Minnesota Mortgage Blog - MN Mortgage and Real Estate News

Credit Repair Companies. Good or Bad?
Aren't most repair repair schemes basically rip-offs or illegal?

There are a lot of credit repair firms and credit counselors that have not acted in the best interest of their clients and this has certainly given the business a bad name. But that does not mean that the basic concept is not good. As a matter of fact--improving credit scores is even more important in today's market. With the current credit cruch, expect a harder time getting anything with weak credit.

Freddie Mac has just implemented adjustments for anyone under 680 credit score. The mortgage insurance companies are adjusting their rates and refusing to supply mortgage insurance to anyone with a score lower than 575. Fannie Mae and everything else is expected to follow shortly.

The national average credit score is around 680. Approximately 10 million people may get a new mortgage this year, but 80 million others have credit problems and can't get a mortgage that will help them achieve their dreams.

Self Help May Be Best

You see the advertisements in newspapers, on TV, and on the Internet. You hear them on the radio. You get fliers in the mail. You may even get calls from telemarketers offering credit repair services. They all make the same claims:

• “Credit problems? No problem!”
   
• “We can erase your bad credit — 100% guaranteed.”
   
• “Create a new credit identity — legally.”
   
• “We can remove bankruptcies, judgments, liens, and bad loans from your credit file forever!” 

Do yourself a favor and save some money, too. Don’t believe these statements. Only time, a conscious effort, and a personal debt repayment plan will improve your credit report.

The Scam

Everyday, companies nationwide appeal to consumers with poor credit histories. They promise, for a fee, to clean up your credit report so you can get a car loan, a home mortgage, insurance, or even a job. The truth is, they usually can’t deliver. After you pay them hundreds or thousands of dollars in fees, these companies do nothing to improve your credit report; most simply vanish with your money.

The Warning Signs

If you decide to respond to a credit repair offer, look for these tell-tale signs of a scam:

• companies that want you to pay for credit repair services before they provide any services.
   
• companies that do not tell you your legal rights and what you can do for yourself for free.
   
• companies that recommend that you not contact a credit reporting company directly.
   
• companies that suggest that you try to invent a “new” credit identity — and then, a new credit report — by applying for an Employer Identification Number to use instead of your Social Security number.
   
• companies that advise you to dispute all information in your credit report or take any action that seems illegal, like creating a new credit identity. If you follow illegal advice and commit fraud, you may be subject to prosecution. 

You could be charged and prosecuted for mail or wire fraud if you use the mail or telephone to apply for credit and provide false information. It’s a federal crime to lie on a loan or credit application, to misrepresent your Social Security number, and to obtain an Employer Identification Number from the Internal Revenue Service under false pretenses.

Under the Credit Repair Organizations Act, credit repair companies cannot require you to pay until they have completed the services they have promised.

The Truth

No one can legally remove accurate and timely negative information from a credit report. The law allows you to ask for an investigation of information in your file that you dispute as inaccurate or incomplete. There is no charge for this. Everything a credit repair clinic can do for you legally, you can do for yourself at little or no cost. According to the Fair Credit Reporting Act (FCRA):

• You’re entitled to a free report if a company takes adverse action against you, like denying your application for credit, insurance, or employment, and you ask for your report within 60 days of receiving notice of the action. The notice will give you the name, address, and phone number of the consumer reporting company. You’re also entitled to one free report a year if you’re unemployed and plan to look for a job within 60 days; if you’re on welfare; or if your report is inaccurate because of fraud, including identity theft.
   
• Each of the nationwide consumer reporting companies — Equifax, Experian, and TransUnion — is required to provide you with a free copy of your credit report, at your request, once every 12 months.
  The three companies have set up a central website, a toll-free telephone number, and a mailing address through which you can order your free annual report. To order, click on annualcreditreport.com, call 1-877-322-8228, or complete the Annual Credit Report Request Form and mail it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. You can print the form from ftc.gov/bcp/conline/edcams/credit/ . Do not contact the three nationwide consumer reporting companies individually. They are providing free annual credit reports only through annualcreditreport.com, 1-877-322-8228, and Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. You may order your reports from each of the three nationwide consumer reporting companies at the same time, or you can order your report from each of the companies one at a time. For more information, see Your Access to Free Credit Reports at ftc.gov/bcp/conline/edcams/credit/ .
  Otherwise, a consumer reporting company may charge you up to $9.50 for another copy of your report within a 12-month period.
   
