Mortgage fraud is part of what started this whole housing crash, and it hasn’t gone away now that we’re in an economic recession. In fact, this is the kind of climate that encourages mortgage fraud.

When hearing the term “mortgage fraud” most people think of borrowers falsifying information on their loan application. And that is one form of fraud. However, a new form of mortgage fraud has emerged, and it’s the banks who are promoting it.

That latest form is short sale fraud.

When a homeowner has both a first and second mortgage on a home and the home’s value drops dramatically, the second lien holder often has no equity at all. For instance, if a home sold for $150,000 with an 80-10-10 closing, the first mortgage would have been in the amount of $120,000 while the second was for $15,000 and the borrower would have made a down payment of $15,000.

Unfortunately, when the housing market crashed, values dropped more than 20% in many locations, so that house might now be valued at only $100,000 – or even less.

In a short sale, assuming the house sells for $100,000 the first mortgage holder will lose about $20,000, and the second lien holder will lose the entire $15,000.

During a short sale negotiation, the first lien holder often agrees to let the second take a small portion of the proceeds – often just a thousand or two. But some of those banks want more, and they attempt to “hold the transaction hostage” until they get it.

They ask the seller, the buyer, or the real estate agents to agree to pay them “on the side” before they’ll give approval for the short sale.

“On the side” means they don’t want the first lien holder to know, and the transfer of money doesn’t show up on the HUD-1. They hide the transaction by getting the homeowner to make an extra payment or two on their account, or by asking the buyer or the real estate agents to pay them after the transaction closes.

What they don’t tell the parties involved is that by keeping this money transfer off the HUD-1, they’re committing mortgage fraud – and the parties who agree to it will be accessories to the crime.

Naturally the buyers, the sellers, and the real estate agents want the transaction to close. Thus, they may rationalize that it’s OK to go along with the bank’s request. But it could be dangerous. Mortgage fraud is a felony. Participation could result in six-figure fines and even jail time.

If you’re involved in a short sale and the bank asks you to do something that simply doesn’t feel right, talk to a real estate attorney before you agree.

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Consumers who have had a major meltdown in their finances have a steep hill to climb to repair their credit scores.

This seldom mentioned reporting error compounds the problem. Here’s what happens:

When a consumer lets a credit card balance become delinquent, the account will begin to show on his or her credit report as 30, 60, 90, and 120 days late. If no payment is made, the account will eventually be flagged as having gone into collections or legal action.

Meanwhile, the credit card issuer will have been sending letters and making phone calls in an attempt to collect. If the consumer fails to respond and the creditor determines that the account might be uncollectable, it will be sold to a collection agency, who will start the whole thing all over again. If they’re unsuccessful, they’ll sell it to yet another agency. This can go on and on.

With each subsequent sale, the collection agencies are taking a bigger gamble over whether they’ll collect or not. Thus, each time the debt is sold, the price goes down, but that won’t reduce the balance owed. It is, however, the reason why some will contact consumers with an offer to accept a lower payoff.

The reporting error: When the account is sold, the original creditor is supposed to drop the balance owed to zero – because they are no longer entitled to the money. The collection agency’s interest should appear on the credit report in its place.

But that doesn’t always happen. Instead, the credit report can now appear as if the consumer has two outstanding debts in that amount. And if the account is sold multiple times, that one past due account could show up as 3, 4, or more accounts past due.

For consumers struggling to climb out of a hole and rebuild credit, this mistake can be devastating. That fact that it happens often is just one more reason why it’s wise for every consumer to keep a close eye on their credit report.

If it happens to you, contact the credit bureau and begin the dispute process. Because the credit bureaus have systems in place to file disputes, contacting them will be simpler than contacting the creditor.

On the other hand, if your credit report shows negative information more than 7 years old or reports an outstanding balance that has been paid off, do contact the lender directly. Note: Whether you contact a credit bureau or a creditor, carefully document every phone call, email, and postal mail contact. Take names!

The sooner you catch mistakes, the easier they are to correct. So no matter whether your credit is poor or excellent, check that report regularly.

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Credit cardholders are asked repeatedly to sign up for credit card protection insurance offered by the issuing bank. Economic uncertainty is one of the primary reasons that cardholders will agree to pay monthly fees just in case something happens. Even if the cardholder does not carry a monthly balance, the bank is successful in selling the insurance. Credit card protection insurance is not as common as a more standard type of insurance like car insurance so care should be taken to understand the details. Prior to agreeing to sign up for the credit card insurance program, there are some facts that every cardholder should know.

Who Benefits from the Insurance Coverage?

