I have owned a small mortgage company for more than 15 years and have been writing mortgage columns for more than ten years. One observation is becoming more unsettling to me: The mortgage industry is becoming more irresponsible in its business practices and advertising.
History has proven that when an industry as a whole becomes irresponsible -- perhaps even unscrupulous, the government steps in and starts to regulate. While this may be a good thing for the consumer, history has also shown that too much regulation can be harmful to everyone.
It's time for the mortgage industry as a whole to put a little more effort in self-regulation before the government regulates it to death. I write this column as an observant consumer and some of my recent observations aren't pretty. Consider the following:
• Homeowners across the country receive countless solicitation letters with misleading and false information. I have a stack full of letters that I have saved up over the last year or so. Every one is misleading in one form or another. My favorite boasts a 30 year fixed rate of 1.95 percent. Come on now.
• I click on a mortgage advertisement on a very well known internet site. The hyperlink simply says, "Mortgage Rates as low as 5.375%." I go to the site and read the fine print, which was almost too small for my old eyes. It turns out the 5.375% is only good for six months and the rate increases by one percent every six months thereafter. It also confesses that it carries a 2.50 percent origination fee. 2.50 percent? Come on now.
• A recent study by the Federal Trade Commission found that nine out of ten borrowers do not understand the charges and closing costs associated with the loan. Say what? Not one client of mine has ever left my office without a full and comprehensive understanding of his loan, the terms and the charges, if any. It's the loan officer's job to ensure that this happens. Come on now.
The mortgage business is highly regulated as it is, but unfortunately it's pretty evident that the current laws aren't working. Here are a couple of examples:
• The law requires that the lender issue a "Truth-In-Lending" statement at time of application. The form requires disclosure of the Annual Percentage Rate, or APR. The APR is supposed to give the borrower the cost of the loan, expressed as an interest rate, when you consider the note rate and any upfront charges, closing costs, and points. The problem is that it assumes the borrower will hold the loan to the full term, which is an impractical assumption. A loan with high fees and points that is paid off early will be result in a very high APR.
• The Good Faith Estimate of Closing Costs is required to be sent to the borrower within three days of making the application. What's up with that? It seems to me that calculation and explanation of the closing costs should be part of the application process.
While some laws designed to do something actually work, other laws have simply exacerbated the consumer's confusion. It's time for the mortgage industry to police its own people. We need to stop the hard-sell, eliminate misleading advertisements and concentrate on what we're paid to do -- help folks choose the best loan, help them find the most competitive terms and ensure that they have a complete understand of their mortgage program.
Sunday, July 22, 2007
Friday, July 20, 2007
Seven Steps To A Credit Score Makeover
You can mitigate the effect of tighter mortgage underwriting standards by improving your credit report profile and, as a result, your credit score.
Just don't expect that your knee-jerk reaction to tighter money will generate overnight success. Chances are, you didn't get all those credit report blemishes during a single credit buying binge.
And, if you are like many consumers, you don't even know what you are up against.
BankRate.com recently found that 32 percent of Americans surveyed never check their credit reports and have no idea what shape it's in.
It's time to find out and do something about it.
Local lenders say the incidence of credit report knowledge is even higher when borrowers sit down to apply for home loans.
"Less than 10 percent have seen their report and among those who have, most of the reports are old, many are only from one bureau and so they don't have a complete picture," said Joel Spolin, president of Absolute Mortgage in Palo Alto, CA.
Your credit report is a sort of fiscal fitness report on your credit habits and the information it contains factors heavily into your credit score, a statistical analysis or numerical value placed on your credit behavior. Your credit score is commonly used to nay or yea your requests for credit and determine how much you'll pay for credit approved.
Here are seven starter steps to take toward improving your creditworthiness.
1. Get your credit report and look for errors.
These days getting a credit report should be the no-brainer first step toward improving your chances of landing credit at the best price possible.
Simply go online to AnnualCreditReport.com, the ONLY federally-sanctioned and cost-free service, and obtain a free credit report from Equifax, Experian and TransUnion. Given the year is more than half over, get your report from at least two companies, perhaps three. Next year set up your own credit monitoring service by getting a report from a different company every four months. Again, through AnnualCreditReport.com, each report is free.
Questions? Call (877) 322-8228 for details about your free credit report rights.
