Changes at FHA

I recently wrote a blog discussing the tightening of various underwriting rules by Fannie Mae and Freddie Mac.  FHA has now joined the fray with an announcement of various ways they are tightening the rules.

First, the most important change is the proposed increase in the initial Mortgage Insurance Premium from 1.75 percent to 2.25 percent. The initial premium is not a cash payment but instead is added onto the loan balance.

For example, if a borrower were to make a 3.5 percent down payment on a $300,000 home, the nominal loan amount is $289,500. Adding the MIP of 2.25 percent, or $6,513.75, yields a final loan amount of $296,013.75. After making ten years of payments, the loan balance would still not be reduced to 80 percent of the initial purchase price.

Second, FHA has asked Congress for permission to increase the annual premium that is charged to borrowers. Currently that amount is one-half of one-percent, or $123.34 per month. The effect of this change, assuming it is approved, will be to start increasing the FHA reserves that have been bettered by recent losses. According to an article in The Wall Street Journal, the agency's reserves fell 72 percent to about one-half of one percent of the balance of the loans it has insured.  

FHA is going to require a minimum FICO score of 580 rather than the previous limit of 500 to get the 3.5 percent down payment program. According to Money-Zine, only 15 percent of Americans have credit scores below 600.  

FHA will do loans for people with FICO scores of less than 580, but they now have to make a 10 percent down payment. At a score of 500, about 97 percent of people have better credit. But FHA says that these are "borrowers who have historically performed well." Given the losses on the FHA portfolio of loans, I would like to see the data that shows such good performance.

In another move, the amount of allowable seller concessions was reduced from 6 percent of the purchase price to 3 percent.

Not mentioned in the article is the widespread rumor that FHA will increase the minimum down payment to 5 percent. Additionally, there is a move in Congress to increase the maximum FHA loan amount in high-cost areas from $729,750 up to $829,750.

Speaking as a loan originator, this makes me wonder why in the world we are doing loans for people who have such bad credit. Neither do I think that it is wise policy to allow 3.5 percent down payments on loans of $729,750 or $829,750. This is not much different than zero down payment loans that created so much of our current problem. Anyone who can qualify for a loan amount that large should have had the financial foresight to save enough for a reasonable down payment, say 10 percent.

I realize the FHA commitment to under-served communities, but the large group of people who have been financially irresponsible does not fall within my definition of "a community." Trying to serve that group is (at least in part) what got us into the current mess we are in.

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.

Mortgage Loan Standards Are Tightening

You have likely overheard someone talking about their trials and tribulations in getting a mortgage. Some of the issues may be overblown, but many others just reflect a changing environment in real estate finance.

All lenders, including and perhaps most specifically Fannie Mae and Freddie Mac, are writing off billions of dollars of uncollectable debt as they acquire homes through foreclosure. By tightening the standards, they hope to contain the damage to what is already on their plate. I don't blame them. At this point, we have a mess that is larger than anyone could have imagined a few years ago. It isn't over, and no one wants to add more loans that are likely to go bad in the future.

Remember that in this environment, there has been a lot of tightening already. For example, you cannot borrow without documenting sufficient income; you need to have reasonable credit scores; and you need to have a down payment if purchasing, and equity if refinancing. Here are some samples of current tightening:

Fannie Mae announced that they will not approve borrowers with total debt-to-income ratios greater than 45 percent. For example, if your income was $5,000 per month, your maximum outgo would have to be less than 45 percent, or $2,250 per month. If you had a $300 car payment and other bills with payments of $100, you would subtract $400 from $2,250, leaving $1,850 for a housing payment. Subtract anticipated monthly taxes and insurance to get the maximum allowable mortgage payment.

This is a dramatic change, as they would have approved loans with much higher ratios not too long ago. Note that Freddie Mac has not instituted this restriction. At least not yet, so if your ratios are pushing this limit, you would want to work with a lender that uses Freddie Mac.

Fannie Mae will also no longer do any loan where a borrower's FICO score is less than 620. They were doing these before, but they were exacting revenge by pricing hits that were almost confiscatory. Freddie Mac, again, has not done this yet.

