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Ok, it's that time again. I have a few more stories of potential FB's. Some are better than others. On some scenarios I know that I cannot do anything for the borrower after two or three questions. On many others I'm left standing there scratching my head going, there is no way to help these people. Take this one for example:Bwr has a FICO score in the 530's, 2x60 mortgage lates and several 30 day lates in the past 12 months. They needed to do a refi to get about $5000 or so cash out to pay their taxes. The problem is that the rate would be too high for them to afford the payment, even at 80% LTV. If the bwr had paid their mortgage on time, or at least not had the 60 day lates, I could have gotten them the cash out they needed, AND lowered their payments.
That reminds me. Here is the ORDER in which you should pay your debt:
1. pay your MORTGAGE first!!!!
2. pay your installment debt (car payments, etc) next.
3. pay your revolving debt (credit cards, store cards) next.
4. pay student loans next
5. pay medical bills last
I'm not telling you this from MY perspective, I'm telling you this from the perspective that mortgage companies look at your credit. You should pay all your bills every month. BUT, I know that things happen. Sickness, accidents, etc. When these happen, follow the guide above, and you will do the "least" amount of damage to your ability to get a mortgage.
Most lenders do not care about "medical collections". I'm not saying it is right to pay your student loans and doctors last, but that is pretty much how the industry looks at credit reports and extends credit. Most lenders care about your MORTGAGE HISTORY first and foremost. Their rationale is that, "if you paid your mortgage before, you will pay it again"...nevermind that you can't make car payments, credit card bills, or medical paymets. They are not lending you money on those things, so they don't care. Again, this is from a subprime lenders perspective. There are many different lenders, each with different guidelines, but that is how the companies I have dealt with look at credit.
Ok, back to FB's...
I think these people are in the hurt locker. They have a FICO score in the 560's, and they need a stated loan to 90% at about $420-430k on their primary residence to get some cash out. The only problem is that they would only be able to pull out about 10-12k. That 10-12k wouldn't really help them pay off the $50,000 or so of car payment and revolving debt they are carrying. They also have an "income" property that isn't. They have a stated loan on that property in the mid $300,000 range. So far, they have paid their mortgage on time, but with 2 stated income loans, a rental that doesn't cover the costs, and lots of revolving debt, I don't see a "soft landing" for them. Even if I could refi them, their rates would be higher and their payments would go up a few hundred a month. Hopefully they will find a way to work things out.
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It's feedback time again. Let me know what you like, don't like, general thoughts and comments are always welcome
I know people have requested statistics and such, but I'm not really in a position to get the numbers that you need (aside from articles that come out like the PIMCO one below). It would take lots of time and money, and it would still be difficult to compile some of the info people want to see. Prof Piggington has some good stats for paying members.
Also, one other quick thing. Aside from comments and e-mails there is one other thing you can do to show your support. If there are blogs that you visit on a regular basis and you like what you read, show your support by going through the blog to get to the e-tailer of your choice. I know Ben's blog has Wal-mart, myself and others have Amazon. I know people hate ads and such, but if you are going to do some Christmas shopping, why not help out a blogger that you read on a regular basis. It takes quite a bit of time to compose posts, reply to e-mails, and keep good content flowing on a blog. I know it is a little thing, but all of us bloggers really appreciate it. To those of you that already do it...thank you!
Have a great weekend everybody! Only a few days left to get your shopping done!
SoCalMtgGuy
posted by SoCalMtgGuy at 11:19 AM
34 Comments:
Thanks so much for all you're doing. We're waiting for stuff to come down to buy..meanwhile we're debt free renting a great place...trying to figure a good place to put the cash right now and get the most bang for each buck.
This is a great blog.
From the perspective of the "informed lay person" reader, the value added is in the form of your stories about FBs, mortgage industry practices, and, of course, your opinions.
You have a gift for blogging...and what you are doing is immensely helpful to many. I've given your address to many, hopeful that they'll learn enough to wise-up....your expertise in mortgage/lending is given in an articulate and readable manner and I really like your hilarious style of writing. Please continue and I think you'll gain a huge following in the future. It's just a damn shame that so many people may not find all of it as funny as I do.
But at least they may learn something!
Here is the ORDER in which you should pay your debt:
1. pay your MORTGAGE first!!!!
2. pay your installment debt (car payments, etc) next.
3. pay your revolving debt (credit cards, store cards) next.
4. pay student loans next
5. pay medical bills last
I'd say otherwise.
Taxes first.
Utilities second.
Mortgage third.
Commercial credit third.
Medical last.
Just opinion of course. Besides, I'm probaly wrong since I never considered the issue. For me it has always been pay your debts, yes. No is not an option. Maybe rule 0 should be don't take on unservicable debt.
Robert,
Most lenders don't care if you don't pay a utility bill. Most lenders won't even throw a fit over smaller tax liens.
Most lenders don't care unless your collections get over $5000 or you have one big one over $2500.
As it pertains to being able to get a mortgage, ALWAYS pay your mortgage first.