Based on the program documentation, the credit card issuer will receive more benefit from the credit card protection insurance program than the cardholders. The structure of these insurance plans ensures that very few cardholders would qualify to have their payments covered. Most banks have designed these plans to bring in large sums of revenue every month to compensate for their recent losses. Banks benefit in the following ways:

1. Fear Factor – Many cardholders are agreeing to carry credit card protection insurance even if they do not carry a credit card balance from month to month. If a life event occurs and credit cards are used for living expenses, the insurance is supposed to cover the payments. Banks that have lost the most money in recent financial events offer some of the most expensive programs because they can make up some lost income by leveraging the fear that exists within the marketplace.
2. Loopholes – Financial institutions have extensive legal teams that are adept at wording contracts to exempt the bank from being obligated to pay the benefits as stated in the insurance documentation. Most cardholders find that the fine print exempts all life events that do not fit exactly into the scenarios defined in the documentation. Those loopholes are written to prevent the bank from being obligated for the most common life events encountered by cardholders.
3. Monthly Cash Cow – Credit card protection insurance rates are stated in pennies per 100 dollars of outstanding balance. Most cardholders do not consider the monthly expense of the insurance premium and additional feels that are added to outstanding balance. Insurance premiums are not added to the minimum payment amount, but are added to the balance and will increase the interest income from each account with the coverage.

Read the Fine Print

Even detail-oriented cardholders are surprised to find out that their credit card protection insurance does not cover their credit card obligations. Carefully titled paragraphs lead the cardholder to believe that certain life events will be covered by the insurance, but the supporting paragraphs explain all of the specific variations of the event that allow the bank to decline the coverage. The following exemptions are designed to avoid insurance payments:

• Unemployment – Under the credit card insurance plan, the cardholder expects to be covered in the event of the loss of a job. If the cardholder is dismissed for performance reasons, the credit card company has a loophole in the documentation to exempt them from paying the benefit. Leaving the job voluntarily also negates the plan coverage.
• Disability – Another possible life event would be disability that prevents the cardholder from performing the skills of their profession. The disability section of the documentation contains a loophole for the person who can perform work of some type. If a surgeon’s hands are badly damaged in a car accident, he is still considered able to flip burgers. The loss of income is not considered, and the credit card company is able to deny payment.
• Other Insurance – If the cardholder carries life or disability insurance, those primary policies must pay out their benefits prior to the bank having to pay from the credit card protection insurance coverage. People who do not have these prior coverage policies would benefit from credit card protection insurance more than people who do.

Actual Costs of the Protection Insurance

Financial institutions use a strong marketing tool to entice cardholders to believe their credit card protection insurance programs are affordable. Insurance premiums are stated in terms of a few cents per 100 dollars of outstanding balance.

1. Minimum Monthly Payment – For those who qualify to receive the benefits from the credit card protection insurance plan, only the minimum payment is made on the account. This action prevents the account from falling into an overdue status and prevents impact on the credit history and score.
2. Interest on Outstanding Balance – Because the minimum payment is made each month, all additional interest will continue to accrue on the outstanding balance. As the balance increases, the total amount of monthly interest charged on the account will increase.
3. Premium Costs – A $5000 balance would require a monthly payment of $30 to $50, which would add up to an additional $360 to $600 per year. The program documentation will say that the premium is between 35 cents and 50 cents per $100 of outstanding balance. Many cardholders are not aware that the premium amount adds up very quickly. Plan documentation will state that the credit card account with a zero balance is not charged the monthly premium.

Final Recommendations

Cardholders would be wise to consider another option instead of the credit card protection insurance offered by the credit card issuing bank. Instead of paying the monthly insurance premium each month, apply the same amount to the minimum payment and repay the outstanding balance as quickly as possible. The best insurance against the unknowns of the future is to live within the monthly household income and have a savings plan for unexpected events. Credit card protection insurance is for people without any other options for insurance coverage. The fine print must be understood by every cardholder to prevent surprises when life events change the household income.

Back in 2003, President Bush signed The Servicemember’s Civil Relief Act (SCRA), which expanded and improved the former Soldiers’ and Sailors’ Civil Relief Act (SSCRA).

Under the new terms, banks are not allowed to charge an active duty service member more than 6% on debt incurred prior to active duty, nor are they allowed to foreclose without authorization from a judge. In addition foreclosure can only happen after a hearing, at which the service member must be represented.

However, the law didn’t stop the banks from charging high interest rates or from foreclosing.

One service member who lost his home is James Hurley. He returned from Iraq in December 2005 to find that his home had illegally foreclosed upon, and sold two months earlier. Now, after more than 5 years and two court cases, he will be compensated. But of course, he doesn’t get his home back. The current owners don’t wish to sell.