"We advise the client to get one report, pulled by a lender or broker and then use this report to share with other brokers so their credit is not getting constantly pulled," said Paul Garcia
A trusted lender or broker can pull your report for you and show you the ropes. Limiting the number of credit report pulls is also key. However, someone pulling your credit report can charge you a fee and the pull will show up on your credit report, though with little consequence.
Get your feet wet the first time around. Pull your own free credit report. Examine it for errors. That's the spirit of the law, to give you control and knowledge. Bring in a realty pro later, if necessary.
"It's good to get the report so the borrower knows what they are dealing with and to determine if any corrective actions need to be taken," said Garcia.
2. Check credit limits and attempt to keep balances evenly distributed across credit lines, advises attorney Edward Jamison, with the Los Angeles, CA Jamison Law Group he founded to specialize in consumer credit and identity theft.
3. Make sure your maximum credit limit is reported for each account.
"When no limit is reported, credit scoring software presumes the account is 'maxed out'." Jamison says credit scoring software scores more favorably when the balance is 50 percent or below, but too many open accounts with zero balances could lower the score with the assumption you could suddenly run up a lot of credit.
4. Keep some credit cards open. Close others.
Open credit cards with limited balances and good payment records raises scores, especially long-time credit cards. However, the accounts should be limited in number and well-managed.
"Closing credit card accounts can hurt your score unless the accounts were opened less than two years ago, and you have more six credit cards," says Jamison.
It's about striking a balance.
"Credit scoring software assumes that people who have had credit for a longer time are at less risk of defaulting on payments," Jamison said.
5. Where possible, get rid of late payments listed on the credit report.
Jamison says if your late payments are dated and you've been a good credit customers for some time creditors may, in good faith, adjust your statement.
"If you are a customer in good standing, the creditor may work with you," he said.
The effort isn't easy. A demanding, frustrated and rude approach will make it more difficult. The lender isn't required to remove dings for 7 to 10 years in some cases.
6. Pay off collection accounts and past due amounts. Payoffs and paying past due accounts start the clock running on how long the ding will remain on your report. In some cases the collection agency or creditor may remove the ding, says Jamison. Again, it's not easy.
"The consumer should contact the collector and request a letter explicitly stating their agreement to delete the account upon receipt or clearance of the payment," he said.
7. Likewise, whenever possible, seek to have charge-offs and liens that are less than two years old removed.
"Charge-offs and liens that are older than 24 months do not affect your credit score nearly as much as ones under 24 months," says Jamison.
"But if they're newer than 24 months, they can seriously damage your credit," revealing you as a more recent credit slacker.
Keep in mind, all efforts to improve your credit, other than correcting errors, are typically based on you being a mature credit consumer -- pay your bills on time, don't overload yourself with debt and get in touch with lenders at the first sign of trouble for workouts than can help save your credit or reduce the damage to your report and your credit score.
Just don't expect that your knee-jerk reaction to tighter money will generate overnight success. Chances are, you didn't get all those credit report blemishes during a single credit buying binge.
And, if you are like many consumers, you don't even know what you are up against.
BankRate.com recently found that 32 percent of Americans surveyed never check their credit reports and have no idea what shape it's in.
It's time to find out and do something about it.
Local lenders say the incidence of credit report knowledge is even higher when borrowers sit down to apply for home loans.
"Less than 10 percent have seen their report and among those who have, most of the reports are old, many are only from one bureau and so they don't have a complete picture," said Joel Spolin, president of Absolute Mortgage in Palo Alto, CA.
Your credit report is a sort of fiscal fitness report on your credit habits and the information it contains factors heavily into your credit score, a statistical analysis or numerical value placed on your credit behavior. Your credit score is commonly used to nay or yea your requests for credit and determine how much you'll pay for credit approved.
Here are seven starter steps to take toward improving your creditworthiness.
1. Get your credit report and look for errors.
These days getting a credit report should be the no-brainer first step toward improving your chances of landing credit at the best price possible.
Simply go online to AnnualCreditReport.com, the ONLY federally-sanctioned and cost-free service, and obtain a free credit report from Equifax, Experian and TransUnion. Given the year is more than half over, get your report from at least two companies, perhaps three. Next year set up your own credit monitoring service by getting a report from a different company every four months. Again, through AnnualCreditReport.com, each report is free.
Questions? Call (877) 322-8228 for details about your free credit report rights.