I expected that real estate investors would take advantage of the drop in value to load up on properties, and that seems to be happening. I believe a good strategy is for an investor to buy now and hold for the long term value and cash flow. Fannie and Freddie will still allow up to ten properties to be financed, but the minimum FICO score is now 720 and loan-to-value is lowered. Purchases and rate-and-term refinances are allowed, but cash-out refinances are not.

Finally, on the Super Jumbo Conforming loans available in higher-cost areas, getting a new loan that is larger than the current loan, even if paying off a second TD loan, is considered a cash-out refinance. The minimum FICO score is 740 and the maximum allowable loan-to-value is 60 percent, and there is a 1-point added hit to the upfront fees.

The upshot of this is that if you want a mortgage, you will need to do everything you can to improve the measures of your creditworthiness. As a responsible adult, you would want to do this anyway, but a stricter disciplinarian is now in the room to assure compliance.

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.

Asking the Right Question When Financing a Home

I have spent many years in consumer education, and in this time I have written a great deal in articles,  newspapers, magazines, and on the web trying to help people understand the homebuying and home financing process. One critically important element concerns the questions that a borrower should be asking in the shopping process.

Not surprisingly, many people ask the question, "What are your rates?" I would argue, however, that this question is one of the least important questions. This may come as a shock, but it is truer today than ever before. Here's an example of the wrong question.

Back in the '80s, fixed-rate loans were so expensive that no one wanted them. As a result, 100 percent of the business was doing various kinds of Adjustable Rate Mortgages (ARMs). There was a big difference between one ARM and another. The initial rate, the index, the margin, how often it adjusted, and how much it could adjust were all different. That was a lot of data to collect. So you would think that consumers made good choices, right? Wrong! Most consumers chose the worst loan. Why? They never asked the right question, which was:

"What is the likely performance of this index in the next five years?"

In this case, they bought the sales pitch that the 11th District Cost of Funds loan was the most "stable" index. They did not then connect the dots and say, "Wait a minute! Rates are dropping now and I do not want a stable index. I want a volatile one, one that will drop the fastest." 

And sure enough, for the next 5 years, those people who chose the most popular COFI paid 1 percent more every year than the borrowers who did ask the question and got a loan tied to Treasury Bills. One percent on a $300,000 loan is $3,000/year; for 5 years it is $15,000. Big mistake! Just because they didn't ask the right question.

Today, with the market dominated by Fannie Mae and Freddie Mac, there virtually is no price competition between lenders who are trying to be competitive. (Note: Not all are!!!) What has happened is that mortgages are now commodities. If you are lucky and you find, say, five competitive lenders, you would not find meaningful pricing differences between them.

Price shopping is pointless. You wouldn't call different post offices trying to get a deal on stamps, would you?  The price is 44 cents wherever you go. It is the same with mortgages. That actually is good news for shoppers, because it now allows them to concentrate on shopping for service, knowing that the base price is the same.

So how does one decide? Well, you can ask questions about experience, education, number of completed loans, how long they have been in the industry, and so forth. You also could ask if they are honest, but of course even the crooks would say, "Yes."

You can also ask this great question: "Do you work for a small company where I will get individualized attention, or were you just assigned to me at random by your large, impersonal bureaucracy?" (You might want to phrase that as several questions to get a more objective answer.)

All of these factors have an effect on the quality of advice you will get and the representative's ability to solve problems that arise. Good advice will save you many times the dollar amount you think you are saving using your method of shopping.

You also have no conception of the insight your representative has regarding when to lock in your rate.  Assume that in any 30-day period there are five "best days" to lock -- most likely not today. I can assure you that there is a right answer, but it is almost impossible for you to do it successfully on your own. Stop wasting your time rate shopping and go for the quality of the service professional.

Finally, this word of advice:

Just because you don't understand it doesn't mean it isn't important.

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.

Do We Need Infrastructure Spending Like This?