According to an article in the June/July issue of VFW Magazine, 23 similar cases are now under review by the Justice Department. And, as a result of ongoing investigations, the Justice Department is considering more lawsuits against lenders. Most are for over- charging of interest and illegal foreclosure.

Now that high interest rates and illegal foreclosures have been exposed, banks are taking steps to make amends.

In March 2011, JPMorgan Chase began mailing $2.4 million in interest refunds to 4,500 military families. They say they are also working to reverse improperly handled foreclosures. But of course, if the homes have already been re-sold, those military men and women won’t be getting their own homes back.

Bank of America has joined in, saying they will reduce active duty service members mortgage loans to “as low as 100% of the current market value,” and will reduce interest rates to 4%.

Chase is also reducing interest rates to 4%, and has promised to donate 1,000 homes to service members and veterans. The article didn’t mention how the recipients would be chosen.

It’s a shame that public scrutiny and legal action was required in order to force banks to comply with laws that protect our military members. After all, without our veterans, no one would be free to purchase homes or use credit cards.

For an over-view of the protections offered by the SCRA, visit Military.Com. (http://www.military.com/benefits/legal-matters/scra/overview).

If you’re a veteran and need assistance, visit the Pentagon’s Homeowners Assistance Program at hap.usace.army.mil. If you’re an Iraq or Afghanistan vet, check out www.usacares.org.

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While the Credit Card Accountability, Responsibility and Disclosure Act of 2009 (the  CARD Act) placed restrictions on credit card issuers, it left enough loopholes to get unsuspecting cardholders in trouble.

For instance, according to the CARD Act, your credit card issuer cannot raise the interest rate on your existing balances unless you’ve been 60 days late with a payment, or when a promotional rate expires.

However – in addition to imposing a penalty fee for missed payments and overlimit violations, they are free to penalize you by raising the interest rate on all your future purchases. In fact, they can raise your rate on future purchases for no reason except that they want to do so.

They are required to notify you 45 days before charging that new higher rate. That should give you time to get your mail and discontinue using the card well before the new rate goes into effect. But… that requirement isn’t quite as it seems. Any new charges accrued 14 days after the bank sends the notice can and probably will be subject to the new rate. The loophole: They can’t bill you at the new rate until the 45^th day.

So if you’ve been late with a payment – even by one hour – or if you’ve gone over your credit limit, stop using the card immediately. Otherwise, you may find yourself paying as much as 39.9% on any new purchases. In fact, it could be more, because the CARD Act did not impose any limits on the interest rate that credit card issuers could charge.

If you have gone over limit and been hit with a fee, do ask for proof that you opted in to over limit protection. Issuers aren’t allowed to assess an overlimit fee unless you’ve agreed to allow transactions that exceed your credit limit. Of course, the alternative is that your card would be rejected at check-out. But you do have a choice.

If you’ve been a faithful credit card user, making payments on time for years and never going over your limit, you could be justifiably angry if they penalize you for being two hours late with a payment.

It might even make you angry enough to cancel your account. But do think twice before you do that.

Your card issuer can’t require you to pay in full at the time of cancellation, but they can double your minimum payment percentage or require you to pay off the balance within 5 years. And of course, loss of a credit line will be damaging to your credit scores.

The CARD Act promised protections, but it’s just as important as ever for consumers to use their credit cards wisely and to avoid going over credit limits or making late payments.

CreditScoreQuick.com

When it comes to government regulations and banks, “You can” doesn’t translate into “You will.” This was the case with loan modifications and “underwater” refinances, and now is the case with the new FHA guidelines.

The new FHA guidelines allow a minimum credit score of 500 when the borrower makes a 10% down payment. Borrowers with only a 3.5% down payment are eligible with a score of 580. Gift funds are allowed, as are seller contributions.

That sounds good, but in reality, only 5-10% of all banks will approve such loans – and then only if all the other requirements are met and borrowers are willing to pay higher interest rates.

Most lenders impose their own requirements, known as “overlays.”

Many banks adhere to an in-house credit score overlay, regardless of what FHA says they “can” do. But there are other overlays as well.

Some lenders will go along with the low score/ low down payment requirement, but will prohibit the use of gift funds. Others impose stricter debt-to-income ratios. Others impose overlays related to job security and primary residence.

Some banks even impose different requirements for borrowers who apply through their own retail branches as opposed to those who apply through a mortgage broker.

As it turns out, the bottom line is that you still need a credit score of 640 or higher if you want to be assured of getting a mortgage loan. You also need a reasonable debt to income ratio and a reasonably secure source of income – just as everyone did before the whole mortgage crisis began.

