Revolving debt just got a lot less important for borrowers…

Banks Agree to Remove Credit Notations on “Zombie” Debt

Jann Swanson | Mortgage News Daily | May 8 2015 | link

A million or more consumers nationwide may see their credit histories improve as a result of an agreement in a Federal Bankruptcy Court in White Plains, New York.  As a result of two separate lawsuits brought in the court Bank of America and JPMorgan chase have agreed to update borrowers’ credit reports to eliminate data on so-called zombie debts, delinquent accounts that had actually been extinguished in bankruptcy.

The banks, along with Citigroup and Synchrony Financial (formerly GE Capital) had been charged in the suit with retaining the information on the credit reports as live debts to enable the banks to generate higher prices for the loans when sold in pools to investors as bad debts.

According to a report in the New York Times, the banks are accused of “engineering what amounts to a subtle but ruthless debt collection tactic, effectively holding borrowers’ credit reports hostage, refusing to fix the mistakes unless people pay money for debts that they do not actually owe.”  The banks offered as a defense to the lawsuits the argument that they do comply with the law and accurately report discharged debts to the credit agencies.

According to the Times, Judge Robert D. Drain, has repeatedly refused the banks’ requests to throw out the lawsuits, criticizing Citigroup last month for its actions and saying, “I continue to believe there’s one reason, and one reason only, that Citibank refuses to change its policy… because it makes money off of it.”

The banks are also rumored to be under investigation by the Department of Justice over whether they are deliberately flouting federal bankruptcy laws which require that banks update credit reports for a borrower discharged in bankruptcy to indicate the debt is no longer owned and to remove any reference to a debt being past due or charged off.

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Do you know your history?

10% of Americans are “Credit Invisible”

Jann Swanson | Mortgage News Daily | May 6 2015 | link

About one in 10 American adults have no credit history according to a report from the Consumer Financial Protection Bureau, a total of 26 million persons who are “credit invisible.”  These are persons who have no information on file with any of the nationwide consumer reporting agencies.

Credit histories contain data on a consumers bank loans, car loans, credit card bills, student loans, and mortgages; details about the terms of credit, totals owed, payment histories, and any liens or judgments that may have been incurred.  This information is used by the agencies to produce three digit credit scores. Most decisions to grant credit and set interest rates for loans are made based on information contained in credit reports and on the resulting credit scores. As a result, those consumers who have a limited or nonexistent credit history face greater hurdles in getting credit.

CFPB says that in broad terms, those with limited credit histories can be classified as either consumers without a credit report, the “credit invisibles,” or as a second group, the “unscored.”  These are consumers who do not have enough credit history to generate a credit score or who have credit reports that contain “stale” or not recently reported information.  CFPB estimates that 19 million consumers have unscored credit records, about half of which are considered unable to be scored, a definition that differs across scoring models, and half that lack up-to-date information.  

Fair Isaac Corporation which produces the widely used FICO credit score places the number of unscored Americans at 53 million, slightly higher than CFPB’s total of those either lacking any history or with histories that cannot be scored.  CFPB says that about 189 million Americans have credit records sufficient for scoring.  

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Shopping online – not just for shoes anymore!

How to Shop for a Mortgage Online

businessman earning lots of...
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Ron Milman refinanced his mortgage in early 2015. A resident of an Atlanta suburb, Milman says he saved money, closed quickly, and except for one quick trip to a local bank to meet a local attorney to finalize paperwork, he never left his home office. Working strictly online and by phone, he says getting his mortgage online was a painless process for him. “I really don’t like going into an office,” he says. “It’s so much wasted time and effort.”

If you’re in the market for a home loan, whether for a purchase or refinance, you may have toyed with the idea of using an online lender. But you may be wondering what getting a mortgage online is like. How is the process different?

“The Internet provides the most convenient way for consumers to compare mortgage service offerings; as a result, a growing portion of mortgage originations are anticipated to be completed online in the years to come,” says Stephen Hoopes, an analyst with research firm IBISWorld.

It’s important to first understand that shopping for a mortgage online can be different than getting a mortgage online. In the first scenario, you may be using a service that doesn’t actually make loans but helps connect you to lenders. In the latter case, you actually apply for and complete the process largely online.

With that in mind, here are some of the differences when you get an online mortgage:

The Internet Holds Answers

Aren’t sure about a mortgage term? Need help deciding which type of loan to get, or whether to go for a longer-term loan or a shorter one? You can take a break to research it before you decide without giving a loan officer a blank stare or feeling like you are being put on the spot. Not that you can’t do that before you shop for a mortgage anyway, but apparently quite a few consumers don’t fully educate themselves on all their options when getting the largest loan of their lives.

A recent report by the Consumer Financial Protection Bureau found that almost half of borrowers seriously consider only a single lender or broker before deciding where to apply. The CFPB also says that most borrowers rely heavily on those who have a financial stake in the transaction, and less than half get a lot of their information from outside sources such as websites, financial and housing counselors, or friends, relatives or co-workers.

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Great news for buyers!

Just When You Thought Mortgage Rates Couldn’t Get Any Flatter

Matthew Graham | Mortgage News Daily | Apr 21 2015 | link

Mortgage rates are on the warpath, blazing a ferocious trail in a more sharply sideways direction than we’ve seen in recent memory.  This won’t last.  It never does.  But it’s, as yet, unclear what the catalyst will be for the breakaway.  From there, it’s even less clear if the break will be higher or lower.  A case can always be made for either, but certainly, cases for rates bouncing higher have been much less tenable over the past 30 years (though they have their moments, like the Spring of 2013).  Whether or not you see one here will depend on your time horizon.

