If you have been reading my Los Gatos Real Estate musings you already know that since the program was announced in February, it has lowered mortgage payments on a trial basis for hundreds of thousands of people, but has largely failed to provide lasting relief. Critics increasingly argue that the program, Making Home Affordable, has raised false hopes among people who simply cannot afford their homes.

As a result, desperate homeowners have sent payments to banks in often-futile efforts to keep their homes, which some see as wasting dollars they could have saved in preparation for moving to cheaper rental residences. Some borrowers have seen their credit tarnished while falsely assuming that loan modifications involved no negative reports to credit agencies.

This fact that credit scores are affected by modifications boils my brain!  The program was meant to help!   In fact, it is hurting too many people.   How are you going to rent or lease a new home if your credit is injured?

How does renting become a component of the problem?   Selling the subject property will become the only option if the modification does not become permanent.   Where is one supposed to live?

In a rental probably.

This introduces a troubling fact of reality for troubled homeowners.  Having to sell their home.  Most will find they are going to have to apply for a short sale approval, some will be confronted with foreclosure or submitting a deed in lieu of foreclosure.   All very unattractive options and all very real.

To those of you in the midst of this debacle I would suggest you speak with a Realtor or a Property Manager as soon as possible and make inquiries as to how you may secure a property before this ridiculous negative credit reporting causes a new layer of frustration for you.

related article…

Loan modification document links

Buying a home means you need to understand your credit score better and how it weighs in and out of your favor.

With all the misguided information flying around about loan modifications understanding these myths will prevent some misteps.

“Many Americans hold mistaken beliefs about credit scores,” cautioned  Ethan Ewing, who heads the free online consumer portal at Bills.com. “Misinformation on television and in hearsay from friends and neighbors only compounds the problem.”

Here are the top 10 commonly held myths surrounding credit scores:

Myth #1: A credit score is a credit report. The credit report is a detailed listing of all debts and payments, going back throughout an individual’s entire payment history, Ewing explained. For each entry, it shows the creditor’s name, amount owed, the highest balance owed, the available credit, whether the account is open or closed (and who closed it), the number of late payments and whether the account is in default. A credit score is a number between 300 and 850 that is based on complex formulas incorporating all the data in the credit report.   Most homes for sale in Los Gatos yield many offers so, you need to have the best credit score.

Myth #2: Those who are not in default do not need to check their credit report. Everyone should check his or her credit report at least once a year (quarterly is not a bad idea in today’s market) to be sure the report contains no erroneous information. Visit www.annualcreditreport.com for a free, no-obligation copy of the report.

Myth #3: Checking a credit report damages credit. Reviewing your own credit information has no effect on a credit score, Ewing said. Neither does a credit report review by a prospective landlord or employer.  Lenders will look, unfavorably, if you have had more than 3 credit reviews by lenders in recent weeks.  Try to do online research for a lender before you apply.

Myth #4: Everyone has one credit score. Credit score calculations are compiled using data from three different credit scoring agencies (Equifax, Experian and TransUnion). The resulting scores might vary slightly among the three agencies if they have slightly different information, but they will be similar.

Myth #5: Married couples share a credit score. If all of a couple’s accounts are joint, their scores will likely be similar, but each individual maintains a unique credit record and credit score. On the flip side, after a divorce, ex-spouses need to follow protocol to have creditors remove either party from a joint account.

Myth #6: Shopping for a loan destroys credit. It is true that “hard inquiries” – examinations of a credit score in preparation for extending credit can have a small negative impact on credit. However, credit bureaus take into account that consumers might inquire about a loan from multiple mortgage companies or auto lenders.

“If multiple inquiries are received from the same type of lender within a 14-day period, the credit scoring companies do not count each inquiry against the borrower,” Ewing explained. But credit card account inquiries to open new accounts are counted individually.