We have all seen plenty of news about crumbling infrastructure, but the worst of the worst is the number of bridges in America that need re-building. Now that is scary! It is important that we get serious about fixing this problem, because the average age of our bridges is approaching the normal design life of 50 years – and many are well older than that. An estimated one-quarter of all bridges are structurally inadequate or deficient in some other important regard. We all remember the collapse of the bridge in Minneapolis a year ago. There are decaying public structures all over, but just for bridges, the cost estimates are all over the map – and $1 trillion doesn't seem out of the ballpark.

Speaking of ballparks, it was with some surprise that I saw that the New Jersey Nets professional basketball team is hoping to move back to New York. Will they be the New York Nets or the Brooklyn Nets? The reason for the confusion is that the team's new home is likely to be in Brooklyn.

The owner of the team has just successfully floated a $500 million tax-exempt bond issue to help finance the building of a new stadium for the team. Combined with some $450 million in equity, the cost would be over $50,000 per seat for the 18,000 seat facility. It has also been announced that an 80 percent interest in the team and a 45 percent interest in the venue has been sold to a Russian billionaire.

The IRS has entered the fray too, ordering that the financing "loophole" be plugged. It is not clear that having the city create a "charitable entity" under 501(c)(3) in the IRS tax code to build the arena would be approved. New York City and state officials have applied to the IRS for an exemption. This is just y opinion, but I don't see that soaking up American capital to construct an arena is as important as building bridges. And, even worse, using the IRS tax code to provide tax benefits to a Russian billionaire flies in the face of being "right." Why doesn't he buy a team in Minsk?

This news comes amid a veritable blizzard of news that similarly financed stadiums across the country are in financial trouble. These cities include Cincinnati, Indianapolis, Milwaukee, Columbus, Ohio, and the Phoenix, Arizona area. One would guess that if the financing in all such ventures were examined, even more of them would be added to the list.

This appears to be just one more area in which the public good – rebuilding bridges, for example – gets subverted by some local glamor project like a sports arena. I suppose that getting some bank – Barclay’s Bank in this case – or a beer or soft drink company to put its name on a stadium is easier than getting the same company to pay millions to "sponsor" a bridge over some local river. How much beer would that sell?

Yet as this plays out in my mind, I cannot help think about decline of the ancient Roman Empire. I'm sure you remember the stories from school where the emperors sponsored gladiatorial combat in the Coliseum to keep the "mob" satisfied. That kept their minds off of the reality that the Roman Empire was in a state of long-term decline.

Sic transit gloria mundi.

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.

Count Your Blessings

It is all too easy in troubling in times like this to focus on the immediate problems that are right in front of us.  Whoever we are, each of us has his or her own list of problems.

With that in mind, it is useful to take our minds off our troubles. We can start by looking back in time to put our own place in history in proper perspective. Most of the freedoms we enjoy today have their origin in European history, most specifically the Magna Carta. In the year 1215, the English nobility – barons, bishops, and abbots – went, in force, to King John I and demanded that he affirm certain rights.

Except for the inclusion of habeas corpus and the right of trial by jury, the common man was not particularly intended to be a direct beneficiary of the document. His time would come. Indeed, we find elements of the Magna Carta in our own Constitution.

What is easy to forget is that, sadly, billions of people in the world today do not have civil rights that existed in England 800 years ago. As troublesome as it is to watch our Congress in action, the fact that they and the rest of our government exist is a great blessing.  

Although we are in troubling economic times, the GDP of the United States has exploded since World War II. The GDP per capita has increased from $15,000 per person to just under $50,000 today. While poverty still exists today, even those in the lowest economic groups are much better off than a few generations ago.  

Life expectancy has increased from 50 in 1900 to about 65 in the World War II era to about 78 today. Compare that with the current world average of 66 years. In 1950, you only had a 67 percent chance of making it to age 65. Today, 83 percent of people make into the Medicare years. 

With that firmly in mind, think about how your life is much better today than when you were a kid.

So it might be a nice exercise to sit down with your family and make a list of your blessings. Not only is it fun, but psychologists have shown it is helpful to your well-being. The hope expressed in the Preamble to our Constitution was "to secure the blessings of liberty to ourselves and our posterity."
 