SoCalMtgGuy
All that trouble and debt just to get a lousy $5K. You know these people are in trouble just by virtue of the fact that they can't raise that much money through other means...such as planning ahead for it. I think that fact is more indicative of the indemic problem with highly leveraged homeowners in SoCal. I live in San Diego, but my wife and are originally from Chicago. You would never see this kind of sense happening there. Thoughts anyone?
Gotta disagree.
Lenders sure as hell don't care if you pay your utility bill but a dead lawn and empty toilets or no electricty make a difference. Besides, You cannot sell a utility closed property. Would you buy a proprty with no water or working toilets? Besides, the utilities will send you into debtor hell three times faster than the nice mortgage holder. Your criteria are biased by your perspective. You are thinking about the -next- mortgage. ("it pertains to being able to get a mortgage"). Truth is when things get so bad that you need to preserve or hold on your mortgage is not as important as a working property up to date on taxes. As to pay taxes first, two issues, first the penalties are huge and second they have guns. Sure everyone else can "ask" for guns as backup but the tax man has a gun.
Let me put it mortgage broker terms; which is easier? A tax arrears property sale or a ultility lien or an upside down note?
Robert,
My WHOLE point is this: most subprime lenders could care less about your phone/utility/credit cards/etc. They care about your mortgage history.
If you pay your mortgage on time, and everything else late...they are fine with that.
THAT is my only point. If you care about refinancing and/or buying a place, pay your mortgage.
You can sell or refi a property will ALL of those things mentioned. Everything is handled through escrow. Sure, somebody might have to come in with money to make it happen, but those are NOT the deal killers they once were. Lately, most people just refi and use the equity to "square up" their tax liens, collections, etc.
SoCalMtgGuy
Robert,
I see lots of people that have a "tight" month. They go late on the mortgage, but NOT the car payments and credit cards. I'm saying, pay the mortgage, and go late on the others.
You are taking it waaaay furthen than I was talking about shutting off all utilities. It takes a few months for that to happen. If that is the case, then yes, paying the mortgage is not the problem.
We are talking about 2 different extremes of scenarios. A 1x30 on the mortgage hurts way more than a 30 late on a car payment or other mervyn's card.
Does that help explain where I am coming from better??
SoCalMtgGuy
it just dawned on me... back in high school, the drug dealing crowd used the term Flipping as the verb to describe cutting and selling a quantity of drugs. I guess they too are in the housing market.
Yo Robert,
Socalmgtguy's order of payment is not about what is good financial advice, it is about making yourself look good to a potential mortgage lender. I think your advice is more apt for someone looking for general financal advice, not for someone max'ing their chances at getting a mortgage.
anyhoo.
Van housing blogger...
EXACTLY!
SoCalMtgGuy
SCMG,
What are the transaction costs for these people that are going through all that to get $5K?
Let me clarify,
That $5000 is the amount of collections a lot of lender don't care about.
If you do a refi, and pull out 40k, they will make you pay off the collections if they are over $5000.
The lenders I have worked for will not do a loan unless the cash out is at least 2x the amount of fees being charged for the loan.
Example, if you have pre pay penalty, broker fees, escrow fees, etc. that total $12,000. You would have to get at least $24,000 cash out for the lender to make the loan (that is cash out after paying the 12k in fees....so 36k total).
I hope that clears things up a bit...
SoCalMtgGuy
Great blog, as usual.
Some time when you're not busy, could you put up the factors that determine fico score?
With the exception of young people starting out, it behooves us all to live in such a way that we are not close to the edge so that a minor inconvenience upsets everything. A first lesson in life should be, it is extremely expensive not to conduct financial affairs with great care.
The bank card companies call those who pay their balance in full each month (avoiding charges) deadbeats. In this respect, it should be the aim of everyone to be a deadbeat.
I wonder if this is akin to the credit card companies offering cards to the recently bankrupt. Since they are washed free of all of their debt and cannot declare BK again for 6 (8???) years, they are prime candidates to pay their bills. And if you can increase the loan rate too, then that's just icing on the cake.
Sorry to be off topic.
What is condo conversion? I just found out I probably own 20 condos near La Jolla. What should I do? Sell or keep them? Any suggestions?
A condo conversion is when a developer takes an aprtment complex or some such and converts it into condos. Screws the apartment tenants who are usually given an option to buy a condo at a somewhat discounted price. But if you are in the very low tax bracket, at today's astronimical prices the discount is usually insufficient and these people have to move. Again, greed impacting society in a major way.
What is the worst reputation you've seen a borrower have? I could imagine two foreclosures, and several 90 day lates. I know someone who had a foreclosure on a second house. When he went to refi his first house, he said he was only hit with a $500 penalty. Don't you think he'd also be hit with a rate penalty as well? He probably just didn't want to admit it.
I can crunch numbers with the best of em...
but am tied up emotionally on this decision,
(with some overanalysis / chicken little syndrome F'ing up my clarity)
and need a 3rd party to see things clearly for me. (you)
Single guy. Early 30s.
Active, with LOTS of hobbies. (including banging chicks as a game)
I have a feeling....marriage (or girlfriend) not in the near future.
Zero debt.
I saved up $500,000 in tech boom.
