Home Financing Ninja

How Your Credit Score Affects Insurance Rates in Tampa, Florida

In today's article you will learn

1. What determines a credit score
2. What determines insurance rates
3. How they are inter-related

In a recent launch of new technology in my office, I decided today to talk about an often overlooked segment of a real estate agent or mortgage person's business

CreditScore Improvement

Now it is no secret that insurance companies tie the cost of rate premiums (and their compensation) to two major things: 

• Credit Scores
• Job Type

In fact, MSNBC, in the extreme recent past (ie. the last week) did an article about this very thing.  In this article, the Property Casualty Insurers Assoc. of America (lets call them PCIAA for short, shalll we) stated on record that someone who has lost employment (voluntary or not) and their credit score drops (most fo the time it does) is more likely to file an insurance claim! AND THEY CAN PROVE IT!

HUH??? (Imagine the deer in the headlight look)                                                     

• What happened to the good ole days of those who drove more had higher insurance rates
• What about those of us how are chronically late for work, therefore, a little more heavy footed
• And my all time favorite (now that I am older) -- What about those of us just learning how to drive

Now I am not going to spend a lot of time on the Cliff Notes of the article.  Go read it yourself.

Lets talk about some interesting information about what makes up a credit score

1. 30 - 80% Balance to Limit Ratio (maxing out a credit line)          10 - 44 points each
2. Have a 30 day late payment                                                    60 - 110 points (each)
3. Debt Settlement (this includes short sales)                                45 - 120 points
   1. (With the exception of short sales, you get hit with income taxes)
4. Foreclosure                                                                            85 - 155 points
5. Bankruptcy                                                                           125 - 230 points

We all know of debt collection agencies and human medical billing people.  These guys will destroy credit with a second thought, all because of an error in coding the medical bill.  All of a sudden it gets put on your credit report, and then everyone else (using the Universal Default Clause) slashes your credit lines, Ups the interest rate, cancels your accounts, and thus the down ward spiral begins

And we all know what happens when credit scores go down -- Insurance Rates (and yes, this does usually encompass health insurance) go up, Credit Card Rates go up or are non existant, Deposits on utilities become the norm -- Your life becomes a world where cash is king

In essence, it becomes more expensive to be credit challenged and poor.  An endless cycle

In my next installment, I will discuss how this intertwines with the Real Estate Industry and how it will help you

FHA New Rules are no longer Rumors

According to a late night Cnn/Money report -- FHA will go to a credit score driven program, higher down payment requirements, lower seller concessions, and higher MIP

Here are some of the facts

• Seller Concession to reduce to 3% from 6%
• Credit score minimum: 580 FICO to have a 3-1/2% Downpayment
  • Lower scores will be higher down payment
• UFMIP (Up Front MIP) will increase to 2.25% (on the average 130K loan, adds an additional $2,925)

Read the entire CNN Story

Now I don't now about you, but I have already been employing these similar strategies (all except the Increased mortgage insurance premium) in my business and in the business models of real estate agents around the country.

If you are a realtor thinking, Oh no, now my business is going to suffer even more -- Hang On and Continue Reading, as there is hope

Let me tackle each bullet point individually

Seller Concession to be 3% down from 6%

Show your seller and entice your potential buyers buy offering the FHA 2/1 Buydown.

• Your seller keeps more money
• Your buyer gets a lower payment for the first two years
  • Heres how it works
  • Assume you have a house on the market for 130,000
  • Assume that the interest rate is 5.75% for 30 years
    • The seller contributes the difference (of the interest payment) over the first two years of the mortgage (in this case I assumed the 3-1/2% down payment) and gives in concessions $3634.92 (2.796%)
• I use this strategy often, yet many realtors and loan professionals either don't use this or don't know about it.  Yes, the buyer DOES have to qualify at the fully amortized rate (5.75% in this scenario) but starts payments 1 - 12 at 3.75%; Payments 13 - 24 are at 4.75%; Payments 25 - The End are at 5.75%

Credit Score requirements to go to 580

It is no secret that if you or your buyer are under that number, they wont get an FHA mortgage.  While there are a few banks out there writing to that or even lower, there are many many extra hoops to jump through that will (not CAN, WILL) delay the closing sometimes up to four to five months.  That's almost as bad as buying a short sale home.