But it is also important to demonstrate to your kids that those personal freedoms, more than anything else, created opportunity. Many of the blessings they enjoy are a result of the hard work of you and your forebearers. They need to understand that the blessings they will enjoy in the future will be a function of them committing themselves to carrying on that tradition as opportunities present themselves to their generation. 

Finally, I find it enriching to remember the words to Irving Berlin's "other song" in the movie White Christmas. 

When I'm worried and I can't sleep
I count my blessings instead of sheep
And I fall asleep counting my blessings.

When my bankroll is getting small
I think of when I had none at all
And I fall asleep counting my blessings.

I think about a nursery and I picture curly heads
And one by one I count them as they slumber in their beds.

If you're worried and you can't sleep
Just count your blessings instead of sheep
And you'll fall asleep counting your blessings.

Merry Christmas, Happy Chanukah, and Happy Holidays to all.

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.

In Memoriam – Paul Samuelson 1915-2009

Paul Samuelson had the distinction of writing the economics textbook that was read by more college students than any other economics textbook published before or since. It was the book I studied a half-century ago and it still sells 50,000 copies a year. That is quite a feat for any book, much less a textbook.

He had the ability to translate arcane theory into eminently readable prose that facilitated understanding, at least at the sophomore level. It was surely the elementary economic "bible" for virtually every practicing economist today. That would include a generous handful of Nobel Laureates who trained under Samuelson at M.I.T. Those economists have openly voiced their praise and respect for Mr. Samuelson.

But these are the same economists who, even as they came to study and understand classical economics, even as they introduced more and more mathematical models, even as the Nobel committee devised a new prize, still seem less able than ever to tell us much about the world in which we live. 

Nassim Nicholas Taleb wrote what I consider to be the most intellectually provocative books so far this century, The Black Swan: The Impact of the Highly Improbable, in which he suggests that the Nobel prize for economics is a total waste. These are my words, not his, but he suggests that it is just a bunch of academics sitting around a table deciding which of them should receive the award in a given year.

The great body of economists was unable to forecast the stock market crash of 1987, the impact of technology that resulted in the dot-com bubble, or, with a rare exception or two, the housing bubble, and what lay at the end of "High Priest of the Fed" Alan Greenspan's low interest rate, "the market will correct itself" school of thought. 

My belief is that the mess we have gotten ourselves into shows, if nothing more, the faulty underpinnings of economic theory as has been widely taught in the last 50 years. Economists have tended to study healthy markets in healthy times, but that has given us precious little ammunition for dealing with the beast we have today, the over-leveraged, greed-oriented, financial institution-dominated market and weakly government-regulated economic world in which we find ourselves.

Indeed, Professor Willem Buiter of the London School of Economics has argued, "the typical graduate macroeconomics and monetary economics training received at Anglo-American universities during the past 30 years or so, may have set back by decades serious investigations of aggregate economic behavior and economic policy-relevant understanding." 

Professor Buiter has just announced a jump from academia to the business side of the field. He has just accepted a new job as Head Economist at Citigroup, the company that (far worse than most) badly managed its affairs in the years leading up to the current crisis. Perhaps he can give more useful insight to the biggest of the "Too Big to Fail" financial institutions and help them chart a different course. 

What does he owe to Professor Samuelson? We will have to let him tell us a few years from now, but I am intrigued by a quote from the same paper noted above, "Knowing that you know nothing is the beginning of wisdom."

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.

BLINK versus THINK

A few years ago, author Malcolm Gladwell wrote a book called Blink. Perhaps you remember it. He gave a provocative discussion of the power of intuition to come up with the correct answer. The full title of the book: Blink: The Power of Thinking Without Thinking.

I believe that there are many areas of life where snap decisions are required, or at least come into play. It is within the power of the well-trained mind – emphasis on well-trained – to collect disparate information quickly and arrive at the best decision almost automatically. People who watch others with this skill are amazed.

We are faced with a lot of decisions in our lives. Some are trivial like being able to see a particular wine label on the shelf and buy the right bottle. Others are a little more complex. Among those is figuring out whether to trust people or not. Some people are good at this, others notoriously poor. Other tasks are exceedingly complex, like an ER physician doing triage on a patient in distress.