Myth #7: To improve a score, close unused accounts. An important component of a credit score is available credit, or the unused credit that has been offered (on a credit card, for instance) but not used. Closing unused cards removes those available balances from the equation and can actually lower a credit score. Today, some banks are automatically lowering limits or closing accounts to reduce their own credit exposure. Individuals whose debt load is manageable should not experience an extreme effect on their scores.

Myth #8: To boost credit quickly, just pay off bills. Credit scores reflect performance over time. Scores will not change overnight.  This is the worst myth of them all.   One of my clients did just that, without conferring with me, and dropped their score by nearly 60 points.   They failed to qualify for the FHA mortgage they applied for.    Working together we will get them in the front door of their new home sometime in the next few months.

Myth #9: For a fee, vendors can fix a bad score. Again, credit scores show historic behavior. Be cautious about companies that claim to “fix” or “repair” credit.

“You yourself can remove inaccurate information,” Ewing said. “Beyond that, be aware that some companies send credit scorers a deluge of letters asking that they verify – and in the process, remove all past negative information. If and when truthful finance information is verified, however, it will quickly return to the credit report.”

Myth #10: Never get help – it is too hard on credit. It is true that credit counseling, debt settlement and bankruptcy all can cause significant black marks on a credit report.

“If you are in real trouble, however, you can and should seek help,” Ewing urged. “Which option you choose will depend on the severity of your situation. Credit counseling can help to manage bills, and lower interest rates and monthly payments to creditors. Debt settlement firms can negotiate to lower the principal amount of your debts, typically providing a faster path to debt freedom than credit counseling. Bankruptcy, an even more serious alternative, should be discussed with a bankruptcy attorney.”

“Credit is important, but knowing the truth about credit might be even more important,” Ewing concluded. “Before taking action that might hurt or help your score, check your facts to be sure your actions will help your financial picture.”

]]> http://michaelrobertshomes.com/2010/01/07/home-buying-credit-myths-debunked/feed/ 1 http://michaelrobertshomes.com/2009/12/30/idiots-guide-to-getting-out-of-debt/ http://michaelrobertshomes.com/2009/12/30/idiots-guide-to-getting-out-of-debt/#comments Thu, 31 Dec 2009 03:21:59 +0000 Michael Roberts /?p=1158

Guest Review by Tara-Nicholle Nelson

Image courtesy of Penguin.com.

Book Review
Title: “The Complete Idiot’s Guide to Getting Out of Debt”
Author: Ken Clark
Publisher: Penguin, 2009; 352 pages; $16.95

If years were keywords, perhaps 2009 was “frightened frugality.” This year was all about belt-tightening in the face of a very uncertain financial future, for our nation and ourselves, as individual families and people. Now that we’re on what most agree is the other side of the financial apocalypse, albeit just barely, my guess is that 2010 will be the first of perhaps several years of recovery for most Americans.

This year, everyone I knew hoarded their cash because they weren’t sure what would happen next. Next year, most of us who haven’t already done so will be putting an action plan in place to rebuild our finances, from the foundation up.

So what is the foundation of these new and improved personal finances so many of us will be building in 2010? Freedom from debt — especially nasty credit card and other unsecured debt. In the world of credit cards, the 2009 keywords would be “skyrocketing rates” and “crazy-making unilateral terms changes.” Accordingly, the 2010 keywords should be “pay it off” — and “The Complete Idiot’s Guide to Getting Out of Debt,” by certified financial planner Ken Clark, promises to provide “simple and effective solutions” to help us all pay it off and “(g)et back on firm financial footing.”

My knee-jerk antipathy to any book whose purchase is equal to a deep insult to my own intelligence was stopped short by the back cover’s assurance that “you’re no idiot, of course.” So, I gave it a chance. And if you’re looking for a systematic, hopeful approach to resolving your own debt, you should too.