"We advise the client to get one report, pulled by a lender or broker and then use this report to share with other brokers so their credit is not getting constantly pulled," said Paul Garcia
A trusted lender or broker can pull your report for you and show you the ropes. Limiting the number of credit report pulls is also key. However, someone pulling your credit report can charge you a fee and the pull will show up on your credit report, though with little consequence.
Get your feet wet the first time around. Pull your own free credit report. Examine it for errors. That's the spirit of the law, to give you control and knowledge. Bring in a realty pro later, if necessary.
"It's good to get the report so the borrower knows what they are dealing with and to determine if any corrective actions need to be taken," said Garcia.
2. Check credit limits and attempt to keep balances evenly distributed across credit lines, advises attorney Edward Jamison, with the Los Angeles, CA Jamison Law Group he founded to specialize in consumer credit and identity theft.
3. Make sure your maximum credit limit is reported for each account.
"When no limit is reported, credit scoring software presumes the account is 'maxed out'." Jamison says credit scoring software scores more favorably when the balance is 50 percent or below, but too many open accounts with zero balances could lower the score with the assumption you could suddenly run up a lot of credit.
4. Keep some credit cards open. Close others.
Open credit cards with limited balances and good payment records raises scores, especially long-time credit cards. However, the accounts should be limited in number and well-managed.
"Closing credit card accounts can hurt your score unless the accounts were opened less than two years ago, and you have more six credit cards," says Jamison.
It's about striking a balance.
"Credit scoring software assumes that people who have had credit for a longer time are at less risk of defaulting on payments," Jamison said.
5. Where possible, get rid of late payments listed on the credit report.
Jamison says if your late payments are dated and you've been a good credit customers for some time creditors may, in good faith, adjust your statement.
"If you are a customer in good standing, the creditor may work with you," he said.
The effort isn't easy. A demanding, frustrated and rude approach will make it more difficult. The lender isn't required to remove dings for 7 to 10 years in some cases.
6. Pay off collection accounts and past due amounts. Payoffs and paying past due accounts start the clock running on how long the ding will remain on your report. In some cases the collection agency or creditor may remove the ding, says Jamison. Again, it's not easy.
"The consumer should contact the collector and request a letter explicitly stating their agreement to delete the account upon receipt or clearance of the payment," he said.
7. Likewise, whenever possible, seek to have charge-offs and liens that are less than two years old removed.
"Charge-offs and liens that are older than 24 months do not affect your credit score nearly as much as ones under 24 months," says Jamison.
"But if they're newer than 24 months, they can seriously damage your credit," revealing you as a more recent credit slacker.
Keep in mind, all efforts to improve your credit, other than correcting errors, are typically based on you being a mature credit consumer -- pay your bills on time, don't overload yourself with debt and get in touch with lenders at the first sign of trouble for workouts than can help save your credit or reduce the damage to your report and your credit score.
Tuesday, July 10, 2007
NAR "Legal Scan" Highlights Agency and RESPA Issues
Agency and RESPA controversies top the list of legal challenges facing real estate professionals, according to the 2007 "Legal Scan" study by the National Association of Realtors.
Conducted once every two years and not released to the general public, the study involved analysis of 655 court cases, jury verdicts and settlement reports, plus a survey of a sample of active realty agents across the country.
Agency or representation duties issues were central to 100 of the legal disputes analyzed, dominated by allegations of breach of fiduciary duty, failure to properly represent buyers, and problems arising from dual agency arrangements. Among other top causes of lawsuits against realty brokers or agents were alleged omissions or misrepresentations in property condition disclosures (mold, structural defects, zoning, sewer/septic system and insect or vermin infestation).
Consumers filed hundreds of suits or complaints against agents, but according to the survey, they didn't win most of them. In fact, in the 315 cases out of 655 that ended with a judgment on the agent's professional liability for wrongdoing-whether through pretrial proceeding or a verdict-210 (66 percent) were resolved in the agent's favor, and 159 of those favorable outcomes did not require a trial. Twenty-two additional cases were settled out of court, with settlement amounts ranging from $5,000 to $2 million.
Most of the cases that ended with a finding of liability against the agent or broker went to trial. Damages were awarded in 93 cases, ranging from $1,500 to $4.2 million. Findings of deceptive trade practices were the source of the highest number of damage awards, followed by breach of fiduciary duty and breach of contract.
