Archive for the 'Credit And Financing' Category
How the Pensacola Real Estate Mortgage Market Has Changed
February 17th, 2010 Categories: Credit And Financing, Pensacola Real Estate News
In this article, I will take a look at the changes in mortgages used to purchase Pensacola real estate over the past several years.
In looking at the table above, it is pretty clear that the use of conventional mortgages for real estate purchases is declining in favor of FHA and Veteran’s Administration (VA) mortgages. It is no surprise that conventional mortgages are not as popular as they were only 2 years ago. The standard for a conventional mortgage is a 20% down payment. In previous years, many conventional mortgages were being issued with 10% down or no money down at all. Often the mortgage would require 20% down, and the borrower would borrow the 20% down payment in the form of a 2nd mortgage.
Notice in the table that the use of FHA mortgages have more than doubled in the past 2 years. VA loans have tripled! I believe that the increase in VA loans is unique to markets where there is a strong military presence, such as the Pensacola real estate market. Without our local military bases, the Pensacola area would be an economic disaster area. Thank goodness for our local veterans and active duty military who are buying Pensacola homes for sale and staying in Pensacola.
Most of the Pensacola military personnel who work out of the Pensacola Naval Air station choose to live in Southwest Pensacola, in subdivisions such as South Bay, Coral Creek, and Emerald Shores. These beautiful neighborhoods provide fast easy access to Pensacola NAS and Corry Field.
Data for the table was provided by the Pensacola Association of Realtors, and is deemed reliable, but not guaranteed.
| Currently No Comments »
Report Says Consumers Need To Better Understand Their Credit Scores
September 25th, 2008 Categories: Credit And Financing
Americans can save billions of dollars annually on credit card and other interest payments by raising their credit scores, but many consumers still don’t know enough about the complex numerical values that represent their credit risk.
According to the consumer group Consumer Federation Of America, public awareness of credit scores has improved but is still poor.
Although awareness of credit scores has increased in the past year, it remains poor, the Consumer Federation of America and Seattle-based bank Washington Mutual Inc. found in an annual survey released Thursday.
Given the participation of Washington Mutual, also knowns as WaMu, you would think they really care about the consumer and want to save you money.
One of my favorite bloggers, Karen George, has a different take on WaMu. If you are considering doing business with them, I would read her articles Once Again, WaMu Screws Me and Preditory Banking On A Smaller Friendlier Scale
To learn more about exactly what a credit score is, refer to my article “What Is A FICO Score “.
FICO scores are used by banks and insurance companies to determine rates for mortgage loans, credit cards, auto loans and other financing. Utilities, landlords and employers also check credit scores. Lower credit scores can cost you in many ways.
To learn more about how you can increase your overall wealth by improving your credit score, check out Your Credit Score – The Key To Building Your Future Wealth .
One way to raise a credit score is to avoid charging above the maximum limit on a credit card, or coming close to the limit, the study said.
However, many credit card issuers have recently cut limits on many cards to reduce their credit risks. These reductions can hurt credit scores because they are based partly on the amount a consumer has on a card compared to its overall limit.
For example, if you have charged $4,000 on a card with a $10,000 limit, the “utilization rate” is 40 percent. But if a card issuer reduces the limit to $5,000, that bumps your utilization rate up to 80 percent. Bad for you, but good for them. Isn’t that just business in America these days.
The Consumer Federation recommends credit card users keep the utilization rates below 50 percent, said Stephen Brobeck, executive director of the group.
To improve their credit scores, consumers should also avoid opening multiple new accounts quickly, and pay off debt rather than moving it around, the study said.
Look for upcoming articles on Pensacola Real Estate News regarding ways to improve your credit scores.
| Currently 2 Comments »
PMI Companies Hit Hard By the Real Estate Market Downturn
September 1st, 2008 Categories: Credit And Financing
A lot of companies are being hit hard by the real estate market downturn. Included in that group are the Private Mortgage Insurance (PMI) companies. If you are not familiar with the term PMI, here are a couple of short definitions:
“PMI protects the lender against a loss if a borrower defaults on the loan. It is usually required for loans in which the down payment is less than 20 percent of the sales price or, in a refinancing, when the amount financed is greater than 80 percent of the appraised value.”
“PMI consists of insurance policies written by private companies insuring lenders against loss resulting from defaults on mortgages.”
Note that in both definitions I have emphasized that PMI insures the lender against loss. It is not insurance that protects the buyer/home owner. However, it is the buyer/homeowner who foots the bill for PMI, not the lender. This is why I believe PMI is one of the biggest ripoffs in the real estate industry.
