mortgages became very attractive to lenders and brokers who were trying to assist borrowers to get into their homes of choice, that’s just what they did. These programs were provided instead of FHA. As it turns out, many of these loans had low rates going in, but would accelerate in say two years with many payments wrecking havoc with family budgets. Some of these were 2/28 ARMs which gave borrower a two-year fixed rate then moving to an adjustable. As rate increases were pegged to things like the 6 month LIBOR (London Interbank Offered Rate) plus a margin that may be in the 6% to 7%+ range it guaranteed the loan payments would accelerate dramatically after two years.

As an example: The start rate could be in the 7.50% range for the first two years. With a LIBOR index, as an example at 4.75% and the margin at 7.00% = 11.75%. It might take two years to get there after the adjustment period but going up 1% every six months could dramatically effect the monthly payment. If the mortgage were $200,000 with a start rate of 7.50% on a thirty-year term the start payments would then be $1,398.43/month. At the fully index rate of 11.75% the payment would move to $2,018.82/month. This is a payment increase of $620.39/month. For some borrowers, that is way more than they would be able to handle. Complicating this further, to avoid Private Mortgage Insurance (PMI) for any loan above 80% Loan To Value (LTV), simultaneously closed second mortgages were placed with many of those rates running from 10% to 13% which would allow for a Combined Loan To Value (CLTV) of 100%. Any first time homebuyer purchase can trigger expenditures for landscaping, furniture, and decorating upgrades then the payment increases come along and borrowers become shadowed by the eight ball.

Alphonso Jackson, HUD Secretary, proposed in June of 2006 certain changes that would once again position FHA as the first choice of first time homebuyers, which could bring them reasonable certainty of a monthly housing expense. With the mid-term elections things were put aside for other issues such as the war, minimum wage other items closer to the front burner. As things settle in industry proponents are hoping Congress will once again take a look at Secretary Jackson’s proposal. Originally, there was a bipartisan support. It is thought that still is the case. In brief, loan limits in high cost areas would be closer to the Fannie Mae and Freddie Mac upper loan limits. Right now, the upper limit is $417,000.00. As reported FHA Release 06-069 this might be 87% to 100% of that limit. Presently, FHA in some cases are $200,000.00 away from that limit and as a result, homebuyers are closed out of those communities from even considering an FHA loan with all that brings with it. In lower cost areas, the FHA limit might be in the 48% to 65% of the GSE (‘Government Sponsored Entity’-Fannie Mae-Freddie Mac) upper loan limits. This would be a big boost to making the program attractive to homebuyers. This proposal has been called “The Expanding American Homeownership Act” and has been laid out in H.R. 5121, representing the House of Representatives version. It was introduced April 6, 2006 and received bipartisan support with at the time 67 cosponsors and was approved by the House Financial Services Committee.

Additional provisions of the bill would be the elimination of the currently required minimum 3% investment. Alternative mortgage products are offering more attractive down payment requirements. The new proposed rules would allow for a variety of down payment options making FHA a little more user friendly. Another element of the H.R. 5121 proposed bill would be matching risk with various mortgage insurance premiums. Currently, the mortgage amount has 1.50% added on top for the Up Front Mortgage Insurance Premium or UFMIP. On a loan of $200,000 that would add $200,000.00 x 1.5% = $3,000.00. Then the new loan would be $203,000.00. A monthly MIP or Monthly Insurance Premium of .5% is added into the payment. The UFMIP and MIP all would go into a risk insurance pool to pay for defaults. The monthly MIP would be $203,000 x .5% = $1,015.00/12 = $84.58/month to the payment. If the home is sold or other non-FHA financing is put in its place within the first 84 months a portion of the UFMIP would be refunded to the borrower based on a published sliding scale. The $3,000 added UFMIP would add approximately $17.99/month on a 6.00% mortgage. In spite of these add-ons this FHA program can be far superior to any adjustable rate subprime loan.

In summary, if Congress could get back on track to finalize the proposed HUD changes, which had bipartisan support before the mid-term elections, many positive benefits could accrue to borrowers. These would be lower and predictable interest rates, higher lower limits, lower down payments with the FHA program layered over the whole mortgage product to ensure better borrower performance. Loan counseling, family budgeting, and close interaction can all help home buyers achieve their housing dreams and avoid problems down the road. If this bill was enacted it could go a long way to alleviate the down and negative pressures on subprime loans and riskier loans in the Fannie Mae and Freddie Mac portfolios. Homebuyers could use the steady hand of FHA to make their homeownership a reality. FHA has been priced out of many markets. Now FHA is needed more than ever. Homebuyers would welcome action on FHA.

Dale Rogers
http://www.brokencredit.com