Solution

Credit Repair.  It is no secret that CBA (credit bureaus) are a mass of computers reporting what other computers tell them to.  Greater than 90% of ALL credit reports have many errors.  Errors such as

• Faulty Late Payments

Were you really late on that payment, or did your payment get held some where in the black abyss

• Public Records

What if you have a common name, John Smith or Mary Jones.  And someone else with that same name gets sued in your city, Very good chance that the judgement and lien will appear on your credit report -- It happened to me!

• Excessive Inquiries
• Unreturned Equipment Resulting in Collection accounts
• Collection Accounts

As a former collections person, let me talk about that for a minute.  It IS legal for a collection account to be reported to the credit report (MAny think that it is not, but it is) -- What is NOT legal is the account to be RE-AGED (Violates the FACTA Rule) -- If you have a credit card that goes unpaid or hospital bill that gets miscoded (hey we are all human and make mistakes) - The creditor (or medical office) will send it to a collection agency.  That collection agency will then put it on the credit report the exact time they receive it --NOT WHEN IT WAS OPENED (and thats the legal violation)

Now we all know that we can "dispute" anything on the credit report and after 30 days it is supposed to come off -- Well I hate to break it to you, but unless your buyer has professional representation, the chances of a negative item coming off the credit report are very slim.  EXTREMELY SLIM.  It takes an average of 6 to 30 seconds for a rep at a credit agency to pick up the phone, call the creditor, get someone on the line to verify an account. -- So with that theory, we should have much cleaner credit reports - Again, I hate to break the bad news, but that DOES NOT happen.

MY POINT

Enroll your client in a credit repair program.  Give them 2 - 5 months to get their financial act turned around and they wont have to worry about hoops to jump thru.  They will enjoy quick closings - And they will love you for getting lower car insurance rates, better interest rates on credit cards and that house you sold them.

Best part, THEY will TELL EVERYONE ABOUT YOU.

(Whats that going to do for your business)

Call To Action

• Learn how to enjoy a professionally marketed credit repair campaign, and install it on your website that people visit right now
• Dont have a website -- I can help you with that
• Need more listings to attract more buyers, I can hel you with that
• Tap into Hidden Markets
• Enjoy Professional Websites for all of your listings that include unlimited media, pictures, videos, has call capture IVR, text capture IVR, exclusive leads, auto follow up for your contact database, PLUS MUCH MUCH MORE

Realtors and Loan Professionals -- This is not Rocket Science -- But here is what to do

Sign up for the live event held in Tampa or sign up for the Online Event

Common Denominators: What Haiti Relief Efforts, Hilton Hotels, The History Channel are using and how to incorporate that technology into your business

For those of you who want to immediately try this out, feel free to email or respond with a current MLS listing and I will send back to you the live demo

BIG BANKS ACCUSED OF SHORT SALE FRAUD

This article was reprinted from FB who got it from a CNBC report -- Very interesting reading.  If you are an agent and you're doing this or asked to do it -- THINK TWICE.  And remember, tape recorded conversations go along ways -- Anyways , happy reading

REPRINTED FROM CNBC

Just as regulators, lawmakers and all forms of financial oversight boards are talking about new regulations to guard against mortgage fraud and another mortgage meltdown, there appears to be yet a new mortgage fraud out there today, allegedly perpetuated by agents of, yes, the big banks.

I was first alerted to this by Jeremy Brandt, the CEO of several companies that bring short sale agents, investors and sellers together.

His companies include 1800CashOffer, HomeFlux.com and FastHomeOffer.com. Brandt has a huge network of short sale real estate agents, and over the past several months he's been receiving all kinds of questions and complaints about trouble with second lien holders.

As we all know, during the housing boom, millions of Americans pulled cash out of their homes in the form of home equity loans and lines of credit. They also used "piggy back" loans in order to get even lower interest rates on their primary mortgages. Now, many of the borrowers in trouble, and many who are so far underwater on their loans that they don't qualify for any refi or modification, are choosing short sales as a way out. (Short sales are when the lender allows the home to be sold for less than the value of the loan). About 12 percent of all home sales by the end of 2009 were short sales, according to the National Association of Realtors.

In order for a short sale with two loans to happen, the second lien holder has to drop the lien.

If they don't, and there's no short sale, the home goes to foreclosure and the first lien holder gets the house because second liens are subordinated debt to the primary loan.

