Archive for Credit

Don’t Count on Credit Cards to Help You Stop Foreclosure

One of the greatest mistakes homeowners can make when they get into a financial bind is relying on credit cards or other short-term loans to see them through the difficulty. They think that they can borrow money at high rates of interest and then pay it back once their income has recovered. Unfortunately, this is not usually the case.

Far too often, what transpires instead is that the financial hardship lasts longer than was originally proposed. A few month layoff turns into six or ten months of unemployment. And while it can sometimes help to go into debt for a month or two to keep above water, a longer period of time without an income to pay the mortgage and other bills can quickly become a nightmare.

The main problem with using credit cards is that the interest rate can increase so quickly and so dramatically if the borrowers ever fall behind. And if they are relying on credit cards so that they do not fall behind on their other bills, at some point, they will undoubtedly fail to make the minimum payment on their cards. When this transpires, financial catastrophe can follow.

largeprime

©largeprime -flickr

In fact, it is almost better to ask any and every other individual and business to provide a short-term loan to help through a temporary financial difficulty. Many neighbors, friend’s families, and local businesses all keep their money with the exact same financial institutions that issue the credit cards to the borrowers in the first place.

With the creation of new government programs to help borrowers, there are a number of ways to cease the foreclosure process, as well. Borrowers do not just have to go further into debt on personal loans or credit cards, as they can have their home loans restructured or lowered in some instances.

Borrowing more money to stay out of debt is almost never a good idea, unless the difficulty will last only a month or two. But financial drawbacks commonly last far longer than originally expected. Thus, borrowers should look to alternative options to avoid losing their houses, and even give up their credit cards when they no longer have the chance to pay for all of their bills.

Combine a Loan Modification and Debt Settlement to Lower Bills

As credit card companies continue to increase rates and violate their customers, debt settlement or debt management is becoming more popular. Debt settlement is the procedure of eliminating a portion of the debt and entering into a repayment plan that will get you out of debt in just a matter of months or years. Most credit card debt could take nearly a lifetime to pay off, so seeing relief in just a few months or years is a huge relief for most people.

©Images_of_Money - flickr

©Images_of_Money – flickr

But debt settlement is usually only for unsecured accounts. Other debts, such as {car loans or first mortgages are not included. This is because these types of loans have collateral to back them up. If you do not pay, the bank will simply take away the collateral with a repossession, or the home, with a foreclosure. One choice to eliminate these debts or to pay them back on a more affordable schedule is bankruptcy. The main problem with bankruptcy is the amount of time it remaindstays on your credit. In most cases, debt settlement combined with a mortgage modification would be considered more appropriate than bankruptcy.

A mortgage modification is comparable to debt settlement in that a portion of the mortgage debt may be eliminated and new repayment terms are structured to make the payment more affordable. This can be done by lengthening the term of the loan or decreasing the interest rate. A mortgage modification is considered one of the best alternatives to foreclosure if you want to remain in possession of your home. It will make your property affordable again and has very little effect on your credit. In fact, it should begin to build your credit, assuming you have not done anything else to lower your score.

To qualify for a mortgage modification, you will need to prove that you have experienced a hardship and that a modification would make your mortgage payments affordable for the remaining life of the loan. Many lenders will want you to be behind on payments before allowing a loan modification, but that is not required. Even if you are current, if you can show that the payment is not affordable, an effective negotiator should be able to get you qualified.

A mortgage modification should be requested for at the same time as debt settlement. Ideally you want to show all your creditors improving your payment terms. Asking all your creditors to improve a small amount, is easier than asking one of them to reduce their payment a large amount.

In any situation, your credit will be effected to some degree, but when you are no longer able to make your payments, or if you have already missed payments, then you wont be approved for new credit anyway. Most people only use their credit once every 4 years, so this will give you plenty of time to improve your credit and become debt free. This is much better than a bankruptcy that can stay on your credit for 10 years.

