How to Make Sure Your Loan is Locked

Question -- I've been worrying about an old friend who bought recently and was in a bind. He went with a mortgage broker early this year who "locked them in" at 5.25% fixed, but a month or more later told them the lender had been unwilling to actually fund the loan -- something about the broker not using a system that guarantees a commitment electronically but relying on an older paper system that isn't final until paperwork clears.

Answer -- There are still a few lenders to whom we FAX a lock request but those are usually small mortgage bankers. That means small, not necessarily bad. But everyone, including this broker, had to lock it in with his lender electronically.  As part of that process he would get a Lock Confirmation that shows the lock date, loan terms, and the lock expiration date. As a borrower, you ought to have a copy of that too. It's what you need to prove you have a commitment. Failure to do that creates a situation like you describe.

Then too, the truth could be something completely different, that this was just the story he was told that the loan rep hope he believed.  For example, I think that rates have not been as low as 5.25% this year for fixed rate loans.

The lender tells you the rate is 5.25%, but it really isn't, it's 5.625%.  He can't really lock you in because it would be at 5.625% and if he locked you in now, you would know that he had been lying to you.  So he tells you that you are locked but you really are in a floating status. The loan rep hopes that the market improves and THEN he can lock you in at 5.25% and not get caught. 

In summary, you only know you are locked when you have a copy of the Lock Commitment. This also gives you an opportunity to review the broker's compensation.  A number like "101" in the pricing field means that he is getting a 1 point rebate or Yield Spread Premium.  If he tells you that he's charging you 1 point, you now know that he is making a total of 2 points on your loan. That’s $6,000 on a $300,000.  In a tough market like we have today that's a little rich, I think that creates an opportunity for you to "renegotiate" his compensation.

 
 

What was that $750 billion for?

Perhaps you remember a little thing called the $750 billion bank bailout. (After all, it’s difficult to keep track of every little $750 billion you spend these days!) Earlier this month, President George Bush and Treasury Secretary Henry Paulson convinced the nation that if taxpayers didn’t provide a massive infusion of cash to the nation’s banking industry, banks would stop lending, the credit markets would seize, and the entire world economy would sink into a depression.

“The reality is we are in an urgent situation and the consequences will grow worse each day if we do not act,” Bush said in September during his weekly radio address.

But that was three weeks ago. In private conversations and public pronouncements, bank executives have made clear that they have no intention of using the $250 billion they’ve received thus far from taxpayers to actually increase lending.

Instead, Pittsburgh-based PNC Bank announced this week that it will use $5.6 billion worth of bailout money to buy National City, a beleaguered but still solvent Cleveland bank. Jim Rohr, PNC’s chairman, refused to comment on the future of 2,000 jobs in National City’s corporate headquarters. That could mean that Cleveland stands to lose one of its last major employers. (However, this nightmare scenario might be offset somewhat by gains across town. Cleveland-based Key Bank announced this week that it, too, will use its taxpayer money to buy banks instead of help taxpayers.)

Or consider the words of an as-yet-unnamed executive at JP Morgan in a conference call secretly recorded by a New York Times reporter. Instead of using its $25 billion in taxpayer cash for its intended purpose, “What we do think it will help us do is perhaps be a little bit more active on the acquisition side,” the executive said, “and obviously depending on whether recession turns into depression or what happens in the future, you know, we have that as a backstop.” (Read the devastating Times editorial about this boondoggle.)

So there you have it. Instead of using our money to prevent a depression of their own making, banking giants are using it to help themselves ride out said depression. And what happens to us citizens, the largest new shareholders in these banks? Expect a rash of layoffs at smaller banks that could have been saved. Expect requirements making it harder for qualified consumers to obtain mortgages or credit cards. As consumer spending continues to tank, therefore, expect the financial crisis to get worse.

Here’s what you can do:

• Call your Senator and Congressman. Demand a full investigation into the federal bank bailout.
• Call Treasury Secretary Henry Paulson. Demand that Treasury doesn’t give banks another dime until they sign contracts promising to use taxpayer money responsibly.

• Secretary Paulson’s Office: (202) 622-2000

• Call JP Morgan and Key Bank. Ask them why they’re misusing money that belongs to their newest shareholders.