In short, the second lien holder gets nothing. In order to get the second lien holder to drop the lien, the first lien holder generally negotiates some partial payment to the second lien holder. The second lien holder doesn't have to agree, but more and more are doing so.

That's all legal.

But here's what's not legal and what's apparently happening quite often recently. Since many second lien holders are getting very little, they are now allegedly requesting money on the side from either real estate agents or the buyers in the short sale. When I say "on the side," I mean in cash, off the HUD settlement statements, so the first lien holder doesn't see it.

"They are pretty clear and pretty upfront about the fact that if the first lender knows they are getting paid, the first lender will kill the short sale," says Brandt. "So these second lenders are asking for the payments off the closing documents, off the HUD statement, usually in a cashiers check prior to closing. Once they receive that payment, they will allow the short sale to go through, which according to RESPA laws and the lawyers that we have spoken to on the topic is not legal."

(RESPA is the Real Estate Settlement Procedures Act, the 2008 law requiring that consumers receive disclosures at various times in the transaction. It outlaws kickbacks that increase the cost of settlement services. RESPA is a HUD consumer protection statute designed to help homebuyers be better shoppers in the home buying process, and is enforced by HUD. Read more about it here.).

I told RESPA specialist Brian Sullivan over at HUD about all this and he replied, "That's a red flag!"

Clearly illegal.

Brandt told me he's heard from at least 200 agents that they've had these requests made by representatives of Citi Mortgage [C 3.42 -0.09 (-2.56%) ], JP Morgan Chase [JPM 43.68 -1.01 (-2.26%) ], Bank of America [BAC 16.26 -0.56 (-3.33%) ] and other large banks.

Most agents wouldn't go on the record with me, for fear of retribution by the banks with whom they have to work every day. But one agent, Kayte Gentry, of Keller Williams Integrity First Realty, was brave enough to blow the whistle.

"I think it's wrong, and I think somebody needs to hold them accountable, and every time I lose a house in foreclosure because of this, it hurts my client," says Gentry matter-of-factly. "Aside from being illegal and a violation of RESPA, it's immoral and truly it's just sad for the client that it's hurting."

Gentry says she has had the requests made three times and claims she lost one sale because of it.

"The big banks that have recently made this request, specifically payments outside of the closing statement have been Citi Mortgage and JP Morgan Chase."

JP Morgan Chase simply answered, "No Comment," when I relayed the charge to their media representative.

Bank of America denied the practice to CNBC in a written statement:

"Bank of America enforces a policy that all disbursements are documented on the settlement statement for short sales. When we are servicing a first mortgage with a second lien held by another investor, if the second lien holder asks for off-HUD payments, we will not approve the transaction (if we have knowledge of it). It is also against Bank of America's policy to accept off-HUD payments on its second liens."

Citi 's reply was a bit more complicated:

"We work very hard to help distressed homeowners find solutions for their financial challenges. In our attempt to amicably resolve the debt, we will generally negotiate a reduced settlement with the homeowner in order to release a second lien. Unlike some lenders who refuse to reduce the payoffs on second liens, we choose to reduce the payoff amounts in some situations to assist the borrower. We do not provide instructions to settlement agents on how to fill out the settlement statement or any other closing documents, and we certainly do not require settlement agents or any other parties to violate applicable laws."

"When we confront the lenders and tell them that this request is illegal and a violation of RESPA, they tell us it's been cleared through legal and they don't care. Do it anyway," charges Gentry.

I personally heard a recording of a phone conversation between a short sale real estate agent and a second lien lender, during which the second lien lender clearly asked for cash outside of the settlement and threatened to kill the deal without it.

The real estate agent was rightly concerned and reluctant (the recording was given to me by Brandt who got it from the agent. The agent would provide no information on the lender, for fear of retribution):

AGENT: Well yes, I don't want to lose my license, go to jail, I mean, I have to sign...

LENDER: You're not going to lose your license - we have plenty of realtors who do this, who actually understand how this whole process goes - and they realize that OK, if I want to get this done, this will take place."

I contacted the Treasury Department, HUD, FINCEN (Financial Crimes Enforcement Network) and the Federal Trade Commission, and none of their representatives could tell me of any active investigation into this. The folks at HUD said they'd be very interested to see my story.