How To Get “Credit” For Your Mortgage Payments To Refinance

How can you get a refinance when your present mortgage servicer does not credit report your mortgage payment? There are a couple of ways to do this. The least expensive is for you to obtain proof of your mortgage payments for the past twelve (12) month and provide this to your mortgage broker.  A temporary way to pull the mortgage payments onto the credit reports is via a proprietary system such as Rapid Rescore which is available only to mortgage brokers. The mortgage history can be pulled onto the credit reports for the purpose of mortgage refinance. The only permanent fix is to refinance.

How To Qualify To Refinance After Chapter 7?

• You have been paying your mortgage(s) on time every month for the last 24 months with no 30 day late payments since filing bankruptcy.
• Per current Minimum FHA underwriting Guidelines you must have reestablished your credit and have at least 580 FICO® Scores. As well, there are investor overlays.
• You also have no new bad credit and no open credit disputes.
• Your present appraisal value is greater than what you owe on your mortgage.
• To get an idea of your score range use the FICO® Score Simulator.

Congratulations, you may be eligible to qualify for a FHA, VA or USDA mortgage at today’s historic low rates.

Investor Overlays

Investor overlays are measures lenders take to manage risks. You may need to shop around as, some FHA approved lenders require 36 months from the Chapter 7 Discharge. Most FHA approved lenders require higher credit scores, say in the plus 620 or 640 range before considering FHA insured loans. The higher the FICO® Score, the better the rate that will be offered. There is much more that can be discussed on the subject; perhaps we’ll delve more deeply into investor overlays in a future blog.

Streamline Refinance Not Available For Discharged Notes

A streamline mortgage refinance is the alteration of the term and/or rate of your mortgage note. Those with Discharged Notes have nothing to “streamline” as the Note is dead, it can’t be restructured to streamline without being brought back to life. To bring a Discharged Note back to life, one must reaffirm the debt. Neither you attorney nor I would suggest you consider such. In no case should you do such without the advice and consent of your bankruptcy attorney.

For a discussion on both 1^st and 2^nd Discharged Mortgages, you may wish to read this blog.

For a discussion on how and when to refinance your first mortgage while in a Chapter 13, you may wish to read this blog.

Financially Speaking – James Spray, CCMB, CNE – January 12, 2012

Legal Notice: The content of this blog are copyright 2011 by First Place Development Corporation. All rights reserved – Reproducing any of this document is prohibited without express written consent from James Spray. Protected by U.S. Copyright Law – Title 17 U.S.C. Section 101 et seq., Title 18 U.S.C. Section 2319 – Violations can be punishable by up to 5 years in prison and $250,000.

Here’s an excerpt:

A San Francisco cable car holds 60 people. This blog was viewed about 3,000 times in 2011. If it were a cable car, it would take about 50 trips to carry that many people.

Click here to see the complete report.

According to FICO®, credit which is requested within the same industry – in particular mortgage and auto – shall only count as one credit hit to the borrower within a 45 day period.  Looking for a mortgage, auto or student loan may cause multiple lenders to request your credit report, even though you are only looking for one loan. To compensate for this, the score ignores mortgage and auto loan inquiries made in the 45 days prior to scoring. So, if you find a loan and the corresponding insurance within 45 days, the multiple inquiries won’t affect your score while you’re rate and coverage shopping.

‘Hard’ vs. ‘Soft’ Credit Pulls

Another way to look at the same issue is this; there are two types of inquiries: ‘hard’ and ‘soft’ pulls. A hard pull refers to credit inquiries for acquiring credit, like from a credit card company or a mortgage lender. A soft pull is an inquiry that will review your FICO® score; much like an insurance company would in order to calculate an insurance quote.

Soft pulls often aren’t recorded on your credit report. If they are, the insurance company’s name will be listed on your report, but the inquiry will not lower your credit score as it is coded to relate to the specific industry such as a mortgage or vehicle loan.

Credit Scores Affect Insurance Costs

It’s no secret that a high credit score is a valuable thing. And while shopping for insurance quotes may not lower your credit score, it is important to know that a good credit score can lower your insurance costs.

Insurance companies and agents that see a potential client with a high credit score will consider you a low-risk client, someone who pays their bills on time and in full and is responsible. You will be offered more affordable insurance rates. Good credit saves you money in many different arenas of your life, including insurance.