• JP Morgan Investor Relations (Because YOU are an investor now!):
  • Julia Bates, (212) 270-7318
  • Key Bank Investor Relations: 216-689-4221

Struggling Cardholders Need Better Debt Repayment Options

Given the tough times so many people are facing, the National Foundation for Credit Counseling (NFCC) is calling on credit card issuers to develop more affordable, realistic repayment terms (aka “concessions”) for people in credit counseling.

"Consumers want to repay their debts, and lenders want to be repaid,” explains Susan C. Keating, president of the NFCC. “But due to the current economic strain on their budgets, borrowers often cannot meet the lenders’ required monthly payments, even those that have been reduced through current workout repayment options.”

By the time 2008 comes to an end, NFCC projects that more than 2.5 million consumers will receive assistance from the 900 community-based credit counseling offices run by its member agencies. Keating fears that bankruptcy will be the only option available to many of these families – “unless the credit card industry provides relief through better concessions, so that a greater number of consumers can qualify for Debt Management Plans, or DMPs.” (These are the agreements that consumer credit counseling firms negotiate with creditors to help their clients pay off their debts.)

“Right now we are in a lose-lose situation,” as Keating puts it in her 2008 State of the Credit Counseling and Financial Education Sector Address. “Many consumers are damaging their credit because they have no better option than walking away from their debt or filing for bankruptcy. Creditors, in turn, are taking bigger losses than necessary.” When people choose debt settlement, lenders only receive pennies on the dollar, but they’re repaid in full via DMPs, Keating adds.

By March 31, 2009, NFCC wants all credit card issuers to:

• Offer more affordable monthly fixed payments.
• Set the Annual Percentage Rate (APR) to ensure that the balance will liquidate within 60 months.
• Waive late and over limit fees.

Under NFCC’s new proposal, clients would also face new challenges: to establish and maintain a $200 emergency cushion in a savings account. Deposits of $25 monthly would also be required.

These sound like very reasonable, timely changes to me, where everyone wins. I hope the industry agrees! What do you think?

Tip: If you’re wondering if you’d benefit from some credit counseling, don’t put it off! Debts are not like wine – they do not improve with age! You can get a free debt consultation from Credit.com, as well as some advice in finding quality credit counseling.

Nancy Castleman – Co-author of "Invest in Yourself: Six Secrets to a Rich Life" and founder of Good Advice Press. Nancy has spent the last 24 years teaching people how to get out of debt, save money, and live better on less. She writes on all these subjects for CreditBloggers.com.

In Memorium: John Ventura

It is with a heavy heart that I am sharing with you that my co-author John Ventura passed away yesterday. John was a consumer bankruptcy attorney, board-certified by the National Association of Consumer Bankruptcy Attorneys and the State of Texas, a consumer law attorney and a nationally-known author.

As a young boy, John spent his high school years in a Catholic seminary dreaming of becoming a Catholic priest so he could help people. After graduating however, John decided to achieve his dream by combining journalism with the law. He envisioned providing ordinary people with affordable, caring legal services and educating them about how to use the law to protect their rights and avoid legal trouble. In pursuit of this goal, John earned an undergraduate degree in journalism and a law degree from the University of Houston.

After graduating from law school, John and his legal partner built one of the most successful consumer bankruptcy firms in Texas. When that partnership ended, John took over the firm’s law offices in Brownsville, McAllen and Harlingen and began the Law Offices of John Ventura. He provided caring, compassionate advice to numerous financially-stressed consumers and became a highly visible bankruptcy attorney in the Rio Grande Valley, hosting a weekly radio show and a newspaper column on small business legal issues for many years. John also opened a fourth office in Corpus Christi, but soon after he sold his law firm and returned to Houston where he became Executive Director of the Texas Consumer Complaint Center at the University of Houston Law School and an Associate Professor at the school.

During his 30-year legal career John was a frequent guest speaker at legal seminars sponsored by the State Bar of Texas, the National Association of Consumer Advocates and the National Consumer Law Center. He also served on the Bankruptcy Council and the Consumer Bankruptcy Rules Committee of the State Bar of Texas and was a member of its Advertising Review Committee and Consumer Council.