Steps Involved In Getting A New Mortgage

Mortgaging your house might sound a bit scary and frustrating, but it might be the answer to your debt problems. Mortgages are probably the best secured loans, as real estate values are generally increasing and lenders still consider it as strong collateral. Real estate is usually one of the most expensive items a family will purchase and because it’s somebody’s home, making the payment is a high priority. As houses are immovable, serving for decades as a place to live, the maturity of the mortgage, which is usually a long time (20 to 30 years), is not a problem. Therefore, if you own your home outright or have equity in your home, and need a considerable amount of money, you might consider a mortgage loan.

©ricksomerville46 - flickr

©ricksomerville46 – flickr

When you need to get a mortgage, many aspects of your personal and financial situation are evaluated to determine the exact terms of the loan. The final agreement is preceded by several phases. Most lenders offer what is called a “pre-approval”, which is when they take a quick look at your credit and income and give you an estimate of how much money you can borrow. Once you know for sure that you want to borrow this amount, you will complete the actual mortgage application. The lender will then need to approve your application.

According to your credit report or the lender’s guidelines, you might or might not be eligible for the loan. This is why many people opt for credit repair before applying for a mortgage. If you have only a few inaccuracies on your credit report, it could strongly influence the decision of the creditor on your trustworthiness. The better your credit score, the lower your interest rate will be. In fact, the difference could be drastic. Someone with a good score could qualify for a 4% mortgage, where a poor credit score may only get a 8% or 9% approval. This could double your monthly payment!

Once you have the best possible credit score and your application has been accepted, the home appraisal or valuation is the next step. Before the appraiser comes, you could visit a home valuation site and look up a few recently sold houses in order to compare them with yours and even get a free home estimate. This will give you a better idea of what to expect and help you be prepared to contest anything that might seem suspect. You should know that proximity to a school, a shopping center or any kind of amenity increases the value of your home.

A licensed appraiser will perform the final appraisal, which should take into account the overall condition of the property, age, the area and the selling price of a similar properties in the neighborhood. After the appraisal, you will also receive a copy of the report, which should contain their impression of the property as well as at least three comparable Properties that were used to determine the final value. Most appraisals cost around $400 and only take a few days to complete. You may spend more or less, depending on the value of your home. This step is required for almost any mortgage and the home owner is generally responsible for the cost.

After the lender has reviewed the appraisal, your income, and your credit, they will offer you a loan amount for less than the appraised value. Loan amounts are generally less than 90% of the appraised value and the payment should be less than 30% of your monthly income. Once your monthly payment is calculated on the principal & interest (actual amount of the loan + interest), the lender may also include taxes, home insurance, association fees (if any), and PMI (private mortgage insurance). Closing costs and broker fees may also be calculated in the monthly payment.

After all these fees are added in, it’s important to make sure the final payment is affordable before signing the final agreement. Missing a payment will result in foreclosure and losing your home and equity. By managing your money intelligently and keeping your payments on time, you can enjoy a long and happy life in your home.

Collection Agencies, Violations of the FDCPA, and Penalties

The Fair Debt Collection Practices Act (FDCPA) was originally designed to protect debtors against abusive actions taken by collection agencies when they are pursuing a debt. There are numerous violations that may cause penalties against the debt collector to be paid to the borrowers or applied to the balance of the account. Two of the most important are prohibitions regarding communications with third parties and harassment of debtors.

Throughout the history of the FDCPA, court cases have been defining what is and is not a violation of the Act. Collection agencies and collection lawyers are the types of business that receive the most complaints by consumers though the Federal Trade Commission. The two most common complaints the FTC receives regarding collectors involve claims of harassment and collection agencies pursuing more than is really due.

©planent - flickr

©planent – flickr

A number of recent decisions in court cases have helped flesh out some of the issues regarding harassment and collectors contacting third parties (such as a borrower’s brother or coworker). In many cases, debtors that just defend against such actions can uncover numerous violations of the law by collection agencies. The borrowers may owe the money, but if the collector can not prove it owns the debt or has broken the law, its claims to recover may suffer severely.

In terms of communications with third parties in the collection of an account, debt collectors are not allowed to leave messages with family members of the debtor and request that they be conveyed through the third party to the borrowers. Failing to leave required notices may also be considered a violation of the Fair Debt Collection Practices Act.

