Plan launched to help 'underwater' borrowers

By Alan Zibal

WASHINGTON — The Obama administration is trying to jump-start its sputtering attempts to tackle the foreclosure crisis with an effort to assist homeowners who owe more on their properties than their homes are worth.

Starting Tuesday, the Federal Housing Administration will permit lenders to give these borrowers refinanced loans backed by the government. The lenders will be required to forgive at least 10 percent of the original mortgage amount. Investors who have control over the mortgages as part of their large portfolios will select which borrowers are invited to participate.

The plan was first announced in March. Its rollout represents the latest of numerous efforts by the administration to address the housing bust. So far, the government has only nibbled around the edges of the crisis, as its programs have run into numerous problems.

The lending industry was ill-prepared for a crush of distressed homeowners, the economy worsened and millions of homeowners had taken on so much debt that their financial woes have been nearly impossible to resolve.

Nearly half of the 1.3 million homeowners who have enrolled in the Obama administration's main mortgage-relief program — overseen by the Treasury Department — have already fallen out over the past year.

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Many borrowers say the government program is a bureaucratic nightmare, with banks often losing their documents and then claiming borrowers did not send back the necessary paperwork. Banks say borrowers often didn't return the required documents.

The new refinancing program takes a different approach. It allows investors in mortgage-backed securities to evaluate their holdings and select borrowers that will be offered refinanced mortgages guaranteed by the FHA.

The theory is that there are some loans that investors simply want to unload because they have a high risk of default.

However, when faced with the choice between slashing the amount borrowers owe on their home loans and foreclosing, lenders have generally chosen to foreclose on borrowers. Many experts doubt the new program will persuade investors to change their minds.

Government officials acknowledge that getting the plan going will be complicated. FHA Commissioner David Stevens said in a statement that it "requires significant coordination and operational execution by several parties to be successful."

The government estimates that between 500,000 and 1.5 million homeowners could be helped. But Stevens said the number of borrowers who actually benefit will likely be toward the low end of that range.

Even so, Keefe, Bruyette & Woods Inc. analyst Bose George called the government's estimates "extremely optimistic." George said investors are likely to only offer refinances to borrowers who have seen their home values plunge to the point where they owe 40 percent more than their home's current value. Those homeowners, he said, are in danger of walking away from their mortgages.

"We're assuming that the impact is minimal," he said.

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The program is funded with $14 billion from the Obama administration's existing $75 billion mortgage assistance program. That money will be used to cover incentive payments to lenders and losses from borrowers who fall back into foreclosure.

To qualify, borrowers must be up-to-date on their mortgages, though many people who have already received loan modifications through other programs are still eligible. The plan is limited to loans in which homeowners owe at least 15 percent more than their home's current value.

Analysts at Barclays Capital estimated last month that the refinancing program would only aid between 200,000 and 300,000 homeowners. If it reaches that many, it would be a small share of the number of Americans with so-called underwater mortgages.

As of the end of June, about 11 million U.S. homes, or 23 percent of those with a mortgage, were in this position, according to real estate data provider CoreLogic.

Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Rebuild Your Credit For A Better Loan Rate

According to the credit bureau Experian the current average credit score in the US is 693 and 686 in the South Atlantic region. For many of you reading this article this may seem high. Certainly if your credit score has suffered in the last few years due to a result of effects of the economy you are not alone. Many Americans looking for mortgages are finding themselves in a situation that their credit score is keeping them from obtaining a better loan rate.

Perhaps you have looked into fixing your credit but have had no luck with removing negative items and improving your score. Often this is because it is not negative credit alone that affects your score but having good credit to compensate for it that can help you qualify for better loan rates. Fortunately there are several ways that you can rebuild your credit.

Beware of some companies that offer to boost your credit for a fee. Several years ago many individuals were artificially boosting their credit scores by becoming co-borrowers or co-signers on other's credit cards and loans to get a better loan rate on properties.  However, the credit bureaus and scoring models have gotten wise to artificial manipulation of credit worthiness.

One way to legitimately rebuild your credit in order to qualify for a better loan rate is to open new credit accounts. You shouldn't do this indiscriminately and incur too many inquiries, but you should obtain or build up to 3 to 5 accounts in good standing. One of the simplest and lowest cost ways to do this is by acquiring secured credit cards. These normally work by prepaying an amount between $200-500 in exchange for a credit line of an equal amount.

Another way that has been proven to work over time is by opening secured personal loans or lines of credit. This is easiest done by approaching local banks and depositing funds into CDs (Certificates of Deposit). Then you can take out a loan or line of credit secured by the CD. This lowers the risk for the bank and gets you a better interest rate on your loan. The other advantage is that the interest you are receiving on the CD will counteract the interest you are paying on the loan. Simply hold onto the proceeds and use it to pay back the loan. If it is a 6 month loan aim to pay it back in 3 months, if it is a 12 month loan pay it back in 6 months.