• You can dispute mistakes or outdated items for free. Under the FCRA, both the consumer reporting company and the information provider (that is, the person, company, or organization that provides information about you to a consumer reporting company) are responsible for correcting inaccurate or incomplete information in your report. To take advantage of all your rights under this law, contact the consumer reporting company and the information provider.

RETIREMENT - ARE YOU READY?

Did you know: That if you wait until you're 45 years old to start investing for retirement, you'll need to save about $24,000 per year just to reach a reasonably comfortable retirement level? But if you start when you're 25, you can reach that same level by saving just $4,000 per year. So starting as early as possible is important - but even if you didn't, you can use the simple tips below to get on track right away.

Give Yourself a Retirement Raise: The more you make the more you spend, right? The next time you get a raise or a bonus, break the cycle! Set aside that extra money and invest it in your future. You will not even notice it now...but you will in the long run.

Make a Big Impact Without Denting Your Budget: If you're about to pay off a car, student loan, or some other monthly expense, you can make a huge impact on your investment plans by simply adding that extra money to your retirement account. You're already used to living without it, so it won't impact your monthly spending money at all.

Out of Sight, Out of Mind Investing: Don't forget to make your investments automatic. It's much easier--and a lot less painful--to have that money simply deducted from your paycheck and electronically deposit. You'll save the same amount every month...and save yourself the trouble of writing that check!

Eliminate High Rates: Want to earn a 17%, 18% or even 19% return right away? It's easy...put together a plan to pay off your credit cards faster, starting with the highest rates. By paying it off quickly--and keeping it paid off--you'll eliminate the high interest charges that tighten drain budget and often put people into a downward spiral of debt.

Make the Most of Matching Contributions: If you have access to a 401(k) retirement plan, make sure you are using it - especially if you get matching contributions from your employer. See how much you have to contribute to earn the full matching amount from your employer - and if you can't contribute that much right away, start small and steadily increase your contribution over time until you reach it. You'll double your money with the employer's match...and your contributions are generally taken out of your check pre-tax, so your savings costs even less in real, after tax dollars.

It's NOT All or Nothing: Don't feel like you have to jump in with everything you've got. The most important point is to get started right away...not next month or next year, but right now with whatever amount you can. You can always increase the amount you invest...but you can never get back the compounding interest you'll lose by waiting.

And remember, if you have any questions - including how a mortgage can be structured to jumpstart your retirement plan with programs like the HOME OWNERSHIP ACCELERATOR - please don't hesitate to call!

FHA Mortgage Demand Doubles In Early October

It’s the start of a new fiscal year in Washington, and for the FHA it’s been a great time to be in the mortgage insurance business.

The latest figures from HUD show that FHA applications had an annual run rate of 1,285,800 inquiries in the first 15 days in October. This is up 74.6% when compared with a year ago.

Actual FHA applications during the first two weeks of October totaled 51,287 inquires, a figure that rose a whopping 99.4% over the past year.

A total of 25,823 loans were actually endorsed. Of this number, 53.1% were for home purchases, 32.1% were refinances and 14.9% or reverse loans, or what HUD calls “home-equity conversion mortgages” or HECMs.

What these figures mean is that the FHA program — which had actually been on the ropes for the past couple of years — is doing quite well. The program is insuring loans, loss levels are tolerable, and a vast new market for government insurance has begun to appear with the introduction of the FHASecure product. No one would be surprised if fiscal 2008 turned out to be another banner year for the government program.

Why is FHA "back"? Simple. FHA has always been the loan of choice for those with weak credit and low down payments. It fell out of favor as lenders offered similar products without a lot of the rules FHA loans had to follow. For example, Realtors never liked them because FHA could require repairs to the home before it could be sold to an FHA buyer. Items like painting, railings, and roofs quickly come to mind, while conventional or subprime loans did not have these guidelines. Furthermore, the requirements for lenders to actually to allowed to provide FHA loans was much more stingent, including net worth requirements and yearly audits. Therefore, most small lenders, especially since 2000, when a lender opened up on every corner - could NOT even offer FHA loans.

Unfortunately, many of the people who took subprime loans over the past few years could have and probably should have taken an FHA loan.

Today, many (not all) of the alternative weak credit and low down payment loans have disappeared. For many people, FHA now is the only route to homeownership. Because of this, many mortgage companies, unable to provide subprime loans anymore, are now desperately trying to stay in business by getting FHA approved.

We are proud to have been, and continue to be, a long time FHA provider. Call me today to discuss an FHA loan. It's a great loan - probably the same one YOUR parents used to buy their home!