John also developed a very successful second career as an author, authoring or co-authoring 17 books on a variety of consumer and small business topics over 19 years, including several books in the popular For Dummies series. He earned a reputation as someone who could explain complex legal topics to regular people in an understandable way. As an author he also became a nationally-known expert on consumer and small business legal matters and was a guest on such national media outlets as CNN, PBS, Bloomberg Television and Radio, National Public Radio, and American Public Radio as well as on countless radio interview programs across the country. He was also interviewed by or mentioned in such national publications as The Wall Street Journal, Newsweek, Kiplinger’s Personal Finance Magazine, Money Magazine, The Wall Street Journal, Martha Stewart’s Living, and Entrepreneur.

It seems like yesterday that John and I were taping the audio for our book, and it is difficult to comprehend that he has left us. But he's also left behind a wealth of information about consumer rights that will benefit many people for years to come.

Consumer Debt Falls, Fees Rise

There’s good news and bad news for consumers emerging from the latest permutations of the global financial meltdown. On the plus side, there is initial evidence that Americans may be starting to live within their means. Consumers owed $7.9 billion less in August than they did in July, according to a report by the U.S. Federal Reserve that tracks both revolving debt, which is almost entirely made up of credit card debt, and non-revolving debt, which includes student and auto loans.

Of course, the new lower numbers nevertheless leave Americans with a large amount of revolving debt––$969 billion––in August, down from $969.6 billion in July, the report found. About 58 percent of people with credit cards don’t pay off their balances at the end of each month. And those who carry a balance every month owe over $17,000 apiece on average, according to the Consumer Federation of America (via Newsday).

On the cash side of the family balance sheet, however, things are getting worse. Fees for overdrawn bank accounts and out-of-network ATMs hit a new record high this year, according to a recent survey of banks by Bankrate.com (via L.A. Times). The average ATM fee is now $3.43. And the average bounced check now costs $28.95 in fees, a 2.5-percent increase from a year ago, the survey found. With banks’ huge bets in predatory mortgage loans continuing to wreak havoc in their balance sheets, increasing fees is one of the few guaranteed ways they have left to raise revenue. So look for these fees to rise even further in the coming months.

Here’s some advice for how to react to these trends:

• Follow the herd. Lots of people are trying to pay off their credit card balances and restrict themselves to using just one card. Now is a good time to follow their lead. “Try to pay off the one with the highest interest rate first, and then keep working at the others,” Candy Wright of GreenPath Debt Solutions, a Michigan-based nonprofit, told Newsday.

• Watch your statements like a hungry hawk. One of the last places you want to spend your hard-earned money is on fees incurred because you weren't watching your bank balance.  Credit.com lists 10 Ways to Avoid Overdraft and Bounced Check Fees.

What Happens When you Call a Credit Counselor?

Millions of Americans are looking for help with their credit and financial situations for the first time this fall. Programs like HOPE Now offer help to people who are struggling to avoid foreclosure. Credit counseling programs promise to help people get their debts under control.

So what actually happens if you call for help? We asked John McCosh from CCCS of Greater Atlanta to explain the process to us:

An alliance of lenders, government agencies and nonprofit consumer credit counseling agencies is partnering to offer the Homeowner’s HOPE Hotline (888-995-HOPE). When a homeowner calls the hotline, the phone is answered by one of several nonprofit credit counseling agencies, including Consumer Credit Counseling Service of Greater Atlanta.

During the first conversation, an agency representative will assess the caller’s situation. Sometimes people who are delinquent on their mortgage at first say the problem is the interest rate is increasing and later reveal they’ve been out of work for six months, so income loss is the real issue. When it has been determined that a delinquent mortgage is the primary problem, the homeowner is scheduled for a one-hour counseling session, typically held over the telephone.

There are four stages to this one-hour session:

• Gather the client’s personal information.
• Review each item in the homeowner’s monthly income and expenses.
• If the client’s main goal is to stay in the house, but there is a shortfall in the monthly budget, look for unnecessary expenses to cut or ways to increase income.
• If a shortfall remains after step three, but the mortgage would be affordable if the loan terms were modified, the counselor might connect a three-way call with borrower and lender or servicer and propose new terms to make the mortgage payment sustainable.