Some are up in arms…

The National Community Reinvestment Coalition has filed a complaint with HUD, charging 22 lenders with violating several laws, such as the Federal Fair Housing Act, by imposing these overlays.

They allege that these banks are discriminating and illegally denying qualified African-American and Latino borrowers access to FHA insured loans.

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Experienced travelers have learned the hard way that all credit card rental car insurance is not created equal. Each credit payment network, like Visa and Mastercard, started offering rental car insurance coverage as a perk to attract new clients and retain their valuable cardholders. The expense of repairing rental cars started to weigh on their profits, so they have changed the rules somewhat and every cardholder would be wise to understand the coverage, the exemptions, and how to qualify for coverage from each of the different credit card payment networks.

Coverage Details

Most auto insurance companies work with their policyholders to insure against most eventualities that could cost money. The credit card payment networks are more interested in saving money than paying claims so the cardholders must be educated about the actual coverage offered.

• The credit payment network offers the rental car insurance instead of the bank that issued the credit card.
• Repair or replacement of the stolen or damaged rental cars as the secondary insurer behind the driver’s car insurance carrier for their personal vehicle.
• Towing charges from the scene of the accident to the nearest authorized repair facility that is recommended by the rental car agency.
• Each payment network has a specific limit of insurance for repair or replacement of the rental car, which is usually $50,000, but the driver should confirm the actual limit prior to denying the additional insurance offered by the rental car company.

Exemptions from Coverage

With each iteration of the program definition benefits are removed, so the cardholders must stay current on their knowledge of credit card rental car insurance coverage. When changes are made, cardholders must be notified, but most people do not read the fine print.

1. The cardholder might be charged for the loss-of-use fees charged by the rental agency for the time that the car is out of service because of the damage incurred.
2. Rental periods longer than 30 days will not be insured under the credit card plan.
3. Certain rented vehicles are excluded from these basic insurance plans, including: campers, exotic cars, cargo vans, pickup trucks and limousines.
4. Activities that are considered high-risk will also be exempted including all off-road driving.
5. Rental cars in certain countries are exempted by each of the networks, so the documentation must be verified prior to renting a car in one of the excluded countries.

Qualifying Requirements

In order to qualify for the credit card rental insurance, all of the following statements must be true:

1. The rental car agency’s collision waiver was declined at the time that the rental contract was signed.
2. The driver must be the same person who signed the rental car agreement.
3. The rental contract must be paid in full with the credit card that provides the rental car insurance coverage.

Summary of the Payment Networks

Every credit card network manages their rental car insurance program differently depending on any number of factors. Cardholder classifications are the driving factor behind the cost of these programs to the cardholder who wishes to rent a car and have a secondary insurance policy.

• Diner’s Club – Cardholders are offered a no-cost primary coverage insurance policy for all rental car contracts.
• American Express – If the cardholder wishes to purchase a primary coverage policy for the length of the rental car agreement, the fee is $24.95. Otherwise, American Express provides secondary coverage for the expenses the cardholder’s car insurance company does not cover.
• Visa – Cardholders of every classification are offered the rental car insurance coverage up to the actual value of the vehicle as it was manufactured. Visa is more flexible in paying administrative and loss-of-use fees.
• MasterCard – Premium cardholders are given this benefit, but standard cardholders are not allowed to use this program even under a fee-based program. The rental car contract cannot be longer than 15 days. Reimbursement limits are set on the actual value of the vehicle.
• Discover – Only the premium cardholders are offered the rental car insurance program through Discover. This provider is one of the least likely to pay administrative and loss-of-use fees in the event of an incident.

Recommendations to Confirm Coverage

Simply walking up to the rental car counter, denying the collision waiver, and driving off in the rental car might be a very expensive series of decisions. Every rental car company is different and the credit card rental insurance must be determined along with auto insurance coverage to mitigate the risk of an incident. The cardholder must take some specific steps to ensure that coverage exists at a sufficient level before deciding if they should choose rental car insurance:

• Prior to departing for vacation contact your auto insurance agent and ask questions concerning coverage of rental cars including the limitations. Have your auto insurance documentation available so that you can see the coverage statements in writing.
• Contact your credit card company and ask similar questions about rental car coverage and the limitations. Ask about exclusions that apply to the type of vehicle and the destination where the car will be rented.
• At the rental car counter, decline the rental car agency’s collision waiver. Pay for the contract in full with the correct credit card that will provide the rental car insurance coverage (almost all travel credit cards offer some kind of rental car insurance benefit but be sure and read the fine print carefully). List all of the drivers on the contract to make sure every driver is covered under the insurance.
• Drive the rental car safely on paved roads. Any accidents that are proven to be your fault because of negligence can invalidate the insurance coverage.