Credit Warning – Your Lender Must Advise You

Once your mortgage lender has pulled your credit and prior to closing and funding, always check with your lender before shopping for furniture, appliances, automobiles, credit cards or anything whatsoever that will cause a hard credit pull. With the tightening of credit over the past few years, underwriting will pull your credit again prior to funding your “approved” loan. Lo and behold you may no longer be approved.

As always do not hesitate to write back with comments, questions or concerns.  I read everything that comes back, even though I don’t always get a chance to respond as quickly as I would like, I always respond.

Sharing my blog is easy! Is there someone else that you feel might want to read this? Don’t be shy – introduce my blog to those you think will enjoy.

Financially Speaking – James Spray, CCMB, CNE – December 17, 2011

Legal Notice: The content of this blog are copyright 2011 by First Place Development Corporation. All rights reserved – Reproducing any of this document is prohibited without express written consent from James Spray. Protected by U.S. Copyright Law – Title 17 U.S.C. Section 101 et seq., Title 18 U.S.C. Section 2319 – Violations can be punishable by up to 5 years in prison and $250,000.

Adverse Credit Event

Loan Type

Foreclosure

Short Sale /Deed- In-Lieu of Foreclosure

Chapter 7

Chapter 13

Conventional

Date of loan application

• 7 years from transfer of deed

• 3 years from transfer of deed if the borrower puts 10% down

• 7 years if borrower puts less than 10% down

• 4 years if borrower puts 10% down

• 2 years if borrower puts 20% down

• 2 years if borrower puts 10% down*

• 4 years from Discharge with reestablished credit and no new bad credit

• Less than 4 years from Discharge with extenuating circumstances*

• 2 years from Discharge with reestablished credit and no new bad credit

• 4 years from Discharge with new good credit and no new bad credit

FHA

Date of credit approval

• 3 years from claim paid by HUD*

• Less than 2 years but not less than 12 months from deed transfer*

• 3 years from claim paid by HUD*

• Wait period is not required if debtor is current and must take a job in a different market

• 2 years from Discharge with reestablished credit

• Less than 2 years but not less than 12 months from Discharge*

• 12 months payments to Chapter 13 Trustee with no 30 day late payments and Court approval 

• 12 months payments to mortgage company with no late payments for purchase or refinance

VA

Date of credit approval

• 2 years from transfer of deed to loan servicer

•Between 12-23 months from deed transfer*

• 2 years from transfer of deed to loan servicer*

• Wait period is not required if debtor is current and must take a job in a different market

• 2 years from Discharge with new good

•Between 12-23 months from Discharge*

• 12 months payments to Chapter 13 Trustee with no 30 day late payments

• 12 months payments to mortgage company with no late payment for purchase or refinance

USDA

Date of credit approval

• 3 years from transfer of deed to loan servicer

•Less than 3 years*

• 3 years from transfer of deed to loan servicer*

• Wait period is not required if debtor is current and must take a job in a different market*

• 3 years from Discharge with reestablished credit

• Less than 3 years from Discharge*

• 12months payments to Chapter 13 Trustee with no 30 day late payments

• 12 months payments to mortgage company with no late pays for purchase or refinance

Reverse

Date of underwriting

Same as FHA above except when no claim made and subject to underwriting

Same as FHA above except when no claim made and subject to underwriting

Possible to use to avoid bankruptcy and/or settle adversarial claim

• Date of Dismissal

             -or-

• Court Approval

What events may qualify as extenuating circumstances?

*Extenuating circumstances are temporary events that are beyond a borrower’s control, such as major medical expenses or death of wage earner. These events must be documented and verified, subject to review by underwriting.  Events such as divorce, job loss and the inability to sell the house do not qualify.

She protested the lack of statements and was able to get her credit reports corrected but it caused her great inconvenience as well as lost time and may have cost her the opportunity to obtain an improved mortgage credit rating and a lower housing payment. In retrospect, it appears those were pretty expensive cell phone accessories.

Should one take advantage of promotional charge or credit card offers?

As with nearly all business decisions, there is a risk vs. reward evaluation needed.  Keep in mind that opening new accounts can indicate increased risk to lenders and can hurt your credit score. Everyone’s situation is unique, but as a general rule, you should only apply for credit when you need it. Should you go on a shopping spree, and take advantage of all special credit card offers during that spree, one should expect to get reduced credit scores. This is part of the risk. So the question is: was the special
promotional reward worth it?

