ARAMCO Report - The Mother of ALL Mortgage Blogs!

ARAMCO Report - Monday April 6, 2015

Posted by The Aramco Group on Tue, Apr 7, 2015 @ 15:04 PM

Four million mortgage loans went “missing” in the U.S. between 2009 and 2013. That is how analysts at The Urban Institute described the number of mortgages that could have been entered into if lenders were accepting similar levels of creditworthiness from potential borrowers as they did in 2001. Lenders have implemented their own credit overlays on top of more stringent post-crisis lending standards from FHA, Freddie Mac and Fannie Mae. The 2008 crash even made households with excellent credit more rare: credit ratings of 720 and above among borrowers are 8.9 percent less likely as compared to 2001. Medium and low-credit households were hit even more remarkably. Borrowers with scores between 661-720 and with scores less than 660 are 37 percent and 75.8 percent less likely, respectively. That means that households with exemplary credit are still the primary movers of the recent mortgage market rebound. Meanwhile conforming no point 30 year fixed mortgage rates average 3.75 percent while 15-year rates average 3.0 percent.

For more information on a home purchase, refinance, or a reverse mortgage, visit our website at Aramco.Biz or call me at (877) 700-0942. This is Mehran Aram with today's ARAMCO Report.

Ask Mehran Aram

Topics: credit, 30 year fixed rates, Fannie Mae, Freddie Mac, Urban Institute, FHA, Credit Rating

What Information will I need in order to Qualify After the FA?

Posted by The Aramco Group on Mon, Apr 6, 2015 @ 13:04 PM

This is part 2 of 3 explaining the “New Reverse Mortgage” and the Financial Assessment that will change the program on April 27th, 2015

 

Qualifying for a reverse mortgage will require more documentation than it used to. The Financial Assessment’s legacy will be that it requires you to collect information on your assets and on your incomes/expenditures for the last two years — in as comprehensive a fashion as is possible.

That should be enough information to determine whether a potential borrower qualifies, but your loan originator and any FHA certified counselor that you end up working with will be the ones to direct you more specifically.

3798360022 96f7b624ab z resized 600

How will the lenders or originators be reading that information?

The Financial Assessment sets some new rules for lenders to follow, but it also leaves wiggle room for lenders to evaluate each individual application. The new rules understand that no one person’s financial life fits neatly into a template. There are plenty of chances to explain any extenuating circumstances you may have come to pass in your life. What counts as “extenuating circumstances” and how to use them will be explained below.

The preliminary information you will have to provide will be in 12 different categories, but do not despair. As was said above—about providing information on your incomes/expenditures and assets for the last two years — should cover most of the information needed. The Financial Assessment just breaks that information down into 12 categories as follows:

A) Property Charge Payment History

B) Credit History

C) Assets

D) Imputed Income (value of assets minus taxes they may be subject to only if sold, e.g. stocks and capital gains tax)

E) Estimated Maintenance and Utility Expenses (from a formula of $0.14/sq. foot)

F) Monthly Effective Income

G) Current Monthly Property Charges/Rates

H) Other Monthly Expenses

I) Residual Income

J) Monthly Property Taxes as Percentage of Monthly Income

K) Extenuating Circumstances

L) Compensating Factors

Some of the above information is just a statement of how much you own. Property Charge Payments and Credit History information is a little different. If you are wondered what a lender may be looking at when they look at these records you can know the basics now:

As per the Financial Assessment rules, they will be assessing whether you are current and/or delinquent with the following Property Charge Payments:

  • Real estate taxes
  • Other assessments
  • HOA/PUD/Condo Fees

The originator will also check the amount of insurance in place on your home during the last 12 months of the following types and whether you have been delinquent on payments at any time in the last 24 months:

  • Hazard/Homeowners Insurance
  • Flood Insurance

What about my credit?

Research at The Ohio State University has shown that potential borrowers with lower credit scores are more likely to end up in default.[i]  The Financial Assessment will therefore check your numeric score, but will more specifically check whether you have had any delinquent payments on any of your lines of credit over the last 24 months. They will make note of whether those delinquent payments were still outstanding at 30, 60 & 90 days, and they will count the number of times.

A mark against your lines of credit over the last 24 months does not immediately disqualify you from getting a reverse mortgage however. The Financial Assessment leaves room for extenuating circumstances. We will explain that now.

What Extenuating Circumstances can I Bring up to Help me Qualify for a Reverse Mortgage?

The FHA and HUD have demonstrated that they understand that no one’s financial lives fit perfectly into a narrow set of expectations. Instead, they have left room for potential borrowers to explain negative occurrences in their financial history, and the process has a capacity for understanding.

The following section is directly from HUD’s manual.

