Five Ways to Survive the Housing Slump

Expert advice for would-be sellers and buyers.
By Daniel McGinn | Newsweek

The National Association of Realtors has just launched a new ad campaign touting why buying a house "is a decision you shouldn't postpone any longer" and reminding buyers that "the value of a home nearly doubles every 10 years." But real-estate agents' forecasts have a history of being ridiculously optimistic. At the other extreme, housing bears like John Talbott say homeowners' current woes have only just begun. Here's his advice for would-be buyers and sellers right now:

What was your house worth in 1997?
When John Talbott figures how far prices have to fall, he figures they'll return to 1997 levels, since that was the year in which many of the aggressive lending practices—like interest-only mortgages—really began to take off.

Take a hard look at your mortgage.
"There are very few good deals left in the world for consumers, and fixed-rate, 30-year housing debt is one of them," Talbott says, particularly if homeowners set aside money to pay it off faster than the lender requires.

Follow the bailout talk.
Talbott says most people with adjustable-rate mortgages would be better off with a fixed-rate mortgage, but that makes two assumptions: that they can afford the larger payment on a fixed-rate loan, and they believe the government isn't going to offer some sort of bailout plan for borrowers who've gotten in over their heads with mortgage debt. People in mortgage trouble who are thinking about refinancing would be wise to watch headlines about bailout proposals, he says.

Think about home renovations as an expense, not an investment.
During the boom many homeowners came to believe the money they spent on a new kitchen or bath constituted savings, since improvements would only add fuel to their home's soaring value. The bust should help people understand that every dollar homeowners spend on a renovation rarely pays back $1 when they sell the house, Talbott says. Renovations are mostly about comfort and status, not about improving home values, he says.

It may still pay to sell now instead of later.
With home values down, some people may be inclined to hold off listing a home in the hope of a quick recovery. But if Talbott is correct, home prices have only begun to fall, and someone who can sell his home for 5 or 10 percent less than what he thought it was worth during the boom would do very well.

Mortgage brokers fear 'extinction' if new bill passes

Losing yield spread premiums would destroy revenue model, group says

The National Association of Mortgage Brokers is so concerned that recently proposed legislation would crush its revenue model that it scheduled national teleconferences and prepared sample letters for members to mail to their respective congressmen.

In an e-mail to all NAMB dated Nov. 1, Denise Leonard, the organization's government affairs chairperson, wrote:

"Mortgage brokers are facing extinction. The U.S. House of Representatives is considering a bill that will fundamentally change the way we are paid, outlaw YSP, and legislate underwriting guidelines into law. Additionally, we fear that all subprime lending will cease to exist due to excessive lender liability. …''

NAMB members reported that 500 phone lines were made available for two teleconferences last week -- and all lines were busy. An unknown number of brokers could not get through due to the volume of calls.

The bill, H.R. 3915, is known as the Mortgage Reform and Anti-Predatory Lending Act of 2007 and was recently introduced by House Financial Services Committee Chairman Barney Frank, D-Mass., along with Democratic North Carolina Reps. Brad Miller and Mel Watt.

A mortgage broker is often confused with a mortgage banker. A broker does not actually lend money. A broker acts as a liaison between a consumer who needs financing for a mortgage loan and a lender who has money available to finance the purchase. The broker brings the lender and borrower together.

Mortgage brokers receive a loan fee from either the borrower or the lender, or both. Borrowers may pay brokers an origination fee based on a percentage of the loan amount. In some cases, the broker receives a fee from the lender. Fees paid by the lender to the broker are known as yield spread premiums (YSPs). It is this fee that brokers are concerned about losing.

Mark Thomason - 408.850.3085
Offering Flexible Real Estate Commissions to Save my Clients Thousands!

How to Raise Your Credit Score 100 Points in 45 Days

1. GET RID OF YOUR COLLECTION ACCOUNTS.

Did you know that paying a collection account can actually reduce your score? Here’s why: credit scoring software reviews credit reports for each account’s date of last activity to determine the impact it will have on the overall credit score. When payment is made on a collection account,collection agencies update credit bureaus to reflect the account status as “Paid Collection”. When this happens, the date of last activity becomes more recent. Since the guideline for credit scoring software is the date of last activity, recent payment on a collection account damages the credit score more severely. This method of credit scoring may seem unfair, but it is something that must be worked around when trying to maximize your score. How is it possible to pay a collection and maximize your score? The best way to handle this credit scoring dilemma is to contact the collection agency and explain that you are willing to pay off the collection account under the condition that the all reporting is withdrawn from credit bureaus. Request a letter from the collector that explicitly states their agreement to delete the account upon receipt/clearance of your payment. Although not all collection agencies will delete reporting, removing all references to a collection account completely will increase your score and is certainly worth the involved effort.

