Archive for October, 2010

Will the Banks be Held Accountable?

Thursday, October 7th, 2010

We can hope so, but we’ll have to wait and see.

A few days ago we reported on GMAC and JPMorgan Chase – that they were temporarily suspending all foreclosures in 23 states while they investigated claims of “robo-signing” of foreclosure documents.

The next day Bank of America also suspended foreclosures in those 23 states.

Why 23 states? Because those states are the ones that require court approval for foreclosures. In lieu of actually going to court, they are allowed to present signed affidavits swearing that they have reviewed the files and the documents are in order.

The trouble was, they didn’t review the files and in some cases the documents were not in order. In some cases, even the monetary figures were “off.”

Their excuse for this sloppiness was that with 8 to 10 thousand forms to sign each month, they just “didn’t have time” to do it according to the legal requirements. Statements by banking officials carry a tone that suggests that since they are so busy, they are justified in cutting these corners – in spite of the potential damage to individual homeowners.

Now key lawmakers are demanding that more than 100 mortgage companies halt foreclosures while they determine whether foreclosure documents they approved might have contained errors.

The 23 states involved in this action are Connecticut, Delaware, Florida, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Nebraska, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Vermont and Wisconsin.

But now, other states are weighing in.

The Texas Attorney General’s office has called for a halt on all foreclosures. They’re also asking for a halt on sales of all properties already under bank ownership as well as all evictions of persons residing in those foreclosed homes. They’re giving the banks until October 15 to reply to the demand letters.

Maryland Governor Martin O’Malley has done the same.

In Oregon, Senator Jeff Merkley has urged the Treasury Department and the Department of Housing and Urban Development to launch investigations, while Massachusetts Attorney General Martha Coakley said her office is already investigating an “Apparent failure of major creditors to follow state foreclosure law.”

In California, Attorney General Jerry Brown called on J.P. Morgan Chase & Co. and Ally Financial Inc. to suspend foreclosures unless they can prove that they are in compliance with state law.

Real estate professionals dealing with Short Sales have long been frustrated by the sloppy paperwork, lost documents, and delays that they and their clients have endured at the hands of the banking giants. At times, homes that were in the midst of short sale transactions or even loan modifications were suddenly foreclosed upon – despite assurances that the foreclosure had been halted.

Now we realize why this has happened. Employees in the Foreclosure departments simply did not read the files and thus were not aware of the loan modifications or short sales in progress.

Will the banks be punished for their fraudulent behavior? Will they owe monetary damages to homeowners who were harmed? Or will this sloppy behavior be forgiven and swept under the rug?

We’ll all be watching to see the outcome.

You might need a 640 credit score for FHA loans now.

Thursday, October 7th, 2010

You are probably asking what the heck is going on. HUD says they will insure FHA loans down to a 540 credit score with 20% down. Most banks were underwriting loans down to a 620 credit score.  Now banks are changing their requirements. Most are going to a 640 middle credit score requirement to even look at your loan.

The government is asking banks to make loans, but the banks are tightening up. Most of this is with good reason. All mortgage loans are nothing but risk that are bought and sold on the secondary market. Certain types of loans are put into what is called pools to be bought by investors. Currently the big players in the investment community are Wells Fargo and Chase.

These banks will buy mortgage loans based on risk and manage the defaults. When defaults are higher with a particular risk pool, the investors will stop buying those types of loans and raise the bar.

This is the current case with borrowers with scores below a 640. Evidently loan pools with a score below 640 are not performing well. So the secondary market is heading towards a minimum 640 credit score.

Some financial institutions like Bank of America still provide financing down to a 580, but eventually everyone follows suit.

This is another reason to start planning for better credit management. With the current course banks are taking, your credit score requirements just got tougher.

We saw this change coming at the first of the year. There were banks already requiring this type of score. So naturally the other banks have started this new requirement within that last couple of weeks.

Author: Mike Clover

Considering Debt Settlement Services? Use the Telephone

Tuesday, October 5th, 2010

The “Final Rule” imposed by the Federal Trade Commission contains some strange quirks. One of them applies to the disclosures now required by debt settlement companies.

For whatever reason, the new regulations affecting debt settlement companies apply only to those transactions in which the initial contact was made over the phone.

It doesn’t matter if they called you or you called them, as long as that first contact was by phone.

If you visit a debt settlement office in person, or if you fill out an online form, all bets are off. So, if you decide to follow up with an email solicitation, don’t go to the website. If you want to know more about services offered, pick up the telephone.

Before you take even this step, remember that whatever they can do, you can do.

Your first step should be to review your credit report. The second step should be to call each of your credit card companies and other creditors to see if you can personally work out a debt settlement arrangement. Then, don’t sign anything until you see a concrete proposal, in writing.