Debt collection companies and lawyers must also protect borrower information when sending letters in the mail. One court found that a collector violated the FDCPA when it sent a letter to debtors with a window envelope where anyone could see information about the debt being referred to, including the creditor and the account number.

As well, debt collectors are not allowed to discuss or sell borrower information to nonaffiliated third parties. Collection agencies may not be allowed to make even more money from taking the personal information of debtors and selling them to marketing partners, poor credit card partners, transfer credit card partners, and others. This would be a clear action of communicating with third parties while collecting a debt.

Harassment is also a huge complaint of borrowers against collection agencies, as mentioned above. Collectors may call at all hours of the day, at work, home, on cell phones, and to family members of the debtor. While they are required to cease such communications if informed by the borrowers, collection agencies have been known to keep pursuing debts in violation of such laws. Repeated rude, threatening phone calls have been found to be a violation of the FDCPA.

For example, one collection agency actually had its agents visit a borrower’s home to deliver lawsuit papers and shout outside in a loud voice. They repeatedly yelled the debtor’s name and shouted things like “you need to get your ass out here and open your gate now,” and “you need to come out and get these legal papers now.” One court has found this behavior to be a violation of the prohibition against harassment.

Debtors should also watch out for collection agencies attempting to get them to admit things both the borrowers and debt collector know to be untrue. Even though the collector’s own records showed that a payment had been made, it attempted, though the court discovery process, to get the borrowers to admit it had not been made. The court found this behavior to be abusive, unfair, and an unconscionable practice which violated the FDCPA.

Collection agencies use a lot of devious tactics to pursue debts that they do not even really own. They seem to rely on harassment, deception, and embarrassing borrowers to extract money to keep them quiet. But once they come across a borrower willing to pursue the issue and challenge the debt and the collection practices in court, debt collectors are often found to be in violation of federal lending laws. If the debts they are collecting are legitimate, why is it so difficult for these companies and lawyers to follow a few simple laws?

Hopelessly Corrupted — Credit Card Companies, Debt Collectors, and Mandatory Arbitration

©demosphere - flickr

©demosphere – flickr

One tool of the credit card companies has always been to force consumers into unfair arbitration proceedings, where very little is done to help strapped borrowers get back on top of debts. While most people who were involved in such negotiations had a feeling they horribly biased against the consumers, the full extent of the corruption of the process has finally come out in a recent court settlement.

The attorney general for the state of Minnesota recently sued the National Arbitration Forum (NAF), alleging deception and bias in their treatment of credit consumers. Amazingly, the NAF agreed to cease all consumer arbitrations nationwide beginning July 24, 2009, which will effect huge numbers of credit card companies and borrowers. Millions of credit agreements name NAF as the company to handle any arbitration.

The reason for the National Arbitration Forum ceasing operations is that it was found to have been biased in its business dealings, and had failed to disclose these biases. Corporations controlled by a hedge fund ended up owning part of NAF and a national collection agency that used NAF in lawsuits against borrowers. NAF and the debt collector, Mann Bracken, failed to disclose this relationship to consumers.

The Minnesota attorney general’s complaint alleges that the collectors had filed 125,000 collection attempts with the National Arbitration Forum in 2006, while neither party ever disclosed the relationship between the two companies. And this is after NAF had represented itself, according to the attorney general’s complaint, as “independent, operates like an impartial court system, and is not affiliated with any party.”

Obviously, NAF and Mann Bracken were closely affiliated, owned by the same corporations through the hedge fund, and using their business relationship to sue consumers and then throw the cases into arbitration proceedings. In fact, the complaint further alleges that NAF worked with credit card companies to persuade them to include mandatory arbitration clauses in cardholder agreements. In many cases, NAF was appointed the arbitrator in these contracts.

Now that the National Arbitration Forum has ceased administering consumer arbitration proceedings, all of these former contracts are now invalid as written. A further development is that, due to the NAF complaint, the American Arbitration Association has also decided to cease handling collection actions against borrowers. This will be their decision until appropriate standards are developed.