2. GET RID OF YOUR PAST DUE ACCOUNTS.

Within the delinquent accounts on your credit report, there is a column called “Past Due”. Credit score software penalizes you for keeping accounts past due, so Past Dues destroy a credit score. If you see an amount in this column, pay the creditor the past due amount reported.

3. GET RID OF YOUR CHARGEOFFS AND LIENS.

Charge offs and liens do not affect your credit score when older than 24months. Therefore, paying an older charge off or a lien will neither help nor damage your credit score. Charge offs and liens within the past 24months severely damage your credit score. Paying the past due balance, in this case, is very important. In fact, if you have both charged off accounts and collection accounts, but limited funds available, pay the past due balances first, then pay collection agencies that agree to remove all references to credit bureaus second.

4. GET RID OF YOUR LATE PAYMENTS.

Contact all creditors that report late payments on your credit and request a good faith adjustment that removes the late payments reported on your account. Be persistent if they refuse to remove the late payments at first, and remind them that you have been a good customer that would deeply appreciate their help. Since most creditors receive calls within a call center, if the representative refuses to make a courtesy adjustment on your account, call back and try again with someone else. Persistence and politeness pays off in this scenario. If you are frustrated, rude, and unclear with your request, you are making it very difficult for them to help you.

5. CHECK YOUR CREDIT LIMIT(S) AND EVENLY DISTRIBUTE THE BALANCES YOU ARE CARRYING.

Make sure creditors report your credit limits to bureaus. When no limit is reported, credit scoring software scores the account as though your current balance is “maxed out”. For example, if you know that you have a$10,000 limit on your credit card, make sure that the limit appears on the credit report. Otherwise, your score will be damaged as severely as if you were carrying a balance of the entire available credit. Credit scoring software likes to see you carry credit card balances as close to zero as possible. If it is difficult for you to pay down your balances, read the following guidelines to maximize your score as much as possible under the circumstances:

• There are different degrees that scoring software can impact your score when carrying credit card balances.

• Balances over 70% of your total credit limit on any card damages your score the most. The next level is 50% of your balance, then 30% of your balance.

• In order to maximize your score without having to pay down your balances, evenly distribute your credit card balances among all of your credit cards, rather than carry a largebalance on one credit card. For example, if you are carrying a $9000 balance on a credit card with a$10000 limit, and you have two other credit cards with a $3000 and$5000 limit, transfer your balances so that you have a$1500 balance on the $3000limit card, a $2500 balance on the $5000 limit card and a $5000 balance on the $10000 limit card. Evenly distributing your balances will maximize your score.

6. DO NOT CLOSE YOUR CREDIT CARDS.

Closing a credit card can hurt your credit score, since doing so effects your debt to available credit ratio. For example, if you owe a total credit card debt of $10,000 and your total credit available is $20,000, you are using 50% of your total credit. If you close a credit card with a $5,000 credit limit, you will reduce your credit available to $15,000 and change your ratio to using 66% of your credit. There are caveats to this rule: if the account was opened within the past two years or if you have over six credit cards. The magic number of credit card accounts to have in order to maximize your score is between 3 and 5 (although having more will not significantly damage your score). For example, if a card was opened within the past two years and you have over six credit cards, you may close that account. If you have more than six department store cards, close the newest accounts. Otherwise, do not close any at all.

7. BECOME AN AUTHORIZED USER.

If you have a short and limited credit history you can ask someone who is a primary account holder to add you to their account as a joint account holder or an authorized user. When added, the primary account holder’s credit card will appear on your credit report. Credit scoring software will treat the added account as though it is your account and you will benefit from the low balance and the long payment history for that account. It is important to remember that being an authorized user is helpful for your credit score only if (1) the person is carrying debt below 10% of the credit limit and (2) has had good payment history on the card for seven years or longer. The longer the history, the better. Being an authorized user is potentially detrimental to your credit score if, for example, the primary card holder carries a high balance onthe card and has had it less than five years.

8. KEEP YOUR OLD CREDIT CARDS ACTIVE.

15% of your credit score is determined by the age of the credit file. Fair Isaac’s credit scoring software assumes people who have had credit for a longer time are at less risk of defaulting on payments. Therefore, even if your old credit cards have horrible interest rates, closing those cards will decrease the average length of time you’ve had credit. Use the old card at least once every six months to avoid the account rating to change to “Inactive”. Keeping the card active is as simple as pumping gas or purchasing groceries every few months, then paying the balance down. An inactive account is ignored by Fair Isaac’s credit scoring software, so you won’t get the benefit of the positive payment history and low balance that card may have. The one thing all credit reports with scores over 800 have in common is a credit card that is twenty years old or older. Hold on to those old cards trust me! Preparing credit is a slow and time consuming process. Full knowledge of your credit profile and how it represents you to creditors and credit bureaus is pivotal to full credit restoration success. Credit bureaus always advise individuals that they have a right to dispute their own credit files, but when the rights of the Credit Bureaus slow you down; you know where to ask for help.

Mark Thomason - 408.850.3085