If you feel unsure about what you’re signing, consult with an attorney.

Why should you contact creditors yourself rather than use a debt settlement service?

Because debt settlement companies can get you deeper in debt.

Just because they must disclose things such as the total cost to you and the amount of time they’ll need to reach an agreement with your debtors doesn’t mean using them will be in your best interests.

Think about this: If you pay $1,000 to a debt settlement service, you could have instead applied that $1,000 to outstanding debt and be closer to becoming debt-free.

And, if they collect and hold funds from you for dispersal to your creditors, months could go by with no payments credited to your accounts. In the ensuing months, your debt will be growing, and the creditor could sue you for non-payment.

Meanwhile, your credit scores will be falling quickly as your credit report shows you farther and farther in arrears.

Another clause in the new regulations prohibits these companies from collecting fees from you until after they’ve gotten the promised results. So if a debt settlement service asks you for an up-front fee, run the other way.

Think about this as well: Debt experts fully expect that some of these debt settlement companies will be finding ways around the regulations for telephone solicitations.

Why would you trust such a company with your money, or with your credit future?

Should I Attempt to Get Old Accounts Removed From My Credit Reports?

Monday, October 4th, 2010

When should you attempt to get an account removed from your credit reports?  Believe it or not this question has nothing to do with “credit repair.”  In fact, it’s actually asked more often from people who don’t understand how the credit reporting and credit scoring systems work, yet have pretty decent credit.

To some people a credit report is only supposed to reflect current obligations, rather than current and past obligations.  This leads many consumers to think that they have to argue with the credit bureaus and attempt to get old, paid, or otherwise satisfied credit obligations removed from their credit reports.  This is unwise, and dangerous.

There are several reasons why you should never attempt to get old and good credit items removed from your credit reports.  First and foremost, the older your credit reports the better your scores will be.  And, how do credit scoring systems set the age of your credit reports?  They do this two ways; by looking at the opening date of your oldest account and, second, by averaging the age of all of your accounts.  If you are successful in getting old accounts removed from your credit reports you will almost certainly cause them to look “younger” to credit scoring systems.  Incidentally, credit-scoring systems do not look at your date of birth so they can’t use that in lieu of account age.

Another reason this is an unwise move is because of a little known yet important measurement within credit scoring systems called “account diversity.”  You earn more credit score points by having a well-rounded credit report than you do by having limited experience across account types.  This means consumers are going to do better with a history of credit card, auto loan, and mortgage usage.

If you are successful at getting old accounts removed from your credit reports then your actions are permanent, meaning you will not be able to convince the credit reporting agencies to replace the deleted account down the road when you realize your mistake.  And, efforts may very well leave you with lower credit scores and no fast way to return them to their former glory.  To avoid this credit score disaster, here are a few “credit” suggestions to live by;

1.  Don’t concern yourself with getting old negative items removed.  Federal law defines how long they can remain on your credit reports.  Normally most negative items can remain for between 7 and 10 years although there are some exceptions.  Point being, it’s a waste of your time because Federal law has already taken care of this.

2.  Credit reports are meant to be credit histories and were designed to house and maintain a record of old, satisfied account relationships.  Old credit accounts are like a fantastic GPA in high school or college.  You never ever want a record of that to disappear.  Here’s why…

3.  Credit scoring systems will reward you for a long history of responsible credit management practices across multiple account types.  In the FICO® scoring system account “age” is worth 15% of your credit score points and account diversity is worth 10% of your credit score points.  This means a full one-fourth of your credit score points could be negatively impacted if you were successful in getting old accounts removed.

Don’t do it!!

John Ulzheimer is the President of Consumer Education for and owner of  He is an expert on credit reporting, credit scoring, credit score ratings, and identity theft. Formerly of FICO and Equifax, John is the only recognized credit expert who actually comes from the credit industry.  He is a weekly guest on FOX’s The Willis Report and is the credit blogger for the New York Times and  He has served as a credit expert witness in more than 65 cases and has been qualified to testify in both Federal and State court on the topic of consumer credit.

A Penny Saved is Not a Penny Earned

Sunday, October 3rd, 2010

You’ve heard that all your life, but today a penny isn’t worth much, and besides, it’s no longer the truth.

The truth is more like: “A dollar saved is $1.30 earned – or more.”

If you work for a company that hands you a paycheck at the end of the week, you’ll see a wide gap between the dollars you earned and the dollars you got.

Deductions start with Social Security and Medicare. The last I checked, your share of those came to 7.65%. Then there’s Federal Income tax. Depending upon the tax bracket you’re in, that could be anywhere from 15% on up. The more you make, the more they take. Then, also depending upon where you live, there’s State income tax.

