New Foreclosure Bill

This week, the State Legislature enacted a foreclosure reform law to address the adverse effects of high foreclosure rates in California. The new law requires lenders to contact homeowners to explore options for avoiding foreclosure at least 30 days before filing a notice of default. It also requires owners acquiring property through foreclosure to maintain the exterior of vacant residential properties. The new law also extends from 30 to 60 days the time for residential tenants to move out of properties that have been foreclosed upon, unless other laws apply. These requirements will remain in effect until January 1, 2013. The full text of Senate Bill 1137 (Perata) is available at www.leginfo.ca.gov.

Highlights of the new law are as follows:

- Contact Between Lender and Borrower: Effective on or about September 8, 2008, a lender, trustee, or authorized agent may not file a notice of default until 30 days after contacting a borrower to assess the borrower's financial situation and explore options for avoiding foreclosure. A lender must generally contact the borrower in person or by telephone, or satisfy due diligence requirements for contacting a borrower. During the initial contact, the lender must inform the borrower of the right to request a meeting with the lender within 14 days. The lender must also give the borrower the toll-free number for finding a HUD-certified housing counseling agency. A subsequent notice of default must include the lender's declaration that it has contacted the borrower, tried with due diligence to contact the borrower, or the borrower has surrendered the property. A lender who had already filed a notice of default before the enactment of this law must include a similar declaration in the notice of sale. This requirement to contact borrowers applies to loans secured by owner-occupied residences made from 2003 to 2007. Certain exemptions apply if the borrower has filed for bankruptcy, surrendered the property, or contracted with a person or entity whose primary business is advising people, who have decided to leave their homes, on how to extend the foreclosure process and avoid their contractual obligations.

- Maintenance of Vacant Properties: Effective July 8, 2008, anyone who acquires property through foreclosure must maintain the exterior of vacant residential property. Violations of this law include permitting excessive foliage growth that diminishes the value of surrounding properties, failing to take action against trespassers or squatters, failing to take action to prevent mosquitoes from breeding in standing water, or other public nuisances. This law authorizes a governmental entity to impose a civil fine up to $1,000 per day for any violation, as long as the owner has been given notice and an opportunity to remedy the violation. A violator must be given at least 14 days to begin, and 30 days to complete, such remediation before a fine can be assessed.

- 60-Day Notice to Terminate Tenants: Effective July 8, 2008, a tenant or subtenant in possession of a rental housing unit that has been sold through foreclosure is generally entitled to a 60-day written notice to quit, not just 30 days. However, a borrower who remains on the property after foreclosure may be served a three-day notice to terminate. This law does not affect, among other things, rent-controlled properties with just-cause evictions. Effective on or about September 8, 2008, the lender, trustee, or authorized agent posting a notice of sale must also post and mail a specified notice of a tenant's right to a 60-day eviction notice from the new owner, unless other laws apply. This requirement to notify tenants of their rights applies to loans secured by residential real property where the borrower has a different billing address than the property address.

Different ways to get rid of your debt...

Before making any financial decision, know your options.  There are many ways to tackle debt and what is best for you may not be what is best for someone else.  Decisions about your finances should be well thought out.  The last thing you want is to make your current situation worse.

For more information see The Four Worst Things You Can Do For Your Credit.

1. Debt Settlement  - Debt settlement, also referred to as debt negotiation, is when a third-party agency (like us) negotiates down the amount owed to a lower sum.
   Cost: Usually 15% of your debt.
   
2. Debt Consolidation - Debt consolidation is a loan.  The loan proceeds are used to pay your creditors and you repay the loan to a debt consolidation agency.  This option works best if you qualify for a loan high enough to cover your debts and those debts have high interest rates.
   Cost: The interest paid on the new consolidation loan.
   
3. Home Equity Loan - A home equity loan falls under the category of consolidation.  You borrow money as a secured loan against your home, using the equity of your house.  These loans are usually adjustable interest rates and you must qualify for the loan.  Today, most lenders require a very high credit score and a strong equity position in your home.
   Cost: The interest rate plus lender fees.
   