For the present time, it seems that mandatory arbitration clauses in credit card agreements may be worthless. While it is no surprise to consumers that have been forced into the system that it is totally biased in favor of debt collectors, the Minnesota attorney general’s investigation has proved that companies can work together to gain interests in arbitrators and collection agencies and hide these affiliations from consumers.

How many credit card borrowers were pressured to agree to unfair repayment plans or were forced into bankruptcy due to the corrupt practices of the National Arbitration Forum and its affiliated credit card and collection companies? Out of 125,000 complaints that Mann Bracken filed with NAF, how many ended up fairly? It may be safe to assume, based on the claims raised in the AG lawsuit, that none of the arbitrations ended up fairly for borrowers.

How Credit Card Fraudsters Use Small Charges to Discourage Disputes

Identity theft is everywhere these days. No company or individual who has ever used a credit card online is safe from criminal hackers and social engineering thieves. And although large corporations may have the most information that identity thieves can target, smaller companies can still yield hundreds or thousands of credit card numbers.

©Webiliz - flickr

©Webiliz – flickr

One of the tactics these criminals use is to steal a huge list of credit card numbers and then begin making numerous small charges on each of them. Many consumers may not even recognize a series of charges for between $2 and $6 on their bank statement. But $30 worth of charges over a thousand credit cards is highly lucrative for thieves.

There is also almost zero risk in stealing credit cards from online merchants and using them. While much of this type of theft goes unreported, even the cases that are reported to the police end up going nowhere. A consumer in Ohio may purchase something from a website in California that is hacked by an individual in Tennessee who uses a credit card to initiate a fraudulent charge in New Jersey. Where do local authorities even begin to address this?

Federal and state regulatory agencies are also ill-equipped to deal with such instances of credit card fraud. For $30 in disputed charges per account, the federal government can not spend hundreds of dollars per case. While there may be a good chance of catching the thieves, much of the money may be gone, making tracking down small-time identity thieves a losing financial proposition for the government.

As well, disputing a whole list of charges to get them removed from a bank or credit card account is positively a waste of time for consumers. The companies that took the fraudulent charges will not answer phones, not return voice mails, or refuse to refund the charge without a police report or other evidence of fraud. This is a lot of work to get back $4.95, and many consumers will just not bother to pursue it.

While banks may accept disputes and refund money to consumers who are targets of these criminals, the banks most often recover nothing from the thieves. Instead, money is set aside in a reserve account to cover these losses. But the funds for the reserve show up in higher interest rates and fees for all banking customers, as the costs of identity theft are passed along to the consumers anyway.

Unfortunately, it seems that it is easier to make money through the drug trade, identity theft, and other black market endeavors. It is also just as risky as holding a normal job in these tough economic times. Being caught and facing monetary judgments or community service is not really all that worse than being laid off, foreclosed, and homeless. And while the costs of identity theft are passed along to consumers, the costs of foreclosure and job loss usually affect only local families and communities.

The Impact Foreclosure Can Have On Your Credit Score

©homebasedmerchants - flickr

©homebasedmerchants – flickr

If you are facing foreclosure you may be concerned about the impact it has on your credit score.  It is a question that I hear a lot, when some is concerned with foreclosure.  First one must understand the method of calculating a credit score is proprietary information.  Your credit score number is updated when a creditor makes an inquiry about your credit.  So if there is something lingering from you past it may not have affected your credit score, until there was an inquiry for the latest information about your credit.

How Soon Does Foreclosure Affect Credit
In most cases it can be anywhere between 30 and 90 days from your first late payment.  This can depend on your lender; when they file with the credit report agencies and what state you live in.

Will A Short Sale Or Deed In Lieu get rid of the affect of the foreclosure on ones Credit?
No it will not be reversed or erased by a short sale or deed in lieu of foreclosure.  In rare chances the homeowner may be able to negotiate that it be removed from the credit, but this does not happen very often.

Most people are shocked at how fast their credit score is dropped.  An example of this can be someone who has a score of 700, but is thirty days late on a mortgage payment, dropping their score down.  Also most people that are missing mortgage payments are paying other bills not on time; meaning late payments, collections or even judgments that all lower the score.  So in just a few months you can see a credit score of 700 drop down to 460.