I believe that there are two completely different levels of computing that can go on in the mind. One of them – let's call it Computer #1 – is devoted to making these quick, intuitive judgments. The other computer – let’s call it Computer #2 – is specialized to do rational computations, consider facts, weigh probabilities and potential outcomes, and make a decision based upon a consideration of all those factors. Those should never be snap decisions.

Among those kinds of decisions are deciding which home to buy, what kind of mortgage to get, how much money to save for a safety net, how much to save for the kids education, how much money to put in your retirement account, what kinds of investments to put these funds in.

What should be obvious to almost everyone who has looked at the economic chaos we are in is that a lot of people have used their Computer #1 to do calculations that should have been done by Computer #2.

One thing I have learned in my 30 years in the mortgage business is that people walk into my office already having used Computer #1 to make a decision about how to finance their home. I know immediately that the solution they have come up with is a solution that will be rejected when we run everything through Computer #2. Indeed, my job is to show them how to use Computer #2. The first step in that process is usually getting them to unlearn some perceived assumptions that really doesn't apply to them.

Let me give you a small example. Fannie Mae reported earlier this year that 47 percent of people taking out a mortgage chose to pay no points. I can guarantee you that if I could take a million of those folks and get them to run their facts and goals through their Computer #2, they would choose differently if given the chance again. They would pay points and get a lower rate. Collectively they waste billions of dollars in interest for not taking a point.

So when you are faced with a decision like this, be sure to use Computer #2 to make the important calculations and to make your decision. Then run the solution through Computer #1 to validate that you are comfortable with that decision. When you use this process, you will make better decisions, save money, AND be happier with the outcome.

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.

A Trip to the Woodshed for Mortgage Servicers

This analogy may be lost on younger readers who don't know this old idiom. The reference is to the time long ago when you did something wrong and your Dad took you out to the woodshed for a paddling, to get you to mend your ways. There never was one at my home growing up, but there were times when I needed a talking to and, thankfully, my Dad did it in private rather than in front of the rest of the family.

In news released yesterday, Treasury Department officials are having serious discussions with loan servicers – otherwise known as lenders – to ramp up loan modification activity. The goals of the drive to achieve stability in the housing market were substantial: a target of between 3 and 4 million homeowners currently at risk of foreclosure. They were supposed to be helped by the Home Affordable Modification Program.

Unfortunately, at this stage results are falling dramatically short. Statistics released for October show that of 3.2 million homeowners who were more than 60 days delinquent, some 2.7 million had been sent information regarding a modification. There has been a cool response to these notifications, and only 900,000 borrowers were offered trial modifications. Of these, only 650,000 entered into the mandatory trial modification periods.

Of these, a minuscule number, fewer than 2,000, successfully ended the trial period and achieved a permanent modification. There is no way you can characterize this as anything other than a fiasco. In fairness, some of these homeowners have not been in the trial period long enough to convert to a permanent one even if they were qualified and wanted to. Indeed, the Treasury Department is forecasting that in November and December they expect 375,000 will covert to permanent status.

We will have to wait to see if their estimates are right, and I hope they are, but consider that helping $375,000 people out of a pool of 3.2 million is not a measure of a successful program. Even if those 12 percent are successful, it means 88 percent of borrowers in default are still twisting in the wind. When and how are they going to get help?

I am also concerned about the "re-default" rate that was experienced under other loan modification programs. In those cases, 50 percent of borrowers were back into default within 6 months of the modification of their loans. What that tells me is that the lender may have thought it was a "good" modification, but 50 percent of borrowers didn't agree. They thought that it did not help to the extent that they wanted. So they bailed. We might find that exactly the same thing happens here.

Now, back to the woodshed: the Treasury Department is instituting a more severe program to measure performance on a daily basis and to institute sanctions against those who do not achieve better results with these programs. I hope they are successful, but I still have my doubts. I do not think we are going to achieve really meaningful results until investors bite the bullet and start reducing loan balances for people hopelessly under water.