The Legal Scan survey of active agents and brokers sought to pinpoint where the industry sees legal and regulatory issues headed in the future. One out of three survey participants said that agency issues are likely to continue to be significant sources of legal disputes, especially claims that the agent breached his or her fiduciary duty, violated dual agency rules, failed to properly disclose the nature of the agent's representation, and failed to conform to minimum service agreements.
Participants were asked to comment on the causes of agency complaints and lawsuits. They said that agents who are targets of complaints often either "do not understand what it means to be a fiduciary" or they "just want to close deals. They seem to forget and say anything they think will put the deal together, thinking the end justifies the means."
On dual agency, there are major problems, according to the participants: Agents do not understand what it means to be a dual agent-they continue to represent one party in the transaction, to the detriment of the other. One participant said "dual agency, particularly single agent dual agency, remains a bullseye on our backs. It is a built-in lawsuit factor."
Growing problems with RESPA-related issues are expected by large numbers of agents, according to the survey, especially disputes triggered by alleged kickbacks, affiliated business arrangements and inadequate disclosure of settlement costs.
On kickbacks, survey participants said many agents simply do not know the law or what it prohibits. "Practices that were taught and considered acceptable for rewarding referrals and clients are being questioned, and most agents are not even aware that such a problem exists."
HUD, which has oversight and enforcement authority over RESPA, recently has emphasized penalizing recipients of kickbacks or "things of value" -- agents accepting free concert or ballgame tickets are examples -- as well as punishing the providers of kickbacks. State agencies also are ramping up their own RESPA-related crackdowns, and going after agents who receive gifts from title, settlement and mortgage companies for referrals of business.
Conducted once every two years and not released to the general public, the study involved analysis of 655 court cases, jury verdicts and settlement reports, plus a survey of a sample of active realty agents across the country.
Agency or representation duties issues were central to 100 of the legal disputes analyzed, dominated by allegations of breach of fiduciary duty, failure to properly represent buyers, and problems arising from dual agency arrangements. Among other top causes of lawsuits against realty brokers or agents were alleged omissions or misrepresentations in property condition disclosures (mold, structural defects, zoning, sewer/septic system and insect or vermin infestation).
Consumers filed hundreds of suits or complaints against agents, but according to the survey, they didn't win most of them. In fact, in the 315 cases out of 655 that ended with a judgment on the agent's professional liability for wrongdoing-whether through pretrial proceeding or a verdict-210 (66 percent) were resolved in the agent's favor, and 159 of those favorable outcomes did not require a trial. Twenty-two additional cases were settled out of court, with settlement amounts ranging from $5,000 to $2 million.
Most of the cases that ended with a finding of liability against the agent or broker went to trial. Damages were awarded in 93 cases, ranging from $1,500 to $4.2 million. Findings of deceptive trade practices were the source of the highest number of damage awards, followed by breach of fiduciary duty and breach of contract.
The Legal Scan survey of active agents and brokers sought to pinpoint where the industry sees legal and regulatory issues headed in the future. One out of three survey participants said that agency issues are likely to continue to be significant sources of legal disputes, especially claims that the agent breached his or her fiduciary duty, violated dual agency rules, failed to properly disclose the nature of the agent's representation, and failed to conform to minimum service agreements.
Participants were asked to comment on the causes of agency complaints and lawsuits. They said that agents who are targets of complaints often either "do not understand what it means to be a fiduciary" or they "just want to close deals. They seem to forget and say anything they think will put the deal together, thinking the end justifies the means."
On dual agency, there are major problems, according to the participants: Agents do not understand what it means to be a dual agent-they continue to represent one party in the transaction, to the detriment of the other. One participant said "dual agency, particularly single agent dual agency, remains a bullseye on our backs. It is a built-in lawsuit factor."
Growing problems with RESPA-related issues are expected by large numbers of agents, according to the survey, especially disputes triggered by alleged kickbacks, affiliated business arrangements and inadequate disclosure of settlement costs.
On kickbacks, survey participants said many agents simply do not know the law or what it prohibits. "Practices that were taught and considered acceptable for rewarding referrals and clients are being questioned, and most agents are not even aware that such a problem exists."
HUD, which has oversight and enforcement authority over RESPA, recently has emphasized penalizing recipients of kickbacks or "things of value" -- agents accepting free concert or ballgame tickets are examples -- as well as punishing the providers of kickbacks. State agencies also are ramping up their own RESPA-related crackdowns, and going after agents who receive gifts from title, settlement and mortgage companies for referrals of business.
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