The real problem that most homeowners should be concerned with though is the interest the lenders will want in the future, because of their low credit score.  You may end up paying for your car twice, if you get a high interest rate loan.  Making it nearly impossible to pay it off in a reasonable time or price.

The foreclosure actual point impact on a homeowners credit report is around 175 points.  The biggest impact though is the combination between the foreclosure and late payments on other bills, you can see the score affected by 240-260 points.

Not all is lost though; many of the items affecting the credit report can be removed over time.  It will require persistence, but with time and effort you may be able to 1/3 of all the negative things removed.  Make sure you get a copy of your credit report and look over it; usually people find many items on the report to be incorrect.  This can be easily removed with an inquiry and showing a paid invoice.

Overtime the affect that the foreclosure had on the credit report will fade away.  Just because you were in foreclosure, doesn’t mean you can’t buy a house in the future.  You very well can and may want to after you credit score is cleaned up a bit.  You may have to come up with a higher down payment as well.

Never Too Late to Repair Your Credit Part II

If you have missed mortgage payments or are facing foreclosure, it is not too late to consolidate your bills and get back on track.  It might seem hard to imagine getting out from under the burden of debt that has accumulated, but there is always an option that can help repair your credit.

©Stuart Miles - freedigitalphotos

©Stuart Miles – freedigitalphotos

There are more and more services offering debt consolidation and loan modification.  Many of these emerging companies are prohibited from taking up-front fees from clients and homeowners.  You should always research any company you may be working with, and also if necessary involve your attorney to be safe.

Even if you have missed 3-6 payments and are facing foreclosure on your home, you may still have options that can help you to the road of recovery.  First, see if your lender is willing to work with you on any missed payments that have accrued.  They may be willing to offer some sort of loan modification program that can help repay the past due payments.  Sometimes this can involve building those payments onto the back end of the loan payment.

You should make sure that whatever modification being offered is affordable and will work in your best interest.  The last thing you would want to happen is to be digging a deeper hole than you are already in.  Lenders and mortgage companies may also make you pay a payment and a half which could make a property very difficult to sustain and afford on a monthly basis.

The US government is encouraging banks to be more accommodating when it comes to helping homeowners who have fallen behind on payments.  It may be a good time to look into restructuring the loan or refinancing at the current low interest rates.  If you are thinking of simply refinancing a mortgage on your property, make sure the closing costs and loan fees are manageable and that it makes sense to go ahead with the re-fi including these fees as costs to your bottom line.

Typically it takes 12 months of on-time payments for your credit score to be positively affected.  This means that if your bank or lender is willing to give you some time to restructure the loan, this is a short amount of time to get back on track and also stay in your property without losing it.  When you have bad credit it is often difficult to refinance the mortgage on your property, and therefore you only have a few options when it comes to saving the home from foreclosure.

The important thing to realize is that YOU DO HAVE OPTIONS.   Better to work out a loan modification or forbearance agreement with your bank than to let the property go through the foreclosure and auction process which can really tarnish your credit.  This makes it virtually impossible to get approved in the near future for any home purchase unless you drastically improve your credit score, but that usually takes some time.

Contact your lender today and see what options are available, you may be surprised that they are more willing to work with you than they were a couple months ago.

Credit Repair – It’s Never Too Late – Part I

©Idea go - freedigitalphotos

©Idea go – freedigitalphotos

Many subprime lenders have provided homeowners with complex non-traditional mortgage agreements that allowed them to get into homes that were otherwise too expensive. These mortgage agreements typically have lower payments during the first few years that increase–sometimes dramatically–after the introductory period. The homeowner is then faced with a monthly payment that is often much higher than they can afford. After months of late payments, missed payments, and increasing penalties, the lender often times begins the process of foreclosure.

Stuck with a non-traditional mortgage loan as a result of predatory lending practices? You may be able to refinance your loan and lock in a new lower interest rate. This may help you to avoid skyrocketing monthly mortgage payments, and it could be the key to avoiding the foreclosure process altogether.