To find out more, check out the Treasury Department’s Press Release and view the data in the October report.

Finally, it is obvious that several millions of people were contacted about a modification but did not think it important enough to respond so they could, at least, hear an offer. If that affects someone you know, encourage them to become proactive and contact their loan servicer as soon as possible.

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.

 

Get the Application!

I got a call from a couple who was interested in refinancing their home. It was a slam-dunk deal that would be approved anywhere. So we chatted about rates and I told them what the rate and fees were for the best deal I knew about.

They said that they had talked with their current lender who had offered a better deal. That was a bit of a surprise because I had always been able to beat that company's deals. So I said, "Let’s look at their website and see." Sure enough, at the same rate the fee at that lender was about $3,000 higher than what I had told them.

At that point they admitted that the representative had told them the same thing as on the Internet, so I asked how they got a better rate. They said, "We told them that we had gotten a Good Faith Estimate from another lender that was lower than the rate that we had just been quoted." The representative had said that they would meet that deal. My guess is that the representative was not given the authority to "fiddle" with pricing, but was just telling them that -- whether it was truthful or not -- to remove a barrier. 

This is not uncommon because the way lenders are organized today it is difficult for consumers to talk with a knowledgeable person or to know if they are getting the straight answer.

In fact, the first-line customer service people have one job: to GET THE APPLICATION!

Their job is not to solve problems or try to qualify people over the phone. A manager of such a call center once told me that he told his people, "It’s not your job to qualify people or to solve their problems. If there is a problem, we will discover it in the Underwriting Department. Your job is to get the application. Tell them whatever you have to, but get the application."

With that knowledge, you can understand that the poor customer who is in search of reliable information is in tough shape. He wants good information, but what is going to happen when he talks to people who will tell him anything to get him to take the next step?

This is especially dangerous with pricing because of peoples' innate desire to believe they have found a good deal. Let's assume you call three lenders and you hear 5 percent from one lender, 5.125 percent from another, and 4.875 percent from a third. Okay, you think you found a good deal.

Then I give you additional information. I tell you that one of those three lenders lied about rates. Which one do you think is lying? I will guarantee you wishful thinking enters the picture and that most people will still assume that the 4.875 percent is the truth. Is that possible? Sure. Is it likely? Nope; sorry.  
 


This further emphasizes the importance of dealing with honest people when getting a loan. There are some in your home town and you will do better dealing with one of them than calling 800 numbers listed or searching on the Internet.

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.

Advance Fee Loan Scam Alert: Credit Leader Inc.

At Creditbloggers, we’ve been exposing advance fee loan scams for a number of years now. We like to help make sure that our readers don’t lose money to these bottom feeders that prey on consumers in difficult situations.

Today a reader posted a warning on the Credit.com forums about a company from Canada called Credit Leader INC. which “approved” her for a loan of $8,500.00. They told her she had to pay a $300.00 fee upfront to get her funds. Our astute reader “Tisha” smelled scam. So she started digging.

She couldn’t find the company online, nor was the phone number listed in Canadian directory assistance. When she asked the loan rep about the lack of a website, he said, “Well, web pages are so easy to hack, so we don't have one.” As for the phone listing, he explained it was unlisted so banks “Wouldn’t harass them for taking business from them.” It would be comical if it weren't so disgusting.

He then told her to set up a bank transfer to pay the fee, since it would be “traceable” and “secure.” But a call from Tisha to her bank confirmed that if she did this kind of transfer there would be no way to get her money back.

Now she reports that this company is calling her, threatening her with legal action for not paying their fees for the paperwork they prepared! They are telling her they are "going to take her home, car, and anything that is in her bank account" if she doesn’t pay the fees.

But she’s not intimidated. She says: “Don't let anyone bully you into sending money. I have since contacted the police, and have them dealing with this case.”

Good advice, Tisha. And thanks for the heads up.

If you have a warning about an advance fee loan scam, please be sure to share it here or in our forums.

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 Reduce Debt, Reduce Stress: Real Life Solutions for Solving Your Credit Crisis.