4. Credit Card Balance Transfer - A credit card balance transfer is another option similar to consolidation. You transfer your balances from other credit cards to a single, usually new, credit card.  Often you can get 0% interest as an introductory offer, but after a short period you will pay high credit card interest rates.
   Cost: Any interest you have to pay on the new credit card and annual fees, if applicable.
   
5. Debt Counseling - Debt counselors reorganize your payment plans and give you a longer amortization period allowing for smaller monthly payments.  Once completed, lenders often consider these programs similar to bankruptcy and you may have a more difficult time re-establishing new credit.
   Cost: Usually a one-time enrollment fee into the counseling program plus a monthly fee .
   
6. Do-It-Yourself - If your debt is manageable, you may want to approach it the old fashioned way and pay off all the balances.   In order to accomplish this, you must follow a strict payment schedule and if you pay the minimum payments you will make those payments for an extended time period.
   Cost: The interest you pay before deciding that you need help.
   
7. Bankruptcy - Bankruptcy is usually the very last option someone chooses.  Bankruptcy laws have changed and are more restrictive than in the past.  Once completed, most have a long and difficult path to re-establishing their credit.  Bankruptcies remain on your credit report for up to 10 years.
   Cost: $5,000.00 average per bankruptcy filing

Understanding the new FHA rules for home loans.

• FHA published a letter regarding their new guidelines for non-traditional credit to be effective with case numbers issued on or after 5-29-08. Prior to this time, FHA really didn't have rules regarding non-traditional credit; other then it all had to be re-verified. 
  

  
  

  Most lenders have quit taking borrowers with non-traditional credit altogether – and I believe that it is partially because there have been no rules. I hope this new Mortgagee Letter from HUD opens a few doors because there will now be some consistency. A brief synopsis of the new rules is:

   

  Guidelines

  • Minimum of three credit lines
  • Must cover the most previous 12 months (will be interpreted to mean must have 12 month history)
  • One line MUST be housing related, from rent or utilities which include land phone & cable
  • Other credit lines from non-traditional sources, and may include a personal loan or savings history (there are limitations on both)
  • Can't use payroll deductions
  • All of the credit must be reported through a credit bureau on a non-traditional credit report

   Acceptable Credit

  • Acceptable credit history can have no lates on housing, up to one 30 day delinquency on others; 
  • no collections in last 12 months (unless medical)

   

  Insufficient Credit Approvals

  • Borrowers may still qualify if they don't have a housing related credit line or insufficient credit lines if
  • they qualify using ONLY the occupants' income
  • they are within absolute maximum of 31/43 ratios
  • acceptable credit as per above
  • 2 months cash reserves from own funds, not gifted
  
  

What inquiries effect you credit.

 Looking for a mortgage or an auto loan may cause multiple lenders to request your credit report, even though your only looking for one loan. To compensate for this, the score system ignores all mortgage and auto inquiries made in the 30 days prior to scoring. So if you find a loan within 30 days, the inquiries won't affect your score while you're rate shopping. In addition, the score looks on your credit report for auto or mortgage inquiries older than 30 days. If it finds some, it counts all those inquiries that fall in a typical shopping period as just one inquiry when determining your score. For FICO scores calculated from older versions of the scoring formula, this shopping period is any 14 day span. For FICO scores calculated from the newest versions of the scoring formula, this shopping period is any 45 day span. Each lender chooses which version of the FICO scoring formula it wants the credit reporting agency to use to calculate your FICO score

Break down of what effects your credit score.

There are five types of information used to calculate a FICO score at any given point in time. Each type of information counts as a percentage of a total FICO score:

Your payment history – about 35% of a FICO score

Have you paid your credit accounts on time? Late payments, bankruptcies, and other negative items can hurt your credit score. But a solid record of on-time payments helps your score.