At CCCS of Greater Atlanta, approximately 69 percent of people who call us for foreclosure prevention services are able to avoid foreclosure. Our counselors are often successful when homeowners have had trouble negotiating relief because we speak regularly to people in the loan modification departments of the mortgage servicing companies. Our counselors also know that persistence is key. Because our counselors know what a reasonable solution looks like, they know to keep trying if the first proposal is turned down. We take a holistic approach toward the problem with a goal of ensuring the homeowner will be able to afford the mortgage in the long run.

Have you talked to a credit counselor lately? How was your experience looking for help? Share your story with us in the comments section below.

Emily Peters – Credit.com's personal finance expert and former TransUnion credit expert. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com moderator.

Credit Card Education for Your Children (Part 2)

By Curtis Arnold, CardRatings.com Founder

Editor's Note: This article is the second in a four-part series containing consumer tips for parents of children and young adults.

While there’s no benefit to going into a lot of numbers with a toddler (unless you happen to have a math prodigy), children just a little older will understand the basics. Grade schoolers hear about credit cards all the time and can understand the concept of paying for the privilege of borrowing money, aka interest. It’s very important that they grasp how that interest can double, triple, or even quadruple the amount owed – leaving two, three, or four times less for other things.

As they age, your children will be exposed to yet more opportunities to spend and unfortunately, cards are targeting pre-teens now. So it’s important that young children know about credit and debt at an even younger age than you’d like. Hopefully, you are carefully budgeting your money, paying off your debts, and avoiding any of the “triggers” that get you to over-spend. But even if you haven’t set the best example, go over a few credit card bills with your pre-teen.

Then, I suggest that you sit down at the computer together, and surf on over to the online calculator section of CardRatings.com, the card comparison site that I founded. Plug in the numbers for one of your credit card bills and take a look at how much it would cost to pay off what you owe if you only send in the minimums. Discuss what else you might do with that money. If your kid’s anything like my own, he or she will have lots of ideas!

It is also a good idea to pull out your credit report, and find this card on it. (If you don’t have a current copy, go to AnnualCreditReport.com to order your free reports.) As you two look it over, discuss how a report card is like a credit report and why it’s important to get homework in on time. “The better your report card, the better your chances of getting into a great college and/or earning a good salary.”

Credit basics are the same – one way to get great credit reports and scores is to always pay bills on time and never spend more than you can afford. “The better your credit report and the higher your credit score, the better your chances are of getting a great deal – on such things as credit cards, car loans, and mortgages. Landlords, employees, and insurance companies also base decisions on credit reports."

Discuss the tempting credit card offers you get in the mail or see online. Remember: If it sounds too good to be true, it probably is!

This article was written by Curtis Arnold, a nationally recognized consumer educator and advocate. Curtis has been educating consumers about credit cards since 1998. He is regularly interviewed and quoted by respected members of the national press regarding consumer credit issues. His new book, How YOU Can Profit from Credit Cards: Using Credit to Improve Your Financial Life and Bottom Line is available now! Order online and receive up to a 32% discount.

Timing Is Everything

Timing may not be EVERYTHING, but a missed opportunity isn't ANYTHING. Ignoring timing is costly. Most borrowers are clueless about this, to their peril.

The chart below is a graph of the yield on the 10-Year Treasury Bond which correlates highly with mortgage rates. It doesn't take much study to see that there have been only four short periods this year when the rates were a lot lower than average.

IMPORTANTLY, we may be headed for a fifth.

 

To translate these numbers into mortgage rates, you need to add a spread of 2.25%. In other words if the bond yield was 3.3%, the mortgage rate at that time would have been about 5.55%.  At the top, 4.25% plus 2.25% yields 6.5%.

You can also see that those people who didn't lock at the best time paid as much as 1% more than those who paid attention to timing as a factor. Let's say it was an average of only one-half percent. On a $300,000 loan, those who locked when the rates were one-half percent higher than the people who locked in at the lows paid more than $40,000 over ten years than did their smarter neighbors. 

You can see how important this is. It's HUGE, which is why I update charts like this on a daily basis. I can use it to help my clients save that $40,000. We also had people who came in when rates were higher and we waited months until they came down.  When rates came down a month ago, we locked them in and have now closed them.