You could pay 1% (if you earn under about $5,000 per year) on up to 11%. In most states, the tax is in the 6-8% range if you earn a living wage. To see the charts for your state, visit the Tax Foundation

If you assume a “middle of the road” State Income tax of 7% and add it to a minimum of 15% Federal tax, plus Social Security and Medicare, you’re now at 29.65% of your earnings being deducted before you see the money. If you happen to pay union dues or other fees based on income or hours, there’s more gone.

Since the percentage you’ll pay in both State and Federal taxes goes up as your income goes up, this gets worse. For instance, In 2010, if you earn more than $68,000, you’ll pay 25% in Federal tax. Over $373,650 you’ll pay 35%.

If you’re self employed, you pay both sides of your Social Security and Medicare, so add another 7% or so to what you need to earn to spend $100.
Earn $100 to have $70
But going back to the minimums… Since taxes are deducted from your earnings, when you earn $100 you get $70 or less.

So the next time you’re tempted to buy that interesting gadget that costs “only” $70, stop and think about it. You’ll need to earn at least $100 to pay for it. Is it worth the number of hours it takes to earn that amount?

And if you don’t have the cash but decide to add it to a credit card that already has a balance, stop and think even harder.

According to the latest Bankrate survey, average credit card rates are hovering around 14%. And if you have a balance on the credit card, that new purchase could stick around costing you money for a year, or even for 2 or 3 years. On $70, that’s $9.80 per year – and you need to earn at least $14 to pay that $9.80.

Is that $70 gadget worth the $114 you need to earn to pay for it?

Could This Banking Fraud Stabilize the Housing Market?

Friday, October 1st, 2010

Fraud, greed, and government regulations led to the crash of the housing market. Now banking fraud, greed and general carelessness could lead to a stabilization in the housing market.


Because the expected glut of foreclosed homes is not going to hit the market soon. Thousands of foreclosures are being delayed and could even be cancelled.

As of now, JPMorgan Chase and GMAC have suspended all foreclosures in 23 states. GMAC didn’t provide a number, but Chase is suspending 56,000.

Home sales have been undermined these past months by the expectation that large numbers of foreclosures were about to be released – causing housing prices to slide further. That expectation has caused many consumers to put off buying a home.

If the flood stops or slows considerably, housing prices may stabilize.

How did this happen?

In their quest to speed up the foreclosure process, banks have been cutting procedural corners. Both GMAC and Chase have admitted to filing affidavits for summary judgment without knowing if the facts stated in those affidavits are true.

By signing the document, the signer indicates that he or she has personal knowledge that those facts are true. That means the signer is saying that he or she has reviewed the cases and knows the documents are correct. And that hasn’t been the truth.

It appears that banks have been taking their procedural cues from our Senators and Representatives – stating in their own defense that since they have so many foreclosures to process, they simply didn’t have time to review the cases before signing the affidavits and other documents.

The term “robo signers” has been coined to describe the way banks have handled the signing of legal documents.

Unfortunately for them, those lawmakers who sign bills into law without reading them aren’t stepping up to say its OK to file affidavits without reviewing the cases.

Shifting the blame is nothing new, and apparently banks are shifting the blame to the legal firms who supply the documents for signing. According to the South Florida Sun-Sentinel, Florida’s four largest foreclosure law firms are now under investigation for fraud.

Flordia is one of the 23 states where Chase and GMAC have suspended foreclosure activity for the time being.

Consumers are “lawyering up”

Lawsuits are already being filed, and according to lawyers representing homeowners, the lenders will likely be defeated in court due to their own carelessness. Many of the necessary documents have been misplaced or otherwise disappeared.

This will come as no surprise to real estate professionals who deal with short sales. They have been struggling with the lenders’ “lost document syndrome” for the past couple of years.

Although no others have admitted wrong-doing, Chase and GMAC are not the only banks affected. Experts predict that all banks will now take a closer look at procedures in an effort to avoid lawsuits from homeowners who feel they have been wronged.

The expectation is that banks will make a greater effort to keep people in their homes rather than rushing to foreclose. That, of course, would be good for homeowners, neighborhoods and housing prices.

Exposing and halting fraudulent activity is always a good thing. But there is one “fly in the ointment” in this situation.

Homeowners whose foreclosures are final and whose previous homes have been sold may be stepping forward to file lawsuits. If the courts find that the completed foreclosures were in fact done improperly, families who bought those foreclosed homes could find themselves entangled in a legal mess not of their own making.

Could this possibility at least temporarily slow the popularity of buying banks’ REO properties?

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.