How much you owe – about 30% of a FICO score

FICO scores look at the amounts you owe on all your accounts, the number of accounts with balances, and how much of your available credit you are using. The more you owe compared to your credit limit, the lower your score will be.

Length of your credit history – about 15% of a FICO score

A longer credit history will increase your score. However, you can get a high score with a short credit history if the rest of your credit report shows responsible credit management.

New credit – about 10% of a FICO score

If you have recently applied for or opened new credit accounts, your credit score will weigh this fact against the rest of your credit history. FICO scores distinguish between a search for a single loan and a search for many new credit lines, in part by the length of time over which inquiries occur. If you need a loan, do your rate shopping within a focused period of time, such as 30 days, to avoid lowering your FICO score

Other factors – about 10% of a FICO score

Several minor factors also can influence your score. For example, having a mix of credit types on your credit report – credit cards, installment loans such as a mortgage or auto loan, and personal lines of credit – is normal for people with longer credit histories and can add slightly to their scores.

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New foreclosure guidelines!!!

 Fannie Mae the largest purchaser of home loans has introduced new guidelines regarding foreclosures. A foreclosure used to effect you for 2 years when buying a new home or refinancing but now it will effect you for 5 years. What does this mean for you? It means that if you walk away from your home, you cant just go buy a new home in a couple years, you are going to have to wait 5 whole years.  5 years of renting compared to 2 years . No fun. It also means landlords are going to be stricter on who they rent to and also how much they charge for the apartment. With renters flooding the market rents are going to sky rocket. So make sure you are really willing to walk away from your home before you do because it might be a lot worse than you really think.

Credit Restoration Information!

Credit Repair is legal but people who are looking to repair their credit must be very careful when talking to a “credit repair expert”. There are 2 truths when it comes to repairing your credit and they are: you cannot remove everything on a credit report even though companies claim to be able to and the second is that dispute letters rarely work.

 Disputing them generally proves to be more difficult and harmful than anything else because it will reduce some of the laws you can use in your favor like the Statue of limitations law. Just as we have rules for which items we can dispute, the credit bureaus have rules for which disputes they are required to investigate. According to the FCRA, the credit bureaus are not required to investigate disputes they feel are frivolous or irrelevant.

Since the credit bureaus are for profit companies and not government agencies as many people think they are, they do their best to avoid investigating disputes because they do not make money from this practice. Interpreting the meaning of "frivolous or irrelevant" the credit bureaus can legally deny large numbers of requests for an investigation. Getting your dispute to to become an investigation becomes very difficult.

 That’s why the newspapers all have negative things to say about the practice of credit repair. Credit repair should be handled through an attorney or a licensed Credit Repair company who know the laws and not the guy down the street or the guy with the cool web page. Here is a way you can tell a true credit expert from the rest. Ask for a copy of their Surety Bond and their Business license. If they are not bonded: DON’T USE THEM! The reason is simple of why not to use them: most likely they cannot qualify for one due to a lack of experience or they have been proven not to work. A bond will generally cost at least a few thousand a month and up to $10,000 a month, so if they do have a Bond you know they have the business to back up what they are saying.

Here are some of the things that can be removed from you credit report if you know the laws…

Negative Items

• Late Payments
• Charge Offs
• Collections
• Repossessions
• Foreclosures
• Negative Settlements
• Medical Collections
• Student Loans
• Mortgage Lates

Public Record Items

• Bankruptcy
• Foreclosures
• Child Support
• Spousal Support
• Judgments
• Tax Liens

Now having listed those items, you must know each one of them has to have a reason to be taken off, you cannot just go online and dispute it. Disputes are made for things like duplicates or a paid credit card that shows a balance. What “dispute type” companies do, a consumer can do themselves if they know what they are doing. If you have a lot of older items on your credit report or things you would like to know if they could come off then give us a call and we will be happy to assist you with any questions you have. Now if you just don’t have the time or need it real fast, then you should hire a company to help you but when you do, make sure to get a copy of their bond, business license and most of all ask for proof of work.