Extenuating circumstances beyond the mortgagor’s control may include, but are not limited to:

  • Loss of income due to the death or divorce of a spouse that directly resulted in late payment of obligations;
  • Loss of income to the potential borrower’s or spouse’s unemployment, reduced work hours or furloughs, or emergency medical treatment or hospitalization that directly resulted in late payments of obligations; or
  • Increase in financial obligations due to emergency medical treatment or hospitalization for the potential borrower or spouse, emergency property repairs not covered by homeowners or flood insurance, divorce or other causes that directly resulted in late payments of obligations.

As you can tell, leeway may be made for circumstances outside of a potential borrower’s control. It will be up to the originator, underwriter, and lender to interpret these types of situations, and if the borrower can prove with documentation that an event directly led to a missed obligation, then the problem may not disqualify a borrower from a reverse mortgage.

We have now talked about half of how the Financial Assessment is going to change the Reverse Mortgage on April 27th, 2015. It will require more paperwork, and that will make it more difficult to qualify. The other half of the Financial Assessment is the “Life Expectancy” Set Aside that some borrowers may have to deal with.

Check back tomorrow for information on the Set Asides and how they may effect you and your loved ones.

 


[i] Moulton, Stephanie, Haurin, Donald & Shi, Wei, An Analysis of Default Risk in the Home Equity Converstion Mortgage (HECM) Program (January 25, 2015)

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2468247

 

Topics: financial assessment, credit, credit report, mortgage news, Mortgage Market, Mortgage applications, Mortgage application

Would You Make The Cut?: New Assessment for Reverse Mortgage Borrowers

Posted by Jay Zayer on Thu, May 15, 2014 @ 15:05 PM

Later this year, the FHA will begin a financial assessment on borrowers looking to obtain a Reverse Mortgage. The purpose of the assessment is to evaluate the mortgageor's willingness and ability to meet their financial obligations.The assessment will also be used to calculate whether a portion of the Reverse Mortgage proceeds will need to be held back in order to cover property taxes and insurance in future years. According to HUD, the new financial assessment guidelines will focusWould You Make The Cut?: New Financial Assessment For Reverse Mortgages on:

•performing credit history analysis and cash flow/residual income
analysis;

• evaluating extenuating circumstances and compensating factors;

• evaluating results of the financial assessment to determine eligibility
for the HECM;

• determining if funding sources for property charges from HECM proceeds
will be required;

• completing a financial assessment worksheet; 

• verification requirements and documentation standards for credit, income,
and expenses.

Additionally, underwriters will look at the borrowers current monthly obligations (found on their credit report) and property charges that include property taxes, home owners insurance, and HOA payments. HUD will require a calculation based on the square footage of the home and is similar to the VA calculation of $.14/sq. ft. If a home is 1800 square feet, an assessment of $252/month would be included in the calculation when determining if a borrower qualifies.

Another component of the calculation will be based on the geographic region the borrower resides in. In the Southwest region, $589/month for a single person and $998/month for a couple would be added to the equation when calculating the financial assessment. For example: a couple living in Southern California who have a 2000 square foot home, $350/month in credit card debt, property taxes of $3000/year and paying $1200 for homeowners insurance would need to make $1978/month to qualify according to the new financial assessment. For many couples living in Southern California $1978/month may not seem like a lot of money however, many senior borrowers looking at a reverse mortgage are doing so because they are on a very tight budget and possibly living month to month.

Unfortunately, the few that do not pass this financial assessment may not qualify for a reverse mortgage and may be forced to sell their home. On a positive note, most borrowers will pass this new policy imposed by FHA.

For more information on purchasing a home, reverse mortgages or home financing contact us at www.ARAMCO.biz or call 877-700-0942.

Learn More

Topics: Reverse Mortgage, HECM, financial assessment, Aramco Financial, Housing and Urban Development, HUD, credit, Aramco Mortgage, Southern California, borrowers, FHA, Mortgage applications, Homeowners Insurance, property taxes, HOA Payments, mortgagor

A Guide to Rebuilding Damaged Credit

Posted by The Aramco Group on Wed, Jan 22, 2014 @ 06:01 AM

Good credit is not simply nice to have; it is nearly essential for making any large purchase, including a house, car, or college education. A good credit score shows lenders that you can be trusted with their money. Therefore, if you have a poor or no credit score, you may have a difficult time getting approved for a credit card or loan. 

If you are one of the millions of Americans with a poor credit score, you may be wondering how you can fix your score and have another chance at the American dream. Thankfully, it is possible, though it will probably take some time. Here are five steps you should take. 

1. Fix Any Errors

The very first step you should take to fix a poor credit score is to obtain a copy of your credit report and check for any errors. Be sure that you obtain reports from all three credit reporting agencies—Equifax, Transunion, and Experian—because all three report slightly differently and information that is correct on one might be incorrect on another. By law, each of these agencies offers one free credit report per year. You can request them at annualcreditreport.com.

Once you have all three reports, check all of your personal information to make sure that it is accurate. If any incorrect names or addresses are listed, your credit may have been mixed up with someone else’s, which could negatively impact your score. 

