Before you read the blog, I'd like to share a story with you: I have a friend who checked her credit 2 months ago and her score was 665 (very good score). She was approved for a loan up to 140,000 and
began shopping for a home. She had an out-standing cell phone bill for over $200, which she figured she
would pay after she moved into her new house, so she could keep the extra cash on hand. (Bad Decission) the cell phone company reported her non payment to the credit agency and her score dropped well below the thresshold the lender was willing approve. She was late with a couple of other payments and her score dropped below 620. (Not Good). With more and more Lenders going Bank-Rupt every day,
what used to be a good score (620) is now not so good, as far as interest rates goes. Many Lenders are looking for credit scores of 660 and higher to be eligible for "REASONABLE RATES".
"PLEASE CHECK YOUR CREDIT REPORT ON A REGULAR BASIS"
I know you are probably wondering, How fast does my credit (FICO) score change?
Your FICO score can change whenever your credit report changes. But your score probably won't change a lot from one month to the next. In a given three month time period, only about one in four people has a 20 point change in their FICO score. While a bankruptcy or late payments can lower your FICO score "FAST", improving your FICO score takes time. That's why it's a good idea to check your FICO score 6-12 months before applying for a big loan, so you have time to take action if needed. If you are actively working to improve your score, you'd want to check it quarterly or even monthly to review changes.
admin-->It may seem like private lending institutions like banks never make financial mistakes. But the sad fact is that these institutions are run by individuals, and occasionally a mortgage lender or bank will run into troubles and might even go bankrupt. If you have an outstanding mortgage and the lender goes bankrupt, what happens to your mortgage? Unfortunately, your obligation to make payments will not disappear. When a company goes bankrupt, their assets are transferred somewhere else, and like many material assets, an outstanding mortgage is also worth something.
Odds are, your outstanding mortgage will be transferred to another company or private lender, and after the bankruptcy your payments will go to the new lender. Keep in mind that your original lender is required by law to inform you of this, and they must provide you with the name and information of your new lender. Be wary of anyone claiming to be your lender and demanding money, as that too could be a scam. Always check with your mortgage lender before sending payments somewhere new.
By Dan Seymour
Associated Press -- The dream of owning a home is fading away for many Americans with less than stellar credit.
On Tuesday, HomeBanc Corp. said it will not issue any more loans, and Impac Mortgage Holdings Inc. shut down a type of loan called "alt-A" for people with limited documentation or slight credit issues.
That followed bankruptcies for two of the country's biggest home lenders -- American Home Mortgage Investment Corp. and New Century Financial Corp. -- and tighter terms at most other lenders that are thus far surviving a shakeout in the industry.
"Every day I hear about a number of lenders that are reducing their products," said George Hanzimanolis, president of the National Association of Mortgage Brokers. "It is going to take a while before the dust settles."
Stocks of many surviving lenders are at multiyear lows, and it is common to find shares in the industry that have lost 90 percent of their value in the past six months, or even weeks.
The shocks to the industry are siphoning lenders and cash away from the market, which reduces competition and restricts people's access to home loans.
Hanzimanolis said lenders have raised the minimum credit score that qualifies for financing. Most lenders now require bigger down payments, he said, and they are eliminating exotic loans or making it more difficult to qualify.
The silver lining is that people with good credit who can document their income have the same access to home loans as they did a year ago.
Submitted by Lars Toomre
This morning in a filing with the Securities and Exchange Commission, New Century Finance indicated that substantially all of its short-term creditors are cutting off credit. The filing indicates lenders under its short-term repurchase agreements and aggregation credit facilities had either discontinued their financing or notified the company they plan to do so. These firms are said to include Morgan Stanley, Goldman Sachs, Citigroup, Bank of America, Barclays and IXIS Real Estate Capital.
What is the total amount of short-term funding being pulled? Oh, about $8.4 billion or so… Of course, much of it is collateralized by either sub-prime mortgage loans or New Century's right to service existing mortgage loans. These sub-prime mortgage loans used as collateral include those that already have defaulted, those that have been put back to New Century for not meeting certain terms and conditions of pooling agreements for various mortgage securitizations, those that recently have been originated, and those that are in the pipeline for various securitizations. One has to wonder just how much of a discount to par these loans eventually will be sold for.
One way lenders protect themselves is to demand that their loans be over-collateralized. Such a credit facility might require 105-150% in current assets to secure or collateralize each dollar in short-term debt. Assuming that the homeowners pay the mortgage servicing company in a timely basis, and that the mortgage servicer then passes on the aggregated principal and interest payments to the rightful owners, there is sufficient funds available each month to service the short-term debt.
The over-collateralization protects the lenders against a sharp decline in the value of the assets backing their short-term loans. Say the loan required 125% over-collateralization, the underlying assets would need to decline to less than 80% of face value before full repayment of the principal balance was impaired. Of course, if the loans were to stop paying principal and interest, the expense of short-term funding costs would need to be factored in and the impairment point may rise to 85%, 90% or even higher.
Fraud has always been an issue in the origination of mortgage loans. As a result, securitization and short-term funding vehicles have long been suspicious about whether a newly issued loan is real. As a result, the terms and conditions documentation almost always requires that an originator of a loan (generally the seller) repurchase the loan during some period following its sale if something materially wrong is found in the loan documentation or the loan does not make its required nth number of payments.
These loan repurchase obligations in the terms and conditions documentation have been the source of much of the recent stress sub-prime originators have recently experienced. With these lenders falling or failing more and more quickly, Wall Street and the banks shortly will not have any sellers to put the non-performing loans back to. The interesting question then is what will "poorly originated" sub-prime mortgages really be worth? Is the correct bid 50%, 60%, 70% or 80% of each dollar of principal?
Toomre Capital Markets LLC foresees more pain ahead. With this news today about the second largest sub-prime originator being cut off from short-term funding, Wall Street and other short-term lenders, their hedge fund clients and various CDO investors are about to experience another downward leg in the correction of the 2001-2006 real estate market excesses. How far is left to go? That is anybody's guess. speculation is that the mortgage market is only about a third of the way through the correction to equilibrium. Reader's comments and thoughts are welcome.
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