What’s the difference between charge and credit cards?

It is important to know the difference between a charge card and a credit card.  The Federal Reserve offers this brochure explaining the difference. In short, a charge card is payable in full on receipt of the monthly bill and most charge cards have no limit. A credit card  always has a high balance limit and can carry a balance at interest with certain minimal payments. On this, it will be helpful to review the ‘new’ rules governing how a balance on a credit card must be treated by the creditor.

What is a private label (store) credit card? 

The largest provider of store credit cards is General Electric Consumer Finance. A historic example of a GE store credit card is J.C. Penny. This particular private label credit card will display on a credit report as GE/JCP or GEMB/JCP.

What is an affinity credit card?

An affinity credit card is offered by an organization that the user recognizes and supports such as a travel club, alumni, university, social club, airline or other entity.

As always do not hesitate to write back with comments or questions.  I read everything that comes back, even though I don’t always get a chance to respond as quickly as I would like.

Financially Speaking – James Spray, CCMB, CNE – November 3, 2011

Legal Notice: The content of this blog are copyright 2011 by First Place Development Corporation. All rights reserved – Reproducing any of this document is prohibited without express written consent from James Spray. Protected by U.S. Copyright Law – Title 17 U.S.C. Section 101 et seq., Title 18 U.S.C. Section 2319 – Violations can be punishable by up to 5 years in prison and $250,000.

“We know that there are many homeowners who are eligible to refinance under HARP and those are the borrowers we want to reach,” said FHFA Acting Director Edward J. DeMarco. “Building on the industry’s experience with HARP over the last two years, we have identified several changes that will make the program accessible to more borrowers with mortgages owned or guaranteed by the Enterprises. Our goal in pursuing these changes is to create refinancing opportunities for these borrowers, while reducing risk for Fannie Mae and Freddie Mac and bringing a measure of stability to housing markets.”

DeMarco made it clear in this article that there would be no principal write-downs, simply the possibility of mortgage payment reductions for those that qualify for this special refinance.  It also maintains a choice President Obama made in the early days of his administration to focus on reducing monthly payments rather than on the amounts that borrowers owe, the latter being what a growing number of  both liberal and conservative economists consider necessary to bring resolution to the problem.

Why would any lender want to refinance an underwater mortgage and in particular one that is up to One Hundred and Fifty  percent upside down? Good question. One answer is that the lender gets to be forgiven for any earlier representations and warranties issued in conjunction with the initial mortgage loan. This is a free legal time out and a reduction in potential liabilities for the lender.  Another answer is to continue cash flow on a mortgage that may sooner default.

On October 28, 2011 it was reported in this article that each of the big four banks in the USA announced they would participate in HARP 2.0. When will this program be available? Possibly by the end of November, 2011, providing the FHFA has issued
the guidelines for the lenders to follow by then. As of this publication, the guidelines do not yet exist. Though the specific guidelines are not yet published, the general qualification guidelines were published in this document.

How To Qualify – One must have provable income. There must be a history of sufficient income as proven by the last two years of filed 1040’s. There also must be third party provable current year to date income sufficient to make the modified mortgage payment. Keep in mind this is applicable only to first mortgage loans, not second mortgages.  An upside is that one need not obtain an expensive appraisal as an Automated Valuation Model authorized by either Fannie Mae or Freddie Mac will suffice. Of course, appraisers will disagree with this determination by FHFA.

HARP 2.0 is available only for Fannie Mae and Freddie Mac owned mortgages. How do you know if your mortgage is owned by either of these mortgage giants?  Click here and follow the prompts to see if your mortgage is owned by Fannie Mae.  Click here and follow the prompts to see if your mortgage is owned by Freddie Mac.  Should the owner be one of these institutions, you may be able to get a lowered payment for the remainder term of your loan. Or you may reduce the remainder term of your loan if it makes sense to you to so do.

One need not use any of the big four banks as any mortgage loan originator may offer the HARP 2.0 program providing they have access to a lender that will underwrite these loans.