Improving your credit score may help you secure a fixed-rate mortgage. The reason you had to get a variable rate mortgage in the first place was likely because the interest rates on a fixed rate mortgage were much higher. With an improved credit score you may be able to get into a new fixed rate mortgage loan with a reasonable interest rate. These days interest rates are at historic lows, and the Fed has continued to keep rates lower to encourage and spur economic activity during the current recession. Typically it takes about 12 months of on-time payments to build your credit back up. If you have consolidated other bills into one payment make sure you can handle the new payments. Regressing back into late payments can really hurt your chances of digging out of the hole caused by a foreclosure on your credit report.

A single 30 or 60 day late payment on your credit reports will typically not have a serious effect on your credit score. In many cases, your credit score will recover when you make your past due payments and the account is no longer reported as currently past due. As long as you are not continually past due on your payments, your credit score should escape from being too damaged.

A 90 day late payment, however, is a serious negative mark on your credit report. In fact, it does not matter whether or not the account is listed as currently past due. Either way, the late payment can significantly impact your credit score.

Many homeowners are struggling to make even their new modified payment plans, and are having difficulty get back on track. With unemployment rates at the highest rates in years, it is easy to give up and give way to the deep hole of debt that has become routine in too many American households. It is important to understand that YOU CAN REPAIR YOUR CREDIT AND GET BACK ON TRACK! Speak to a credit repair specialist today and get back on the path of recovery.

Tips to Pay Your Bills on Time During the Recession

©anankkml - freedigitalphotos

©anankkml – freedigitalphotos

Sometimes it starts with a simple mistake. The bill from the phone company gets misplaced one month. Maybe the electric bill fails to show up, lost in the mail for the next decade. But next month, the bill is more than twice the amount expected, and the company has added expensive late fees. The representative refuses to negotiate the amount down since the bill was sent — just not paid.

And so it begins. One bill lost in the mail or misplaced can turn into a tangled mess of late fees, interested, more missed payments, and eventually the situation can spiral out of control. Is it the homeowners’ fault? The company’s fault? The post office’s fault? While it may be a combination of all three, it will be the borrowers who end up with all of the negative consequences.

Thus, it is vitally important for homeowners to remain on top of their bills, especially during the type of recession we are currently experiencing. With the government getting involved in every aspect of the economy, it is impossible to tell from day to day which companies will be forced to fail to prop up other companies. Families need to prepare for the worst while keeping on top of their current expenses.

The first, most basic step to keeping on top of these bills is to have a special place designated for them as they come in. Sticking them in a drawer is probably not the best idea, but neither is just letting them lie around on a dresser unopened. It is much easier to deal with the bills if they are in a special place and opened.

Depending on when the bills are due, it can also be important to set aside one or two dates every month to pay them. If most bills come due on the tenth through the twentieth of the month, for instance, it may be a good idea simply to sit down on the tenth and pay them all at once. This then allows the family to have the rest of the month to earn income and set it aside for savings or next month’s expenses.

If there are bills that do not come due during this brief window (for instance, if one is due on the first of the month), it may be possible to call the company and have the due date changed for the future. Many companies will do this for clients to make it easier for them to pay, and the amount due on the next bill will be adjusted accordingly. This will make paying them much simpler for homeowners and will be easier to keep track of and deal with.

Almost all companies that provide any service now allow payments to be made online. For homeowners who have taken the above advice and are paying all their bills at once, it is quite easy to sit down and visit a number of websites and take care of all the bills at once. This may represent a distressing hit to their bank accounts once a month, but then they have the rest of the month free.

It is important to keep copies of all payments made to any company, regardless of how the payment is made. Computer glitches happen, banks cash checks but do not credit accounts, and the post office loses mail all the time. If the owners keep a printout of the confirmation number from paying the bill with the bill itself, these mistakes will be far easier to correct.

During a severe economic recession, as the country is currently experiencing, there is simply no margin of error in paying bills. Credit card companies especially are just looking for an excuse to raise rates, charge late fees, and otherwise grab as much money as possible. Homeowners and other borrowers should proactively deal with their bills — to maintain their own credit ratings as well as to prevent a bank from taking advantage of them.