Basically, the home buyer is paying an extra monthly premium for insurance that provides them no protection whatsoever. However, very few buyers have the required 20% down payment needed to avoid paying PMI, thus making PMI a necessary evil.
In this slow real estate market awash in foreclosures, banks are losing a lot of money, and they are turning to their PMI policies to collect some of their losses from the PMI companies. This has put the PMI companies in a precarious position.
Mortgage insurer PMI Group Inc. said it lost $274 million in the first quarter, compared with a $102 million profit a year ago. Whenever there’s a default and foreclosure, PMI has to shell out claims to investors that hold the mortgages.
Higher claim rates were driven by home-price declines and the reduced availability of certain loan products, which made it harder for troubled borrowers to refinance, the company said. Average claim size has grown in part because of higher loan sizes and coverage levels, and because declining home prices limit loss mitigation opportunities.
What does this mean for buyers in the Pensacola real estate market? It means that if buyers have less than 20% of the sales price of a home to put down, it will be harder to get a loan to purchase the home. In these cases, my advice is to go for an FHA loan. Yes, you will still pay PMI, but it appears to be the best alternative in this market.
Click on Pensacola Real Estate News for a list of articles indexed by category.
| Currently 1 Comment »
Real Estate “Buy and Bail” – Financial Smarts or Mortgage Fraud
July 28th, 2008 Categories: Credit And Financing, Foreclosure
A new real estate strategy is emerging in real estate markets hardest hit by falling home prices and rising foreclosures. This strategy has been called “Buy and Bail”. The Wall Street Journal article Some Buy a New Home To Bail On The Old gives a good description of the Buy and Bail process. Fortunately, the Pensacola Real Estate market was not hit as hard as other Florida markets by the recent drastic price declines in property values.
Buy and Bail is a very simple strategy, but also very sketchy. Basically, a homeowner who paid a lot for a home when the market was at peak levels now decides to buy another home at a much lower market value and walk away from the original home, leaving the lender holding the bag.
Here is a brief example of the process. 
Bill borrowed money to buy a $400,000 home at the heightof the market. That home is now worth only $200,000 fair market value.
Bill feels cheated by this down real estate market and wants out of the $400,000 mortgage.
Bill has good credit and some cash reserves.
Bill buys a comparable home for only $200,000 in the down real estate market.
Bill walks away from the home with $400,000 mortgage and leaves the bank to foreclose on the property.
Bill’s credit is damaged, and the bank stands to lose over $200,000 on the deal.
Mortgage Fraud?
Many lenders and real estate agents call this mortgage fraud. The homeowners are taking advantage of mortgage-lending practices that allow them to buy a new primary residence before their existing residence has been sold.
In some cases real estate agents and brokers are actually participating in this process. They are coaching homeowners through the buy-and-bail process. “It’s just a business decision,” says Linda Caoili, a Sacramento real-estate agent who has worked with people who are considering walking away from their mortgages. “If you’re upside-down $250,000, why would you keep it? It just doesn’t make sense.”
In this situation, some homeowners opt to ‘buy and bail’. These owners are using their good credit rating to buy a second home at a lower price, assuring the lender they’ll rent out their first home. Then they just walk away from the first home, and leave the lender holding the bag.
To be sure, walking away from a mortgage, even if legal, has plenty of drawbacks:
Borrowers lose the ability to take out unsecured loans, since foreclosures can stay on a credit report for seven years.
In some states, lenders can sue for assets, including a new house.
Here Comes Uncle Sam
Now the government intends to step in and put an end to “buy and bail”. Under revised Fannie Mae guidelines, loan applicants who claim they will rent out their first home will have to produce supporting evidence, including an executed lease agreement. Borrowers also will have to prove that they can pay the mortgage, property taxes and insurance for both residences. The guidelines will make an exception only for borrowers who have at least 30 percent equity in their current home.
Fannie Mae, the government-sponsored mortgage underwriter, recently revised the amount of time borrowers with a foreclosure must wait to receive a home loan to five years from four. Proposed Fannie Mae guidelines, which could take effect later this month, also would require those borrowers to make a 10% down payment and meet a minimum credit score after the five-year period.
Note that the buy and bail strategy is not common in the Pensacola real estate market. Home values have not dropped as drastically as in other areas of the country where this technique is more used.
How much is it worth to lose your good credit rating?