Take Action to Document Incidents

If an incident occurs and the rental car is damaged, the insurance companies will take a defensive posture in order to minimize their expenses. Most disputes will be heard and addressed if the driver of the rental car will provide substantial documentation and file all the necessary paperwork. Deductibles and extraneous fees might be the responsibility of the insured, but exorbitant and unproven expenses should be disputed appropriately with all involved parties.

Author: Emily

Q:

Equifax, have 1 creditor that has put “deceased” on my file.  Tried 3 times with Equifax to remove, other 2 bureaus have removed.  Whats the secret with Equifax.

A:

I would consider calling the creditor that is reporting this information to Equifax and asking them to update Equifax since they are reporting your information incorrectly. The credit bureaus only reports what is being sent to them by creditors.You could also get the information from the creditor verifying you are not deceased in writing asking the bureau to remove reporting this information improperly. After you get this information in writing from the creditor you can mail to Equifax asking them to remove this particular comment regarding you.

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As we all know by now, common sense didn’t have much to do with the way loans were being given out a few years ago, so now the Fed has decided to make a rule about it.

Under the new rule, which takes 474 pages to explain, creditors would be prohibited from “making a mortgage loan unless the creditor makes a reasonable and good faith determination, based on verified and documented information, that the consumer will have a reasonable ability to repay the loan, including any mortgage-related obligations (such as property taxes).”

Should lenders fail to follow the rule, they could be liable for the consequences.

However, like most of the rules regarding banks, this one is so full of exceptions and vague descriptions, that it looks like a waste of 474 pages of paper and the hours it took to compile them.

For starters, the rule doesn’t spell out any guidelines with regard to what constitutes a “reasonable ability to repay the loan.” Lenders must use their own judgment and “good faith” to make that determination.

And then there are the exceptions. Pursuant to the Dodd-Frank Act, this rule would apply to all consumer mortgage loans except equity lines of credit, timeshare plans, reverse mortgages, and temporary loans. In addition, it wouldn’t apply to balloon-payment mortgages in rural or underserved areas.

And, if the mortgage term is longer than 30 years, or if the points and fees exceed 3% of the total loan amount, the loan is exempt from the rule. To make it even less effective, the underwriting doesn’t apply to adjustable rate mortgages that reset after 60 months.

That means lenders can still qualify someone on a low introductory rate, as long as the rate doesn’t reset in the first 5 years.

What does all this mean to you? Not much.

It simply means to go on doing what you’re doing – be vigilant in keeping your credit scores over 780, save money for any future down payments, and use your own common sense in determining whether a specific mortgage loan is a good financial move for you.

Our opinion? If the banks knew they wouldn’t be “bailed out” after their lending mistakes, all loans would be based on common sense and good judgment.

CreditScoreQuick.com

In a news release on April 21, FICO announced a new analytic advance. This one will help lenders identify those borrowers who are most likely to choose strategic default over continuing to make payments on their homes. Note that these are borrowers who have the ability to make the payments, but choose to walk away instead.

Apparently, the plan is for lenders to seek out these homeowners with an offer of loan modifications – even though they haven’t requested it.

Why are they so concerned? Because the number of strategic defaults is rising. According to studies from the University of Chicago, by last September 35% of all loan defaults were strategic. This contrasts to 26% just 18 months earlier.

Add to this a study by CoreLogic stating that 11.1 million residential mortgages in the U.S. (23.1%) have negative equity, and lenders are looking at a huge pool of homeowners who just might strategically default.

35% of 11.1 million is 3,885,000 homeowners who can pay, but may choose to walk away.

So in addition to having negative equity, what are the indicators that a homeowner may choose strategic default? They’re hard to believe…
•    High credit scores
•    Low revolving credit balances
•    Few instances of exceeding credit card limits
•    Low retail credit card usage

In other words, people who appear to be the perfect borrowers.

Unfortunately, those who choose strategic default could be in for a rude awakening. They believe that the only consequences will be to their credit scores, but that may not be the truth.

Lenders in most states can sue the homeowner for what is known as a “deficiency.” This is defined as the difference between the balance owed at the time of default and the amount realized by the bank when the house is re-sold. Of course, all the costs of foreclosure, maintenance, and selling are deducted from the sale price before the figure is computed.

Thus, strategic default can saddle a homeowner with a huge debt. So think it over carefully and consult with your attorney and financial advisor before making this move.

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