Financially Speaking – James Spray, CCMB, CNE – November 1, 2011

Legal Notice: The content of this blog are copyright 2011 by First Place Development Corporation. All rights reserved – Reproducing any of this document is prohibited without express written consent from James Spray. Protected by U.S. Copyright Law – Title 17 U.S.C. Section 101 et seq., Title 18 U.S.C. Section 2319 – Violations can be punishable by up to 5 years in prison and $250,000.

FACT: I am not an attorney. I do not provide legal counsel. I am an expert credit advisor as well as an expert on refinancing home loans following Chapter 7 Bankruptcy and while in Chapter 13 Bankruptcy.

What is a Zombie Mortgage?

Zombie Mortgage Notes are the Promissory Note(s) of home mortgages which have been Discharged in Chapter 7 Bankruptcy and continue to be paid on a purely voluntary basis by the debtor. In many cases, I see folks paying both the Discharged 1^st mortgage as well as the Discharged 2^nd mortgage. I am prompted to expand on this subject due to the number of recent callers who do not understand that the Note(s) was(were) legally nullified. Regular readers’ likely recall that I first wrote of this phenomenon in December of 2010 in an article titled Living Underwater After Bankruptcy.

Zombie Notes Do Not Credit Report

Given that the Note is, well, dead, the credit reporting agencies have nothing to report. There is no credit instrument against which the creditor can report. And, this is a biggie, if the Discharged mortgage servicer were to report the mortgage as still paying late, that could be considered as attempting to collect a Discharged debt. This is a big legal no, and no or no. Should you discover such on a valid credit report, you may wish to consult your bankruptcy attorney for a referral to a consumer protection attorney.

Can A Zombie Note Be Refinanced?

Yes. However this depends on several factors. The biggest factor is that there must be positive equity once the Discharged mortgage(s) is(are) paid off in the refinance. The next biggest factor is time. The earliest one can refinance after a Chapter 7 Discharge is two years and this is only with the blessings of FHA, VA or USDA. Conventional mortgage refinances are absolutely out of the question for at least three years.

Question – Can this be done by any licensed, bonded and insured mortgage loan originator?

Answer – Not realistically. You will need a specialist. This will require a highly seasoned lender who knows how to document, package and process a Zombie Note for a  rate/term refinance loan approval. There are no cash-out refinances of Zombie Notes.

Living With A Zombie Note

Those in Zombie Note situations must really like love where they live. There are no home improvement loan opportunities available. If there is no equity, there is no opportunity to refinance, so you should truly prize your current monthly housing payment. An ordinary sale will be difficult if not impossible so, in effect, one is frozen into their present location and housing. For some, this works. For others, it is merely prolonging the end of a cycle, and avoiding the opportunity of gaining a new beginning. And perhaps it is simply about keeping up the “image”, as though no one else in the country is in trouble financially. Good grief.

Caution: One of the highest needs is to make sure the personal property, real property and liability are insured against loss. Openly discuss your situation with your insurance agent. Understand you may need a specialty insurance agent due to the particulars of living with a Zombie Mortgage.

Zombie Note Equals “Renting” Without Benefit Of A Landlord

One choosing to live with a Zombie Mortgage has, in effect, become a tenant without the benefit of a landlord. Should the water heater need replaced, or worse, the resident is responsible for all upkeep and maintenance as an out of pocket expense. How would you feel about replacing the HVAC system to benefit the bank or the next owner?

 A Fresh Start – How Now?

 So now we know, the rest of the mortgage (the Deed of Trust) still needs to be reckoned with. It is still attached to the property, and requires legal resolution before one can begin mortgage credit recovery. The longer it takes for the foreclosure or short sale to occur, the longer it takes for your credit to heal. There may come a time, so to speak, to remove the life support system of voluntary payments on Zombie Notes and allow the natural financial/legal actions to occur.

Financially Speaking – James Spray, CCMB, CNE – October 1, 2011

Legal Notice: The content of this blog are copyright 2011 by First Place Development Corporation. All rights reserved – Reproducing any of this document is prohibited without express written consent from James Spray. Protected by U.S. Copyright Law – Title 17 U.S.C. Section 101 et seq., Title 18 U.S.C. Section 2319 – Violations can be punishable by up to 5 years in prison and $250,000.

Still, you need to be selective on your prospective landlord, too. Follow the tips in this on-line rental fraud detection tool and you will certainly have your first line of defense reasonably well covered.