Click on Pensacola Real Estate News for a the most popular articles indexed by category.
| Currently No Comments »
Free Legal Advice For Florida Real Estate Owners Facing Foreclosure
July 16th, 2008 Categories: Credit And Financing, Foreclosure, Pensacola Real Estate News
Thanks to the the Florida Bar and Florida Legal Services, Florida homeowners facing foreclosure can now get access to a lawyer and free legal advice.
With the surge in real estate foreclosures, especially in Florida, this program comes none too soon.
According to Florida Legal Services Inc., 77,000 state homeowners are in foreclosure, making Florida second in the nation only to California. And many other homeowners are at least 30 days past due on their mortgage payment. Fortunately for the Pensacola real estate market, we are not seeing the high foreclosure rates that other parts of the state are seeing.
Florida Legal Services and the Florida Bar Association have partnered in establishing a toll-free hotline that consumers can call.
They’ll be asked some initial questions about their situation to ensure accurate placement, and then be sent to a free attorney.
The attorney will then negotiate with the lender on behalf of the client to keep the home from being foreclosed.
Here is the toll free number: (866) 607-2187
Hours to call are Monday through Friday from 8:00 AM to 4:00 PM.
More than 10,000 Florida attorneys have volunteered their services in the program, according to Florida Legal Services Inc. Remember that next time you feel the need to tell a bad lawyer joke.
Related Articles On Pensacola Real Estate News:
Real Estate Short Sales – Is It Worth It?
Did Speculators Accelerate The Florida Housing Downturn?
Click on Pensacola Real Estate News for a list of articles indexed by category.
| Currently 1 Comment »
Declining Real Estate Market Policy Scrapped by Fannie Mae
June 13th, 2008 Categories: Credit And Financing, Pensacola Real Estate News
The Pensacola Real Estate market was listed as a “declining market” by Fannie Mae. Fortunately, Fannie Mae has decided to scrap the “declining markets” policy. This policy required loan underwriters to boost minimum down-payment requirements by 5 percent in areas where home prices are falling or difficult to determine. Pensacola Florida was considered one of those areas. The policy also applied if an appraiser determined a property was in a declining market.
This is great news for potential home buyers in the Pensacola real estate market. Beginning in June 2008, Fannie Mae will instead require 3 percent down payments for conventional, conforming mortgages processed through its Desktop Underwriter automated underwriting system, and 5 percent minimum down payments for loans processed manually. Larger down payments may be required depending on occupancy, property and transaction types.
Last month, the National Association of Realtors (NAR) sent a letter to Fannie Mae complaining that entire metropolitan areas were being labeled as “declining markets”. Actual values in local neighborhoods were not being taken into account. The result of this policy was to discourage potential home buyers from entering the real estate market. The policy kept some would-be home buyers from taking action because they could not come up with the funds to make the increased down payment. Others avoided buying because they were afraid to do so if prices were still declining.
In the letter, NAR stated “In either case, the impact of the policy becomes a self-fulfilling prophecy that creates declining markets that did not exist before and intensifies the decline for markets that are declining and delays their recovery”
Note that the declining market policy was not considered a factor in getting an FHA loan, which is the loan most first time home buyers find the easiest to get in this market. Either way, I believe it is a good thing this policy was scrapped. Anything we can do to boost our local economy and real estate market is a plus.
Click on Pensacola Real Estate News for a list of articles indexed by category.
| Currently No Comments »
Stop the Credit Card Offers and Protect Your Credit Score
April 22nd, 2008 Categories: Credit And Financing
One of the most important assets you have is a good credit score. It becomes even more important if you plan on purchasing real estate in the near future, whether it be investment property or a new home for yourself. Anything you can do to protect and improve your credit score is important.
If you are like me, you receive several “pre-approved status” credit card offers monthly, along with the guaranteed rate insurance quotes. Did you know that these companies check your credit before sending you these offers? Did you know that these credit checks affect your credit score? Granted, the affect is small, maybe 3-5 points for every inquiry, but every point can count when it comes to getting approved for a loan to purchase real estate.
You can stop these unwanted inquiries into your credit, and save time and paper by stopping the junk mail. At the bottom of every credit card offer should be a little box with an Opt-Out notice. It used to be in tiny print, but now it should be very readable.
There’s nothing new about consumer rights to notice and opt-out for prescreened credit and insurance offers. For years, consumers have received such offers with required notices and opt-out telephone numbers buried in fine print along with other mandatory legal notices. The result: Consumers seldom saw these notices and relatively few called the required opt-out number. Now the credit card and insurance companies are required to make this notice big and bold. The notice says
“You can choose to stop receiving “prescreened” offers of credit from this and other companies by calling toll-free 1-888-567-8688. See PRESCREEN & OPT-OUT NOTICE on other side for more information about prescreened offers.”