Secondly, make sure that all of your account and payment information is correct. If your credit report shows missed payments that you know you made on time, your credit score could be much lower than it should be. If you find any information that is not correct, contact the reporting credit bureau that is reporting the misinformation immediately. 

2. Catch Up On Missed Payments

After reviewing your credit report and fixing any errors, it is time to begin the hard work of rebuilding your credit score. Start by catching up on any missed payments, beginning with the accounts that you have most recently defaulted on. If you can make any recently missed payments immediately, you may be able to prevent them from being reported to the credit bureaus in the first place. 

Because payment history counts for almost 35 percent of your credit score, a missed payment can really hurt your score. In fact, a single late payment can reduce your credit score as much as 110 points if your score is excellent. Once you have caught up on your late payments, commit to making all future payments on time

3. Reduce Your Credit Card Debt

According to myfico.com, the average debt-to-credit ratio of people with the highest credit scores is only seven percent for revolving accounts like credit cards. Therefore, once you have caught up with all of your payments, your next step is to begin paying down your credit card balances.

Start with the card that has the highest debt-to-credit ratio and begin making payments. Even if you cannot afford much right away, just keep making payments until you can get the balance lowered and eventually paid off. Then, do the same with the next card. 

Once your balances are paid down, be careful not to rack up charges again. You may want to call the credit card company and have your credit limit lowered, or you may consider cutting up your cards or locking them away in case of an emergency.

4. Avoid Closing Old Accounts

If you do decide to get rid of your credit cards completely so that you are not tempted to use them unwisely, you might want to think again. It may not be in your best interest to close all of your accounts. This is because your credit score is determined in part by the length of time you have held your accounts. If you close the account you have had the longest, it can shorten your credit history and temporarily reduce your score. 

Instead of closing your oldest account, consider simply cutting up your old credit cards and leaving the accounts active instead. This way, you will not be able to use them, but you will still have a positive account on your credit report

5. Open a Secured Credit Card

Once you have removed the negative account history from your credit report, it is time to start building positive account history. You need to use credit to earn a good credit score, however, and getting approved for a credit card or loan can be difficult when your credit score is poor. A secured credit card is one positive solution.

With a secured credit card, you make a security deposit and receive a credit card with a limit equal to your deposit. Then, you use the card just like a regular credit card. Secured credit cards are not like debit cards because you are not using your security deposit money to make the purchases; you are still borrowing the money on credit. The security deposit is just to protect the lender in case you default on the card. Make your payments on time and the lender will report your account activity to the credit bureaus. 

Once you have repaired the negative marks on your credit report and begun to create positive account activity, commit to using your credit wisely in the future. Make your payments each month, keep your balances low and continually monitor your credit report to ensure that you are on the right track. While repairing your credit will take time, the benefits are worth the hard work. 

Topics: credit, credit report

Bad News About Credit Reports

Posted by The Aramco Group on Wed, Mar 28, 2012 @ 17:03 PM

An investigative article published earlier this week on msnbc.com (not one of my favorite sites under normal conditions) revealed that hackers, apparently routinely and regularly, access credit report web sites, steal people's credit report information, then sell it - openly and online.

Credit report sites like annualcreditreport.com (Federal law requires the nation's three largest credit bureaus – Experian, Equifax, and Trans Union – to maintain the annualcreditreport.com site under the direction of the Federal Trade Commission.), creditreport.com, equifax.com and something called "creditkarma.com" were all hacked. The credit reports - perhaps your credit report - were then sold to other thieves, who sold them online. Quite a supply chain they've got going there.

The credit reports were sold on sites registered in the .su domain, 'su' standing for Soviet Union. (I thought the Soviet Union was no more; did I miss something?)

So what's your credit score worth? The prices fluctuate depending on the credit score. For credit scores in the 750s, report data might go for $80; reports from victims with scores in the low 600s sell for closer to $40, according to "for sale" pages viewed by msnbc.com.

Some of the sites selling the data brag about how easy it is to hack the credit report sites. How easy? This is from the article:

In one how-to posted on a bulletin board, a hacker describes one brute-force attack used to gain access to credit report websites. Most sites are protected by "challenge" questions such as, "Which bank holds the mortgage on your home?" But there's a critical flaw, the hacker said:

"Normally all ... of them will ask you the same question," the hacker wrote.

Because the sites use the multiple choice format, it's easy to use the process of elimination and determine the correct answers, he claims.

The hacker explained that the trick is to open several credit report sites and keep trying random answers until one set works.

The recipe is highly detailed, including helpful tips such as, "Take a shot of screen to remember what answers you gave. After that click the submit button and see what it says."

As of now, there doesn't appear to be a clear way of stopping the problem without making the challenge questions too difficult for the legitimate consumer, which many feel is already a problem.

How does that make you feel? 

Topics: credit, credit report