“The Complete Idiot’s Guide to Getting Out of Debt” provides a simple, crystal-clear process and plan for, well, getting out of debt. It presents a set-by-step approach that sits right in the realistic, reasonable middle of the two extremes usually espoused by debt-elimination tutorials — hard-core, complicated, time-consuming models that do not take into account the psychology of those who carry a lot of debt and their frustration potential at living on pork and beans to get rid of a few credit cards (on the one hand) and the life-consuming, psychoanalytic approach that focuses more on talk than on the action needed to mow through the bills

The rumor several banks have agreed to streamline short sales is true and will certainly make the spanking a light one.  How do I know?  When I inquired why my calls were not being returned, for a few days in October, contacts at BofA told me they were being trained for a new program to expedite…something.

This ‘something’ has something to do with…

• What affect Loan Modifications have on Fannie Mae
• How does streamlining  Short Sales make any sense
• What is a  Shadow Inventory?
• How does Macro Economics play a roll?

Foreclosures are Down

From RealtyTrac.…“November was the fourth straight month that U.S. foreclosure activity has declined after hitting an all-time high for our report in July, and November foreclosure activity was at the lowest level we’ve seen since February,” says James J. Saccacio, CEO of RealtyTrac. “Loan modifications and other foreclosure prevention efforts, along with the recently extended and expanded home-buyer tax credit, are keeping a lid on the most visible symptoms of the nation’s ailing housing market — foreclosures and home value depreciation.”

But!  Loan Modifications are Failing

True, the temporary loan modification program just ended…opening the door for permanent modifications.   That is if the temporary loan mod payment schedules were met by applicants,  Right?   Yes.  That is not what is happening though.   After the inexcusable delays, lost documents and lack of communication borrowers are giving up on this failed theory.   Fannie Mae (may) be looking at a nasty spanking through increased foreclosures if alternatives aren’t implemented.

Shadow Inventory Myth or Fact

Have you heard the term  ‘Shadow Inventory’ (SI)?  The belief that banks have tons of foreclosures?  Keeping them in the ‘shadows’ as inventory?   It’s true but, not the conspiracy many have theorized.  I know of several cases where people are several months past the default deadlines and still have not heard from the Sheriff (meaning they have not been officially foreclosed on in practice).  This is one way a  shadow inventory is created.

Taking into consideration that modifying loans will not help those who can’t afford their payments, unemployment numbers comes to mind,  it makes perfect sense that an expedited short sale process is the best solution.

Short Sales -  The Next Best Thing to a Spanking

Since Short Sales net more money than REOs (foreclosures) it is reasonable to expect banks to promote them by doing… something like this.

Fannie Mae insures many mortgages and subsequently gets spanked for the losses following low net REO sales.

note: Watch for legislation changes next year.   Fannie Mae holds an enormous amount of political  leverage and the mid term elections are coming!

Removing the stigma that foreclosures place on the market, through short selling,  stabilizes prices, reduces shadow inventory and improves the outlook as a whole.   Perfect!  download FHA short Sale Guidlines PDF

Macro Economics…my tiny brain version

Since you have read this far let me create a ‘big picture’ with my tiny brain.    Banks are myopic to the degree that they are in the business to make money.    Looking at Real Estate as being a single issue for the banks,  makes us myopic.

A Real Estate investment is the single largest investment a person will make. When it fails to produce dividends (equity) it affects ones entire financial situation. This is no less true for banks.

Think about it..not only mortgages…they are battling delinquent credit cards, bad car loans, signature loans etc..  All leading to huge losses and fewer potential investors.  The banks see what is on their horizon and are working to prevent it at all ‘cost’ (or loan from the taxpayer).  Better save that for another time, so…

Fannie Mae (may) get a spanking, but it may be one of affection rather than discipline if the foreclosure fears are relieved.  This can ONLY be done through the streamlining of short sales.  Think I am wrong?  Don’t bet on it.

related articles

Only 4% get long term help

Mortgage help coming slow to many

Back taxes Plague Loan Mods

No Jobs!  No Deal!