It's also one of the things that drives me crazy about rate shoppers. They call and want to know what "my rates" are today.  In fact, as you can see, unless you are in one of those two or three day periods, it's irrelevant. What is important is that I have the capability of helping them lock at a better time. My competitor is some twenty-something kid at an 800 number who, if we showed him this chart, wouldn't even know what was going on.

Their job is lock their clients in today and close them. But we wait until the next propitious time because I want to save my clients that $40,000.

Yet I have never figured out a way of giving this message to the clueless. They just don’t get it. They stumble off down the road and get a loan somewhere else totally oblivious to what they COULD have had.

As you can see from the chart, it LOOKS as if we are in the process of a rate break to the downside. Rates are firmly back below 6% again and, frankly, if I were interested in refinancing, I would apply immediately. If you are in a purchase transaction and not yet locked, check these data continuously with your lender.

If you aren't actually in the market for a new loan but will be some time in the future, print this out and keep it handy.  You are talking about big savings, maybe not $40,000. But how about $20,000? How about $10,000? You can see that it is possible if you are aware of the opportunity and are committed to taking advantage of it.

Randy Johnson – Author of How to Save Thousands of Dollars on your Home Mortgage and Savvy Borrower articles. Randy is a mortgage broker who has financed over $1 billion in properties. He writes about home buying and real estate finance topics for CreditBloggers.com.

Greenspan: Faith in Markets was a "Mistake"

Former Federal Reserve Chairman Alan Greenspan, a guiding force in the deregulation of financial markets, has conceded his faith in laissez-faire economics was a "mistake," according to The New York Times. Appearing before the House Committee of Government Oversight to discuss the specific policies that helped lead up to the current market meltdown—Greenspan's 18-year-tenure ended in 2006—the former Fed Chairman offered an especially candid mea culpa. 

"I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such as that they were best capable of protecting their own shareholders and their equity in the firms," Greenspan was quoted. Asked by Rep. Henry Waxman (D-CA) whether this amounted to a realization that "your view of the world, your ideology, was not right, it was not working," Greenspan replied "Absolutely, precisely."

As the Times points out, Greenspan has come under fire for his failure to regulate the market for credit-default swaps, a sort of credit insurance issued by banks that helped lay a shaky foundation for the current economy. Given the current financial climate, it would have been nearly impossible for Greenspan not to shoulder some of the blame. But who knew an entire economic worldview, like the economy, would collapse under its weight?

How To Have An All-Cash Christmas

Mary Hunt, cheapskate extraordinaire, dug her family out of some $100,000 in debt and now teaches others how to do the same. She's written a terrific book, Debt-Proof the Holidays, which teaches you how to avoid going in over your heads during the holidays. I predict the book will fly off bookshelves this year!

I absolutely love this book and want to share a short excerpt with you:

"One year I asked my family of DPL members at www.DebtProofLiving.com to tell me about their best Christmas gift ever. I got every kind of response you could possibly imagine. And they were as unique as the individuals who responded. Yet every response had a deep, emotional dimension: Spending time with family, welcoming a new family member, surprising loved ones with a visit, or receiving a treasured possession from a grandparent. What I learned (I’ll be sharing the responses in coming chapters) is that all of the trouble we put ourselves through to spend enough money to be money to be acceptable is often wasted. What really matters is rarely available for purchase in a store."

...Remember, it is not up to you to find the absolutely perfect gift that will fulfill the deepest heart’s desire of every person on your list. It’s not your responsibility to become a mind reader and dream fulfiller. The people on your list, as much as they love and adore you, probably don’t remember what you gave them last year. In the end it just doesn’t matter that much what presents you give, provided that your desired sentiment is conveyed."

If you haven't already started your holiday planning, get Mary's book, be sure to download our free Holiday Spending Worksheet. And check out an article we previously posted: 10 Tips for Holiday Spending.

Gerri Detweiler – Personal finance author and Credit Advisor for Credit.com. Gerri contributes budgeting, debt recovery and savings information online. She is also the co-author of Stop Debt Collectors: How to Protect Your Rights and Resolve Your Debts