Archive for July, 2010

Fannie Mae Affordable Foreclosure Alternatives

Sunday, July 4th, 2010

The New  Fannie Mae Home Affordable Foreclosure Alternatives Program

The new HAFA program will go into effect on August 1, and could provide some relief for both homeowners and their real estate agents. This is not a program to keep homeowners in their homes, except possibly as renters. It’s designed to streamline short sales and deed in lieu procedures.

According to Fannie Mae’s  Announcement SVC-2010-07 dated June 1, 2010:

“All servicers must implement Fannie Mae’s HAFA for all conventional mortgage loans that are held in Fannie Mae’s portfolio, that are part of an MBS pool that has the special servicing option, or that are part of a shared-risk MBS pool for which Fannie Mae markets acquired the property.”

They are “encouraged,” but not required, to use it for loans that don’t fit these guidelines.

This program is “designed to mitigate the impact of foreclosures on borrowers who are eligible for a loan modification under the Home Affordable Modification Program (HAMP), but ultimately were unsuccessful in obtaining one.”

Before you qualify for HAFA you must first attempt to use HAMP. Then if you’re unsuccessful in getting a loan modification, you can use the same financial and hardship information to apply for HAFA – eliminating re-evaluation.

The next point says: “Allows the borrower to receive pre-approved short sale terms prior to the property listing.” If that means the banks are required to provide the information, it’s a huge plus for real estate agents and consumers attempting to buy short sale


Of course, using this program will place an added burden on the listing agents and the servicers. The requirements are stringent. Here’s one of them:

  • Obtain monthly geographical comparables from the listing agent to determine whether the local market conditions have changed;

Under HAFA borrowers will be fully released from future liability for the debt, eliminating the need for agents to negotiate this point for their sellers. It also prohibits the servicer from demanding forfeiture of the agent’s real estate commission as a condition of short sale approval.

Finally, both the servicers and the borrowers are given a financial incentive. Servicers will receive a $2,200 fee for a short sale, or a $1,500 fee for Deed in Lieu

Borrowers will receive $3,000 to assist with relocation expenses.

This program is not a free ride for homeowners who simply want to get out from under their mortgage debt. It is for those who actually cannot pay and who would otherwise go into foreclosure.

Servicers are required to consider whether the borrower has:

  • the ability to continue making the mortgage payments
  • substantial unencumbered assets or significant cash reserves equal to or exceeding three times the borrower’s total monthly mortgage payment (including tax and insurance payments) or $5,000, whichever is greater; or
  • high surplus income

These transactions will, of course, be reported to the credit bureaus. So there is no “free ride” for credit scores, either.

The primary benefits for homeowners will the avoidance of a drawn-out foreclosure process and the $3,000 cash for moving expenses.

As for the taxpayers… Who is paying these incentives? The banks, or the treasury?

To read the complete 22 page announcement of the new HAFA program, go to

Cars, Pride, and “Bad Debt”

Saturday, July 3rd, 2010

Do what the Millionaires Do….. Shop Smart.

For many, a car payment is a constant. From the time they were old enough to get a loan – or get a parent to co-sign on a loan – they’ve had a car payment. It’s as if that was simply a required cost of living.

Some keep a car only a year or two before it gets “traded in” on a new model. It’s a matter of pride and self-esteem to be driving something new and shiny. And of course, since cars lose a huge percentage of their value as soon as they’re driven off the lot, these folks just keep sinking farther into debt.

After only a year or two of payments the equity on the old car is usually nil, and the new car costs more. So the payment goes up from year to year – or car to car.

This is especially true if the consumer has low credit scores. Most people can get a car loan, but only those with the highest credit scores get the rates they advertise on television. And on a $15,000 car loan, the difference between an advertised 2% rate and an actual 14% rate is about $185 per month.

If you long for a new car, exercise patience. Save for a large down payment. And before you shop, check your free online credit report with scores. If your scores are still low, work on credit repair until they’re high enough to let you qualify for a good rate.

Interestingly, in “The Millionaire Next Door,” Thomas Stanley and William Danko point out that millionaires – at least the self-made variety – do not have these self-esteem and pride issues. When they buy a car most of them choose not to buy brand-new. Instead, they’ll choose a car that has been used as a demo model, or a newer rental return unit. They choose to avoid that huge hit that a car’s value takes the minute it has 10 miles on the odometer.

So – copy the millionaires. Don’t let false pride put you in “bad debt.”

Is a car loan always bad debt?

Given the fact that a motor vehicle will quickly decline in value, automobile debt is known as “bad debt.”  But is it always bad debt?

No, not always. Especially given the current price of gas.

If a person is driving 60 miles to get to work each morning in a vehicle that gets 8 or 10 miles per gallon, he or she is using 12 gallons of gas or more per day. At $3 per gallon, that’s $36 per day.

Driving an economy car that gets 30 miles per gallon would use only 4 gallons, or $12 per day. A savings of $24 per day for 20 work days amounts to $480 per month, so a car payment of less than $480 would be a wise investment, especially since a new car comes with a warranty and new tires.

However, for those whose commute is short, financing a new car does mean taking on “bad debt.”

Budgeting & Credit Scores

Thursday, July 1st, 2010

Plugging Money Leaks to Increase Your Credit Scores

The financial gurus say to pay down your debt if you want your credit scores to rise. That’s sound advice, right? But you may think that there’s no room in your budget for the extra money to pay down debt.

The truth is, if you’re like most people, your wallet may be spilling money like the Gulf is spilling oil. It’s just not as obvious.

How to stop the “money spill?” Start with a budget.

I know – no fun. But you do need to know how much money you need to cover the necessities, and you need to know when that money has to be paid. Not keeping track of credit card payment dates leads to late payments, and late payments lead to late charges – and late charges are a serious money spill.

Unless you’re a freelancer or commission-based, you know how much money you take home each week or month. Write that down. Now write down all those set obligations –like credit card payments – along with their due dates. Subtract outgo from income and you’ll know how much money each week is already “spoken for.”

You’ll probably see that you have more money “left over” than you expected, because that extra money has been leaking out of your wallet a few dollars at a time without you noticing it.

It leaks out for little things – items that cost $10, $5, or even $1. Instead of filling a travel mug at home, you stop for a coffee on your way to work. If you rent a movie you pick up some candy. If the kids go along to the grocery store you give them each fifty cents to put in the vending machines. If you see tank tops for $3 each you buy 3 – even though you have 6 in a drawer at home.

To stop the leaks: Before you buy anything, ask yourself “Do I really need this? Will I really use this? Will this add value to my life?” If the answers are no – keep the money and use it to pay down your debt.

If you add even $100 per month to your debt repayment, your credit card balances will start declining, and your credit scores will begin creeping upward. Remember – every dollar you pay down will never cost you another dime in interest charges.

Finally, before you put any expense on a credit card, ask yourself if you’ll be able to repay it in addition to your next monthly payment. If the answer is no, and the expense isn’t an emergency purchase, then just don’t buy.

Mike Clover

Disclaimer: This information has been compiled and provided by as an informational service to the public. While our goal is to provide information that will help consumers to manage their credit and debt, this information should not be considered legal advice. Such advice must be specific to the various circumstances of each person's situation, and the general information provided on these pages should not be used as a substitute for the advice of competent legal counsel.