Find No Credit Check Apartments and Houses

Large apartment complexes are typically owned by companies that have strict corporate approval criteria. Ask the manager if they exclude folks that have had a foreclosure. Again, you need to do some screening too.

 You’re more likely to get a credit check at one of these complexes (and denied if you have a foreclosure) so don’t apply where you know you are going to be denied. Why suffer the brain damage and humiliation?

Instead, look for houses, condos, townhomes, duplexes, and small apartment buildings that are owned by a single landlord. These types of landlords are less likely to do credit checks. Look for these types of residences:

• Check for signage by driving or walking the neighborhood you like.
• Ask friends and family. Ask social media friends.
• Check craigslist but be Cautious as there is much fraud in the public arena. Here is another excellent fraud detection tool.

 Rent Before It Hits Your Credit

If you apply for an apartment before the foreclosure is updated on your credit report, you have a better chance at getting approved. Timing it is tough since many people don’t realize foreclosure is inevitable until it’s happened. This is a result of what is referenced as the dual track system. So when it’s time to get out of this place, think of this Eric Burdon featured tune.  

Bring a Co-Signer

You can get approved for an apartment, even one of the larger apartment complexes, if you have a co-signer or guarantor. Keep in mind your co-signer will be responsible for any unpaid rent or damaged done to the apartment when you move out. I am one of those who refer to cosigning as financial ‘suicide by pen.’

Keep Paying Your Other Bills

A foreclosure or bankruptcy might set you back, but it won’t ruin you, unless you let it. Continue paying your other bills. People with foreclosure often have more 90-day late pays to explain on their credit reports than those who haven’t gone through foreclosure. Those late payments make you even riskier in the eyes of a landlord. If you can prove to a landlord that defaulting on your mortgage was an isolated incident, you may be able to rent despite your foreclosure.

Rent To Own

As I’ve previously written about this subject, this is most often a very bad idea. With very few exceptions, I have never seen a financially advantageous rent or lease to own contract. This is not to say they don’t exist. This is to say you need an experienced real estate attorney to review the document(s) for you prior to your entering such an agreement. I have seen back to back fraudulent lease-to-own situations. Use care, you do not need to buy someone elses problem unless it is good for you.

Don’t Lie

“Don’t ask, don’t tell” is a good philosophy to follow when it comes to renting after foreclosure. However, lying about it will probably cost you a rental opportunity. If you’re asked if you’ve ever had a foreclosure, be honest. Explain the situation and focus on how you’ve turned your finances around. Make sure the landlord understands that what caused the bankruptcy and/or foreclosure won’t cause you to be late on your rent.

Financially Speaking – James Spray, CCMB, CNE – September 5, 2011

Legal Notice: The content of this blog are copyright 2011 by First Place Development Corporation. All rights reserved – Reproducing any of this document is prohibited without express written consent from James Spray. Protected by U.S. Copyright Law – Title 17 U.S.C. Section 101 et seq., Title 18 U.S.C. Section 2319 – Violations can be punishable by up to 5 years in prison and $250,000.

Those who read my posts know I am favorably predisposed toward credit unions for consumers. So it stands to reason I would lead this list of secured credit cards with that which is offered by my own credit union.

With my credit union, as with most, there are no fees. The interest rate is fixed at 7.90% (the effective rate is actually 7.40% as we earn .50% on our pledged/secured savings). The way it works is the member pledges 110% of the requested credit limit. For example: The member pledges $1,100.00 in savings for a credit card with a limit of $1,000.00. The credit history you establish with your secured card is reported to the credit bureaus. As previously posted you, too, are eligible to join your own credit union.

Applied Bank^© offers a secured Visa^© with a fixed rate of 9.99% and no fee. This is a 100% pledge of savings to credit limit. So for a credit limit of $1,000.00 the customer must pledge $1,000.00. On average, the current savings account rates are paying .48-.50%. As of publication, this return is true with most similar savings accounts in the country. Shop the Applied Bank offers (and others) with care, while one has no fee, another of their secured cards has an annual fee of $119.00 and may have higher rates.

Amalgamated Bank of Chicago^© secured Master Card^© has an adjustable rate ranging from 9.25-14.25%. The annual fee is $50.00. As with the other bank secured cards, they offer a 100% pledge of savings to the credit limit.