Buying the listing is when an agent will do anything to stick a sign in your flower bed, including listing at a higher price just to get you to sign on the dotted line.  I call it,  sticking it to you.  That’s exactly what it is when you consider the fact that your home will see little exposure, sit on the market longer and end up selling for less than you expected.  It happens every time!

Elizabeth Weintraub writes “…Maybe the first agent knows there will be two other agents competing for the listing, so the first agent names an astronomical figure. The second agent, upon hearing the first agent’s price, beats it. The third agent comes in higher yet.”

This is all based on the fact you have already implemented the basic tips to sell your home.

Are you thinking “but, if a buyer offers less than we are asking we can’t negotiate”?  If your home is priced right you will have several buyers considering an offer.  This presents a problem for the buyers, a level of uncertainty that you will even consider their low offer.  Hence, the offers that come will be more in line with the market.  Less serious buyers will go fishing elsewhere and not waste your time.

This salesman ‘buy the listing’ tactic only leads to more work than is necessary. I had a similar experience of my own when I recently sold my personal residence.  I don’t use ‘buy the listing’ tactics but, market conditions led to the same result.    The market was falling and I had to lower my price two times to catch a buyer.  It was like chasing the market downhill.  If I had known the banking system was going to experience such failures I would have listed at the eventual selling price from the onset to avoid the trouble.

In reality, the chance a home will sell in the first few weeks is far greater when it is priced correctly and prepared well.  Sounds intuitive enough, Right?   Go look at some homes for sale and see how little thought is given to home preparation.   This is especially important when considering a short sale.   The sooner you can yield a willing buyer the sooner you can move the time consuming process forward.

Showhomes, a national franchised home stager staged Tracy Truitt’s listing and it sold in eight days.   Tracey said…“I had an almost full price offer within a week of Showhomes’ staging, and a 25% higher offer than the two offers that had come in previously to the home being staged,” Truitt says.

I found keeping my house prepared well, clean and neat, was tiresome after just a couple of weeks.  I am a terrible merry maid.  If I had to deal with a Realtor I would have lost my mind!  I know can do better than some..look at what  these people did.

Each time I made a price adjustment more people called and disrupted breakfast, dinner and quiet family time.  It was unnerving more than once.  Buyers  sense  desperation when you drop your price and lower offers will follow.

You can guard against this by simply stepping outside your bubble and looking at the competition in an unbiased fashion.  This means you will have to forget all the trouble and expense you suffered when you updated and improved your home.  A buyer’s eye only sees your home compared to other like properties that are available.  You must do the same. No one cares if Aunt Clara helped you cook your first Turkey there.

Is this boring yet?

Wake up!  Do a Walk Score or a Megans Law search for your home? How about a Crime Report review?   I will bet my favorite tie that buyers considering your home are.  Think like a buyer!

Following your internet searches and open house viewings you can reasonably determine what your home should sell for. This will afford you the knowledge and understanding to say no to –salespeople-.  Half hearted buyers will resist the urge to make low ball offers and serious buyers will make their highest and best offers.

Would you be interested in learning what buyers complain about most?  If so, please comment and I will provide a definitive list and some ideas to overcome them.

Tips on Appraisals

One in Four Homes Lowered Price

Why do agents take over priced listings

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part 2

cont. – Start out on right foot. Trust begets trust. Only hire a Realtor you have every confidence is representing your best interests.  Be realistic and above all forthright.  Remember trust is earned.  The agent with the nice personality or “my friend’s friend”  isn’t the answer.   Every person who has been taken by a schiester says “…but they were such nice people.” Well, of course they were!  You wouldn’t give your money to an obvious ‘Vampire’ would you?

That darn Barry Madoff comes to mind.  Yuk!

Don’t run out and buy a box of  rope of garlic!

