Wednesday, July 23, 2008 - Housing Aid Bill Would Aid Owners, Buyers and Sellers

The Washington Post reported this morning that President Bush will sign the huge housing legislation package, despite his opposition to parts of it.

These points stood out when I read the article:

Buyers and therefore sellers could benefit: "First-time homebuyers who purchase a house by July 2009 would be eligible for a tax credit worth up to $7,500, though the credit would eventually have to be repaid to the Treasury. And homeowners who do not currently itemize would be able to claim a new property tax deduction of $500 for individuals and $1,000 for families."

Communities could benefit: "The package contains aid to communities to purchase vacant and foreclosed properties, a provision Democrats say would help stabilize urban neighborhoods hit hard by the mortgage crisis but which the administration argues would primarily benefit lenders who foreclosed on the properties."

Distressed Homeowners could benefit: "The package includes a plan to rescue more than 400,000 homeowners at risk of foreclosure by helping them trade high-cost loans with rapidly rising payments for more affordable mortgages backed by the Federal Housing Administration. The FHA, as well as Fannie Mae and Freddie Mac, would be given permanent authority to assist borrowers with much larger home loans, as the bill would increase the cap on the size of those loans from $417,000 to $625,000."

The second point, about aiding communities in stabilizing urban neighborhoods had a particular impact since I had just listed to Bill Moyer's Journal on PBS about the Mortgage Meltdown (transcript, video and audio available). This episode opened my eyes wider than they already were to the immense impact  of foreclosures on entire neighborhoods.

Most neighborhoods that I sell in have their share of foreclosures and pre-foreclosures, but none have been impacted like the ones described in Bill Moyer's Journal. We are fairly well insulated here in the Washington DC area. It could be so much worse. Give Mortgage Meltdown a listen. It'll make you mad, but it's stuff we have to know or we can't fix it.

I hope this legislation makes a difference, and soon.

(C) 2008 Susan Pruden.

Monday, June 2, 2008 - Maryland Law Changes Mortgage Income Rules

The following is from Andrea Lynn, a lender with FNMC. She's always first to let me know of changes in the mortgage market. Maryland has passed a stringent new law regarding how lenders must treat income. Sellers and buyers alike should be aware that this once again changes the playing field for today's market.

Friday, February 29, 2008 - Refinance Problems with 2nd Trust

If you're one of those buyers who bought with a first and second trust (and avoided Private Mortgage Insurance - or PMI - payments), you probably thought you were doing the smart thing. And just about all of us thought it was the smart thing to do.

Until one of the banks who routinely holds 2nd trusts pulled a whammy on us all.

Usually when a homeowner goes to refinance his first trust loan, the second trust hold routinely agrees to remain in second position. Position is important when a property forecloses, because the lien holder in first position gets paid first.

An article by syndicated columnist Ken Harney reports that National City Mortgage has put a halt to those routine agreements. Which means that anyone with a second trust held by National City Mortgage is going to have a hell of a time refinancing his first trust loan, regardless of who the first trust mortgage company is.

(C) Susan Pruden.

Tuesday, February 26, 2008 - The Credit Score Puzzle, Part 3

What makes up the rest of your credit score? We've already talked about payment history and outstanding credit balances.

Your credit history, which is the length of time your credit has been established, is about 15% of your score.

A borrower who has had credit lines for 20 years (we call this seasoning) scores higher than some who has never borrowed anything. If you are just beginning to establish credit, a secured credit card may be just the thing.

When I was in my 20's, I got a small personal loan and paid it off on time. By the time I was ready to buy a car, I had a history behind me and had no trouble getting a new loan. Each successfully managed loan leads to an easier time getting new loans.

If you're really new to credit, your lender may be able to show a good payment history by using phone bills, electric bills, etc.

Inquiries had a 10% impact on your score. In other words, every time you apply for credit (or even talk to a creditor about financing something), the creditor will make an inquiry as to your credit history. Too many of these and you'll lose points in your credit score. However, if you're shopping for the best rates, inquiries within a 14 day period will count as only one inquiry. So best to plan ahead when shopping for a mortgage than to spread it out over time.

Anecdotally, when I was in the mortgage business, it was common for approved loans to become unapproved loans because the buyers would go out and buy furniture on credit just before going to settlement. Those inquiries would show up and scuttle the loan. Do not spend money on anything between finding your dream house and going to settlement! Wait until the house is yours.

Last, the type of credit you have makes a difference. A mix of loan types -- auto, credit card, student, etc. -- is better than credit card debt alone.

(C) Susan Pruden.

Sunday, February 24, 2008 - The Credit Score Puzzle, Part 2

Last entry, we talked about payment history and your credit score. Your payment history makes up 35% of your credit score, so paying all your debts on time, over time, is the best way to increase your credit score.

30% of your credit score comes from your outstanding credit balances. If you are consistently maxxed out on your credit cards, you'll have a lower credit score than if you only use about 30% of your available credit. This is true even if you always pay on time -- the rationale being that you don't overly rely on credit to get by.

Maintaining a low balance shows that you can manage your credit, instead of it managing you.

Next time, the rest of the credit score puzzle.

(C) Susan Pruden.