Capitol One^© Secured Master Card^© has an annual fee of $29.00 and an adjustable rate of 22.90%. Here also the customer pledges 100% of a savings account deposit of the credit limit.

Last but not least of this group is the Orchard Bank^© VISA^© Card. The fees are not disclosed unless one applies. As discussed below, hard credit inquiries scratch and dent your credit scores. Their adjustable interest rate varies 7.90-19.90%.

Unsecured Credit Cards – There are very few unsecured credit cards available within 5 years of bankruptcy. Given there is such limited competition, you will pay outrageous fees and rich double digit interest rates. There is no advantage to your credit report and credit scores by having such a card. A Secured Card will be reported to credit rating agencies exactly the same as an Unsecured Card. You may shop for unsecured cards on the Internet but be prepared to pay outlandish fees and absurd interest rates.  Hard credit inquiries are reported against your credit scores.

A Debit Card is simply a plastic check. It is linked directly to your checking account. Of and by itself it offers no benefit to your credit. To have credit with your debit card, you must qualify for overdraft protection which is an unsecured line of credit and reported on your credit report as a revolving (credit card) account. Debit cards don’t have the security of credit cards as is illustrated in this must read Los Angeles Times article. Use due caution with debit cards. In the catch phase of a ‘60’s TV show: Danger.

Financially Speaking – James Spray, CCMB, CNE – July 6, 2011

Legal Notice: The content of this blog are copyright 2011 by First Place Development Corporation. All rights reserved – Reproducing any of this document is prohibited without express written consent from James Spray. Protected by U.S. Copyright Law – Title 17 U.S.C. Section 101 et seq., Title 18 U.S.C. Section 2319 – Violations can be punishable by up to 5 years in prison and $250,000

My answer is, no, you really do not want to do this and following are some of the reasons why.

In most cases, the earliest one will be eligible for a new mortgage following the conclusion of a short sale is three years, and it may be as much as four. Some think that FHA will begin to lighten the regulations on purchasing after short sale, but to date, this has not happened. Conventional lenders aren’t allowed to fund a new mortgage for a minimum of five years (up from four last year) following a short sale. I will continue to discuss this topic periodically until the housing finance market opens up to more sensible underwriting standards.

In spite of well intentioned information to the contrary, a short sale, by any other name, is still one’s failure to complete the terms of a contract.

 Be very cautious about ‘Lease to Purchase’ or ‘Rent to Own’ offers. Many are frauds, and some, while not outright frauds, may be based on false premises. Check the fraud alerts section of your State Attorney General’s office and do your due diligence via the Better Business Bureau as well as the Bad Business Bureau. Do not sign a lease/purchase or rent to own contract without having your own attorney bless the transaction. Paying a legal fee of a few hundred dollars on the front end can save you thousands on the back end – as well as providing a certain measure of assurance and a great deal of savings on your emotional investment.

Cases of inadvertent or initially unintentional fraud are not uncommon. By way of explaining, a client came to me after not one, but two back-to-back lease to own frauds. Emotionally, she felt she had to own a property to assure herself she was a truly worthy person. In both cases, she entered contracts to purchase at a later date, paid her deposits and advance lease payments. In both cases, the landlord or pseudo-seller defaulted on their mortgage payments and in both cases the client was evicted following the foreclosures on her former landlords. The moral of this story is to perform your due diligence. You may wish to hire your trusted local Realtor to look into the public records of the particular property you are thinking of leasing.

Particularly following a short sale or foreclosure, aside from being on a short term hiatus from obtaining your own home loan, it is perfectly fine to be a renter. As stated by one of the most successful Realtors in the USA, Larry Nordine a/k/a The Big Kahuna, “There is a lot to be said for renting.” Finally, keep in mind what Vincent Daniel says: “A home without equity is just a rental with debt.”

As always do not hesitate to write back with comments or questions.  I read everything that comes back, even though I don’t always get a chance to respond as quickly as I would like.

Financially Speaking – James Spray, CCMB, CNE – June 25, 2011

Legal Notice: The content of this blog are copyright 2011 by First Place Development Corporation. All rights reserved – Reproducing any of this document is prohibited without express written consent from James Spray. Protected by U.S. Copyright Law – Title 17 U.S.C. Section 101 et seq., Title 18 U.S.C. Section 2319 – Violations can be punishable by up to 5 years in prison and $250,000