Note; refer to this list when considering who you should work with:

• Are they easy to contact?  Are their responses timely?
• Do they provide a list of past clients?
• Can I access a 3^rd party source where I can learn more about them?
• Do they possess the skills and principals required to work for me?
• Does their track record support their claims of success? …more

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Image via Wikipedia

In Part 1 of the series “Is My Agent Lying to Me?” I shared with you that both Realtor and Seller/Buyer (SB) asked themselves if they were being lied to.  If you are a first time buyer you were probably wondering why would the Realtor question the honesty of the Buyer/Seller’?

Have you found the voice in your head keeps asking, with an annoying little spear in it’s hand, “Is my agent lying to me?”  What do you think the agent’s experience might be with S/B? If their experiences have lacked a large dose of trust…maybe your agent is asking….”Are my clients lying to me?”

Consider the time you bought your car or used dinette set from the guy on Craigslist.    If  you are like me you went in with your game face on and planned to pay as little as possible.  You made him an offer and he countered and back and forth it went.  It was hard, but you got the item(s) at your price.  Or did you pay his price?   I bet you never told the Seller what you were, really, willing to pay for it, Right?  Good!  He probably never told you what he was really willing to accept either.

After weeks and weeks maybe months and months you have looked at dozens maybe hundreds of homes and BAM!  There it is, the most perfect neighborhood, the lawn is so nicely manicured and the front door is painted your favorite color.  You walk in and the kitchen and ahhh, the kitchen.  It’s sunny and bright.  Perfect.  You want this house!  As soon as you sit down with your Realtor to make your offer a funny thing happens.  You get ’The Game Face’.  You tell your Realtor you are willing to pay price X for the home.

Your Realtor provides a Market Price Report or Comprehensive Market Analysis (CMA), call it what you want, and the “market” price is between X and Y.   Uh Oh!   Your Realtor thinks you aren’t paying more than X.    Meanwhile, the Purchase Offer is written, with your X price, and your Realtor submits the offer exclaiming to the Seller you will pay not a penny more.  This is the time when you need a large dose of  hope.   Problem is hope won’t buy the perfect house for you. 

Prepare to compromise and discuss your specific options.

Mary Weintraub, a leading Real Estate tipster and prolific blogger writes…”Nobody wants an agent who is going to order them around and bark demands, but it is perfectly acceptable for a client to be given all the options by an agent…”

Somewhere, in the vast darkness of unconscious reality, the trust issue has already raised it’s ugly head.  That CMA or Market Sales Report (MSR) your Realtor provided for you…the Seller probably has similar information.  You are about to experience the Deer in Headlights look!

Coming in Part 3 … How you can get what you want!

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I LOVE the video in this link…

• Ski Homes Feel the Economic Chill (abcnews.go.com)

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jump to Part 2 of the series

If you have to ask that question then the answer is ‘yes’ your agent is probably lying to you. Notice I use the active ‘probably’?

In this series of articles you will learn:

• How to identify what is most important when choosing a Realtor.
• Why do I feel like a Deer in headlights?
• Learn if you chose a ‘Realtor’ or a’ Salesperson’
• What does Market price really mean to me?

There is a question every Realtor has been trained to use as an example to sell their service to a potential client. It goes something like this…

Seller/Buyer : “What is your commission on the sale?”

Realtor: “Well, my commission is one half of the whole – 6 or 7%”

Seller/Buyer: “Oh really? We only want to pay 5%”

Realtor: “If I were willing to give up MY money would you trust me with YOURS?  I am not willing to negotiate my commission”

Wow! The Seller/Buyer answer is a given.   “No  I wouldn’t trust you with my money”.  In sales you are supposed to get ‘yes’ answers… the psychological affect of this ‘no’ is actually an affirmation.  Makes sense, but doesn’t it make you want to grab the Pepto?

Let’s analyze the basis for the above exchange. The Seller/Buyer (S/B) is trying to get something from the Realtor and immediately the Realtor is trying to protect himself from them.  Could it be the S/B is trying to protect their self from the Realtor? Both are true and both are a natural human reaction when something is missing from the relationship. Trust.