Even in long term downtrends (like the one stretching back to the beginning of 2014 fairly reliably), there are periodic corrections that mark good opportunities to lock in rates.  With that in mind, it’s worth considering that rates are experiencing this flatness right in line with the best levels in more than 2 months.  Historically, these have been great opportunities to lock for anyone with an approved loan in process.  For those with longer-term time horizons, floating isn’t an insane idea here, but be sure to set a line in the sand where you’ll lock at a loss if markets move against you.

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Back to Basics: What is a Reverse Mortgage?

What Is a Reverse Mortgage?

Huffington Post | May 3, 2015 | link

A reverse mortgage is a type of home loan that doesn’t require any payments until after you die, as long as you continue living in your home. If you move out or decide to sell your house while still alive, the reverse mortgage comes due immediately. You can receive the loan proceeds in one lump sum or in monthly income payments.

Who Can Benefit From a Reverse Mortgage?

It’s important to be aware of the age restrictions for reverse mortgages: Everyone listed on the deed of the house, even if they don’t sign the loan, must be at least 62 years old for the house to qualify for a reverse mortgage. Also, reverse mortgages aren’t useful if you still owe a lot on your regular mortgage. For example, if you owe $100,000 on your house, and you get a reverse mortgage for $125,000, you would only receive $25,000. The rest of the reverse mortgage proceeds would be immediately applied to your regular mortgage. Here is a more in-depth explanation of how reverse mortgages work.

The main pros and cons of reverse mortgages are:

Pros of Reverse Mortgage

  • One big advantage to reverse mortgages is that credit checks are minimal. Since you don’t have to make loan payments during your lifetime, your credit score or monthly income are mostly irrelevant. However, new laws require lenders to set aside a certain amount of the loan funds if it looks like you won’t be able to afford property taxes, home repairs or mortgage insurance premiums.
  • The value of your home may have risen dramatically since you bought it. Reverse mortgages give you access to this profit while allowing you to remain in your home.
  • If you have limited income, a reverse mortgage can provide you with greater self-sufficiency and comfort.

Cons of Reverse Mortgage

  • You (or your spouse, if he or she also signed the loan) must be living in your home to keep the reverse mortgage in place. You can’t be absent for longer than 12 months, even if you have to go into a long-term care facility or move away to care for a family member. Longer absences result in the termination of the loan, and any money you received must be repaid immediately, with interest.
  • You must commit to maintaining your home and to keeping property tax and insurance payments up to date. Before the loan closes, the house is inspected, and you must sign a binding agreement to complete all recommended repairs by a specified date. The bank inspects your home to certify that you have completed these repairs as agreed.
  • A reverse mortgage usually makes it impossible to leave your house to your children. When all borrowers have passed away, the reverse mortgage must be repaid in full. In most cases, this requires the sale of the house. The only way to avoid this is if your heirs have enough personal wealth to pay off the reverse mortgage without needing to sell the house.

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Home is where the heart (and $$) is…

Why Real Estate Should Be in Your Portfolio

BNP Paribas Investment Partners’ Jan Willem Vis argues that having listed real estate in your portfolio can lift your returns.

Investors who have been inclined to dismiss listed real estate as an attractive asset class since the financial crisis should perhaps reconsider, as they could be missing out on the important roles that listed real estate can play in multi-asset portfolios. Not only can it operate as a proxy for direct real estate while generating diversified returns – with a stronger income component arising from high dividends – it can also provide some protection against rising interest rates, which may come as a surprise to some.

Evidence shows that, over the long term, investment in listed real estate offers an exposure to direct real estate (including real estate physical property investments and unlisted funds) while addressing the well-known illiquidity problems associated with owning a portfolio of individual buildings. The advantages in terms of liquidity are particularly important because of the potential it offers to exploit, through active management, the inefficiencies that exist among countries, markets and sub-sectors.

Chart 1: Decomposition of total annualised average returns into price returns and reinvested dividends for five regions: US, UK, Eurozone, Asia and developed countries. This graph shows the decomposition of returns for listed real estate in these regions based on the FTSE EPRA NAREIT indices.

Looking for a loan? This is a must-read!

3 Things You Didn’t Know About Government-Backed Loans

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Conventional loans are the foundation of the mortgage industry. In a recent week, only about one in four prospective borrowers applied for a government-backed loan, according to survey data from the Mortgage Bankers Association.

The Federal Housing Administration and the Department of Veterans Affairs basically insure home loans made by participating lenders. These loans tend to have more lenient credit and underwriting requirements compared to conventional loans, which carry no government backing.

FHA and VA loans feature benefits that can be the right fit for the right buyer at the right time. To be sure, they also come with their own drawbacks. But there are misconceptions surrounding government-backed loans that can cloud the home-buying process and hurt both buyers and sellers.

Let’s take a quick look at three benefits of government-backed loans that tend to fly under the radar.

They Have Lower Average Interest Rates

Many buyers assume they can get the best interest rate with a conventional mortgage. Depending on your credit, the size of your down payment and other factors, that might be exactly the case. But every buyer’s credit and asset picture is different.

More important — and perhaps surprisingly — average interest rates actually tend to be lower on government-backed loans.

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