You can call, or you can Opt-out at this website: https://www.optoutprescreen.com/
Opting out will also stop the annoying phone calls that you will be flooded with if you apply for a new mortgage or apply to refinance your existing home. Read more in my article Stop The Credit Bureaus From Selling Your Private Information
Related Articles on Pensacola Real Estate News
The New Credit Scoring System – How Will It Affect Your Credit Score?
How Not To Lose Your Home Loan After You Are Already Approved
Click on Pensacola Real Estate News for a list of articles indexed by category.
| Currently No Comments »
Pensacola Real Estate News: Did Speculators Accelerate Florida Housing Downturn?
February 9th, 2008 Categories: Credit And Financing, Pensacola Real Estate News, Real Estate Investing
Did speculators really accelerate the Florida real estate housing downturn, or am I just speculating?
Maybe a little of both. Here’s how it worked. The real estate market in Florida was booming. Home prices were rising quickly and everyone was looking to cash in on this housing boom.
In step the investors/speculators, from all over the country. Imagine that a speculator in the New England or New York area sees that they can buy a beautiful home in Florida for around 1/3 to 1/5 the price they would pay up in their area. They look at opportunities in Florida to purchase new homes prior to construction. They can get a 100% no money down loan on a $150,000 Florida home before it is built. By the time construction is completed, this same home is worth $250,000. Who can resist the allure of quick and easy money? And many speculators did just this, and made a lot of money.
However, here is where a problem arose. In many cases, these speculators did not sell to buyers who were going to live in the home. They sold to investors (other speculators), who saw prices rising quickly and wanted to get in on the action. Now this second group of speculators are stuck with a whole bunch of vacant homes and condos that they cannot sell or rent. These homes sit empty all over Florida.
So what do these poor speculators do next? They try to get the bank to take some of the burden off their backs by requesting a short sale. This means they ask the bank to take less than is owed on the property instead of foreclosing. Now we see an even more serious problem emerging. Many of these speculators purchased the properties under the pretense of these homes being their primary residences. At least that is what they told the banks who loaned the money. The banks were excited and loaned them money on the homes at 100% (i.e. no money down).
When the speculators ask the bank to accept a short sale, their lie is exposed. They never intended to live in the home, but they told the bank that it would be their primary residence, thus getting a lower interest rate and lower down payments. What they have actually ended up with is the potential for being prosecuted for a type of mortgage fraud known as Occupancy Fraud. Here is a definition of Occupancy Fraud from the wikipedia site for Mortgage Fraud:
Occupancy fraud: Frequently this is seen where the borrower wishes to obtain a mortgage to acquire an investment property, but instead the borrower claims on the loan application that they will occupy the property as their primary residence or second home. If undetected, the borrower typically obtains a lower interest rate than was warranted. Because lenders typically charge a higher interest rate for non-owner-occupied properties, which historically have higher delinquency rates, the lender receives insufficient return on capital and is over-exposed to loss relative to what was expected in the transaction.
Was Occupancy Fraud rampant in Pensacola? I don’t believe so. It was much more common in higher growth areas of Florida, such as central and south Florida. Of the 748 homes and condos on the market on Pensacola area beaches, only 131 are listed as vacant. This is actually a lower percentage of vacant homes on the market than other areas of Pensacola. For this reason, I don’t believe there was enough speculation in Pensacola to really affect the local real estate market. We are just riding with the downturn that is hitting the rest of the country.
Did speculators accelerate the housing downturn in Florida overall? I believe they played a large role in making it worse than it would be otherwise. We are obviously seeing a downturn all around the country. It is just in areas where over-speculation occurred that the housing downturn appears to be much worse.
Please feel free to share your opinions on this subject. I know many local Realtors read my posts and I’d love to know what you all think about this topic.
Here are some links to related articles on this subject:
The Florida Association of Realtors wrote an article that inspired this post.
Broker Bryant also wrote on this topic concerning his area of Florida.
And a wikipedia page on Mortgage Fraud. Don’t do this. It isn’t worth it.
Take a look at Mobile Alabama, a city getting ready for a major upturn.
Click on Pensacola Real Estate News for a list of articles indexed by category.
| Currently No Comments »
Pensacola Real Estate News: The New Credit Scoring System – How It Will Affect Your Credit Scores?
January 25th, 2008 Categories: Credit And Financing
If you are looking to buy a home and you need a loan, your credit scores are very likely to have an effect on your real estate purchase. The FICO scoring system is changing, and you should be aware of how this change may affect your credit score. If you are not familiar with FICO Credit scores, please see related articles at the bottom of this post.