This is a salesperson tactic using the ‘common sense approach’.  Politicians use it all the time.  When you are asked a question that you naturally say yes to, be cautious, you are working with a salesperson.   This should perk up your ears.  A salesperson wants yes answers for the psychological affect it will have in persuading you to make a decision that benefits them.  A Realtor will ask you questions that require more thoughtful answers.   Your thoughtful answers will create a working strategy the Realtor can use to help you get what you want.

If a Realtor feels it necessary to sell their services using psychological affirmation tactics, beware.   It is highly probable they have no inclination to do what it is you are hiring them to do.  That is…sell your home, strongly negotiating the price and terms that best suit your financial future and professionally manage the process the entire way.  This is not to mention the investment of time and resources the Realtor should be investing in marketing your home…not selling themselves!   Would you want someone that only focuses on themselves or someone who makes you their priority?

In a relationship where the Realtor is representing a Buyer there is no question of commission and the above scenario mentioned in Part 1 is meaningless. The Seller pays commission to both the selling agent and the listing agent 99.9% of the time

There are other Buyer:Realtor scenarios I will share in Parts 2 and 3.  Part 4 of this series is for experienced Sellers.   For now, I want to remind you that trust is the most important factor in the equation.

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650,000

That number represents 20% of eligible homeowners at least 60 days behind in their payments, according to the Treasury report. This is up from 16% a month earlier.

Despite the progress, housing counselors say the number of people falling into foreclosure vastly exceeds the ranks getting assistance. The number of filings hit a record high of 937,840 in the third quarter, according to RealtyTrac, an online marketer of foreclosed homes. That’s a 5% increase from the second quarter and a 23% jump over the third quarter of 2008.

The $75 billion Obama plan is “lagging behind the massive number of foreclosures that continue to pile up,” said John Taylor, head of the National Community Reinvestment Coalition.

But administration officials have said that the program, which was projected to help up to 4 million homeowners, is on track.  On Track?  Which track?  Becsude, if it”s the ‘railroad’ track..we are in REAL trouble.

The above excerpt is from CNNMoney‘s reporting and I have to say I don’t believe the Loan Mod scammers are going to go away soon enough for this to get markedly different anytime soon.

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I believe only one thing is going to get our  economy moving again..Housing. We got here because Real Estate based derivatives failed to produce gains. Right?  No money, no growth and no jobs.

The Pending Home Sales Index, a forward-looking indicator based on contracts signed in September 2009, rose 6.1% to 110.1 from a reading of 103.8 in August, and is 21.2% higher than September 2008 when it stood at 90.9. The gain from a year ago is the largest annual increase on record, and the index is at the highest level since December 2006 when it was 112.8.

We got here because Real Estate based derivatives failed to produce gains.   Well, then why doesn’t the government focus more on housing strategies? Obviously, it has been very effective!

This quote proves my point…

Lawrence Yun, NAR chief economist, said the momentum is understandable. “What we’re witnessing is a rush of first-time buyers trying to beat the expiration of the tax credit at the end of this month,” he said. “Home values will stabilize sooner rather than over-correcting. That, in turn, will mean wealth stabilization for the vast number of middle-class families and lay the foundation for a durable economic recovery.”

What if  the Obama administration created another tax benefit for ALL buyers?  Better yet,  produce better guidelines that all banks must use to implement procedures that fast track short sales.  Oh, Oh, Oh I know!   LOAN MODS!!!!!  What happened to all the promises there?    Fix Housing-Fix America!

Even renters could see a benefit.   Consider an apartment owner who would not feel the need to raise rents to their max if he could only get a small loan mod.   Do you think you would be a ‘consumer’ again if you could get a loan mod?   I bet your answer is ” YEP”!  That new TV or new Dining Room table would become affordable for you and that only creates more jobs! Right?

So many sectors of the economy are dependent on housing that it is a big ‘no brainer’  that housing should be the focus.

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