How much impact can this really have on your credit score and ability to get better loan rates for purchases or refinances? These methods have proven extremely successful for others. Exactly how much it will improve your score and how long it will take will vary on your individual circumstance.

Are Bad Credit Mortgages Still Available?

Obviously there have been drastic changes in the mortgage market in the last 5 years that have seriously limited the options available. Many types of loan programs have disappeared altogether, especially so-called sub-prime and exotic loans that have been blamed for a large part of the global financial crisis and housing crash. So are mortgages for those with bad credit still available?

A conversation with most loan officers or mortgage brokers will give you the impression that the only mortgage financing options left for anyone are conventional and FHA mortgages. While regular conventional loans have typically been reserved for 'prime' borrowers with great credit, income and assets, historically FHA loans have been used as affordable loans and bad credit mortgages.

However, the lending guidelines for FHA loans have also become tighter and more restricted as well. Whereas several years ago you could qualify for a FHA loan with a credit score in the 500s, now minimum credit score requirements for a FHA loan with most lenders is now above 620. A 620 credit score is not considered optimal credit so by definition you could say that bad credit mortgages are still available, but that window is closing steadily.  The downside of FHA loans is while they are flexible in many aspects they are fraught with restrictions at the same time, especially when it comes to getting an appraisal.

So what if you are looking for a mortgage with bad credit and you have less than a 620 middle credit score or your property does not fit into the FHA mold for other reasons? First, you can try repairing your credit and getting your score bumped up to where it will be accepted. This is relatively easy in many cases. However, try to avoid most credit repair companies as they are notorious for charging hundreds of dollars and taking an extremely long time to achieve very little. Your mortgage broker who is assisting you in your search for bad credit mortgages may be able to help you with a 'Rapid Re-score' which can give your credit score a quick boost depending on your circumstances.

Your other option for bad credit mortgages is to seek 'alternative' lenders also known as hard money lenders, private lenders and equity based lenders. A mortgage broker can still be a great resource for these types of loans and guide you to those that can help. These types of lenders put less emphasis on your credit, income and assets (though they still may want to see them) and are more concerned with the amount of equity in the property that acts as their collateral. In many cases this may mean putting down a larger deposit and paying higher interest rates which may not be ideal for purchasing and financing a personal residence for the long term but can be an extremely powerful form of financing for real estate investors looking for shorter term financing when they have bad credit.

In summary, there are still bad credit mortgages available. However what suits you best really depends on your overall situation including the property, your credit, employment, income and assets and how long you plan to keep the property before selling or refinancing.

For more information on how to improve your credit please contact our credit repair division at www.FirstOptionOnline.com

How To Improve Your Credit For Home Loans

The past several years have seen news article after article announcing how mortgage lenders are continually tightening up lending guidelines despite the government's supposed attempts to make borrowing easier for home loans. Fortunately home loans are still available for those with reasonable credit and especially for those who can qualify for FHA loans. It definitely pays to take a look at your credit report before applying for home loans and see if there is any erroneous or negative information being reported.

If you have recently been denied for credit for home loans then you may be eligible to get a copy of your credit report for free.  Otherwise you can obtain a copy of your credit report from the credit bureaus themselves. The three major credit reporting agencies in the US are Experian, Equifax and Trans Union. It is important to obtain a copy your credit file from each bureau as the information reported about you can often vary between them depending on who your individual creditors report to.

Even if you believe you have always paid your creditors on time it is possible that there can be incorrect information on your report affecting you and your application for home loans.  This can be because of mistaken identity, if someone else has the same name as you, or if your identity has been stolen and is being used without your knowledge. This can often be relatively easy to fix but if you are not aware of it you may find yourself being denied again and again.

Judgements, collections and charge offs can seriously affect your credit rating if they have been filed within the last two years and can result in inferior terms for your home loans. Fortunately, often these creditors will negotiate a settlement with you in order to recoup some of the money they invested. This can often be as little as 30-50% of the outstanding balance. However federal tax liens and judgements can prevent you from being approved for home loans on properties and definitely need to be addressed whether they are accurate or not.

Other miscellaneous late payments on your credit can be disputed if they are incorrect as well and unfortunately this happens more often than you think. In this case you should call both the creditor reporting the late payment and the credit bureau to make them aware of the situation and demand that it be corrected immediately in order for you to obtain the best terms when applying for home loans.  This is normally not as complicated as you think and can be dealt with through a couple phone calls and faxes providing you have kept records of the payments you have made. Note that this can often arise when creditors take several days to process your payment even though you made it on time. That is their problem not yours, make sure they amend the records appropriately so that you can apply with confidence and get the best home loans.

Lastly, the amount of enquiries into your credit report by various creditors can also affect your credit score and result in higher interest rates when you apply for home loans.  Take a look and make the credit bureau remove any enquiries into your credit that you did not authorize. Creditors must have a record of your signature or multiple forms of identification in order to verify that you authorized your credit to be checked.