The Fair Isaac Corporation is the company that figures the credit scores for millions of Americans (and they won’t tell us exactly how they do it). In 2008, it is changing its credit scoring model. This change is predicted to do a better job predicting the likelihood of a borrower defaulting on a loan. The new model, dubbed FICO 08, will be more forgiving of occasional slips by consumers, but will take a harder line on repeat offenders.
Financial institutions use FICO scores to determine the granting and pricing of credit. Many other companies use FICO scores to determine your rates on insurance, deposits for utility services, etc. See my Related Posts references at the bottom of this article for more information on how credit scores can affect your financial picture.
Here are some important points about the FICO 08 model:
FICO 08 is predicted to reduce default loan rates between 5% and 15%. This is in response to lenders demanding better risk-management tools. Obviously the glut of foreclosures on the real estate market is behind this demand.
The new scoring system will look the same to consumers, with scoring between 300 and 850. The higher the score, the better your credit rating.
The new FICO model will continue to look at the same factors, including consumers’ level of credit indebtedness and payment histories, length of credit histories, number of recent credit openings and inquiries, and the type of credit used, to determine scores. But the new model will take a more detailed look into the information in consumer’s credit files to do a better job of assessing ”good risks” and ”bad risks.”
Consumers who are low risk will score better with the new FICO version, and consumers who are high risk will score lower.
Borrowers who are at least 90 days behind on a payment are considered “seriously delinquent“. Sounds kind of like a really really bad kid who needs to be locked up. These types of delinquencies will have a much more negative impact on credit scores than with the previous FICO scoring system.
The new model will give a higher score to a borrower in arrears if they also have a number of other credit accounts in good standing. Conversely, a person’s score could drop if he or she has multiple delinquent accounts, thus forcing them to take it in the arrears (sorry, couldn’t resist that one).
Here are a few predictions about the new FICO scoring system’s effect on your credit scores, based on expert opinion (not my opinion):
-
Application for new credit will not have as negative of an impact as in the old system
-
Higher credit card balances will hurt your credit score more than before
-
It will be more important to actively use the credit accounts that you have open
-
Having different types of credit will help your score more than before (such as mortgage, revolving credit accounts etc).
Overall, more consumers should see their FICO scores go up slightly than will see their scores drop, according to Fair Isaac., the company that won’t reveal how it actually calculates credit scores. We just have to guess based on expert opinions.
I guess it is time for me to get out some of those old credit cards that have been stored away for years, unused and unactivated. If Fair Issac is being fair and honest, that should bring up my credit score, assuming I pay on time.
Related Articles on Pensacola Real Estate News:
Your Credit Score – The Key To Building Your Future Wealth
How Not To Lose Your Home Loan After You Are Already Approved
Click on Pensacola Real Estate News for a list of articles indexed by category.
| Currently No Comments »
Pensacola Real Estate News: What is a FICO score?
January 18th, 2008 Categories: Credit And Financing
A FICO score is a credit score developed by Fair Isaac & Company, Inc. Credit scoring is a method of determining the likelihood that credit users will pay their bills and not default on the loan. Credit scores range from 350 to 900, with a higher number being better. If you are looking to borrow money to buy real estate in Pensacola Florida, your credit scores will have an affect on how much you can borrow and what the interest rate will be. 
Fair Isaac began its pioneering work with credit scoring in the late 1950s and, since then, scoring has become accepted by lenders as a reliable means of credit evaluation. A credit score attempts to condense a borrower’s credit history into a a single number. Exactly how these scores are computed is a secret that Fair, Isaac & Co. and the credit bureaus do not reveal. Secrecy in determinining rankings didn’t start with Google search engine algorithms. However, we do know generally what type of activities raise and lower credit scores.
Credit scores are calculated by using scoring models and mathematical tables that assign points for different pieces of information which best predict future credit performance. Developing these models involves years of studying how hundreds of thousands of people have used credit.
There are three FICO scores computed by data provided by each of the three bureaus – Experian, TransUnion and Equifax. Some lenders use one of these scores, most lenders may use the middle score and some will use whats called a blended score.
Related Articles on Pensacola Real Estate News:
Your Credit Score – The Key To Building Your Future Wealth
The New Credit Scoring System – How Will It Affect Your Credit Scores?
How Not To Lose Your Home Loan After You Are Already Approved
Click on Pensacola Real Estate News for a list of articles indexed by category.
| Currently No Comments »