Got burnt out, and decided to become a school teacher in 2002.
(I'm not very materialistic, figured I had enough for a paid-off house, and sought a better a work/life balance)
Big Paycut
Current salary = $60k
(Will be $90k in 6 years....top off at $100k in 9 years... in today's $$ )
I have ideas for side income as well.....Could be another $20k a year
Current situation
Bought a 1BR co-op in 2003 for $85k
Paid cash. No mortgage.
(After some renovations, cost basis is about ~ $100k)
Current co-op market value = $160k
Current co-op monthly maint. = $450
Similar 1br rental = $1100 - $1200
I have not checked, but I think my paltry $60k income and $450/mo apt are balancing out...
(not saving anything, not running deficit, just treading water, and enjoying life)
Total liquid assets (including IRAs) = $390k
Net worth = $390k + $160k co-op = $550k (Plus my $60k income)
3br houses in a 1/2 decent area cost $600k+ (Prop. taxes ~ $9000)
Townhouse $450k+
* My current liquid assets are only in cash earning 2%, b/c I became a conspiracy freak in the dotcom bust, and haven't bothered to move anything since...(STUPID, I know)
I DONT want to own stocks. (late 90's exposed Wall St. as a fucking fraud....)
I stayed out of bonds b/c of rising rates...Not sure if I should avoid that still..
So, I think my true oppty cost for this $400k sidelines cash is a locked in 4.5%/CD ($18,000/year in interest)
Dilemma
I am considering plowing EVERYTHING I am worth ($550k + potential small mortgage)....towards upgrading to a fancy 2BR townhouse, or a modest ranch house (1100 sq ft+), or a house w/ a rental apt in it...More leaning towards house, as I don't want shared walls for $450k, and I dont give a shit about a tennis court)
I do NOT need any more space.
(I could give a shit..and this current 700 sq ft is PLENTY for me)
Well, a fireplace and small patio would be cool....
The ONLY reasons I want to upgrade are:
1) FEAR of being priced out by MORE increases. At $60k, I am VERY limited in the amount of mortgage I can take (if ANY?). With houses at $600k, I have no room for error anymore. (My $500k cash 4 years ago was just right for my career change, now I've kinda gotten fucked out of a decent house, b/c I sat on the sidelines..((like idiot chicken little since 2001)) and have even considered switching back for a few years to earn more money....(yes, working for $ to keep up, like an idiot ,, the hard way)
2) Will get more pussy living in nicer digs.
Logic: If only getting 2%, I might as well live inside my bank account.
Dilemma #2
Should I do a cash-out re-fi on my free and clear $160k co-op ?
I can make 5% in a CD.
Can I get a HELOC with a lower rate?
Thanks
I do appreciate your input..
Hey, anonymous with banging chicks as a hobby, I think I understand your conflicts a bit. Before I got married, I was a chick who went home with guys to get banged.
I don't know if I had the same kind of friendships you do (most of my former bangers are friends and they all attended my wedding) but in my opinion, it's all about a sexy bathroom and a few nice things that suggest that the guy you are about to spend part (all?)of the night with has any class. A smart woman will appreciate a tastefully done one-bedroom place, especially if it has multi-jet showers or a Jacuzzi (read: Jacuzzi brand or equivalent quality, not some other pathetic churner)and very high quality towels. Go for the oversized Egyptian cotton. Also, have more than one shampoo and conditioner on hand, gender-neutral and from a salon. Have both handmade lavender and peppermint soap, as well as a few of those soaps that look like rock geodes. If one of your chicks really likes the soap, send it home with her. Party favor!!!!
If you haven't inherited or bought one already, get a small china cabinet. I kid you not. Get 6 jewel-colored Baccarat stems for your bubbly. Find a glassblower that is a true artist and drop a few hundred bucks on an original creation that amazes you.
And make CERTAIN that your sofa is large enough that your potential bangee can sit and talk to you for a bit without being smushed up against your thighs. We chicks like to decide whether to smush, be seduced or do the seducing. Give us room to range free on the furniture.
You've ready got the killer bed and sheet set, right?
Now, do you really need to move right now? I'd say wait, unless you are truly unhappy. Many areas are, in fact, coming down in price a bit. Don't know where you are, so can't say much on that count. But casual chick-guests don't care how many bedrooms you have.
My used-to-be-wild-chick, opinion.
good luck! from an ol' married chick
Here are some really F'ed B's
http://www.myrtlebeachonline.com/mld/myrtlebeachonline/news/local/13434781.htm
Doesn't sound like they have much to lose though...
I suspect we will be seeing many more stories such as this one.
OK, let's try this instead:
http://tinyurl.com/c4r5d
As Dave Ramsey suggests, spend money first on food, then on utilities, then on mortgage/rent. It's sad how some people will let bill collectors, fear, emotions, or other factors adjust their priorities when it comes to paying bills... folks who will let the lights or phone go off in order to make their monthly Escalade payment...
Bye Bye Boom. Hello Bubble.
http://www.sacbee.com/static/live/news/images/1218boom03.html
Wow I came here planning to read about housing yet came away with the following action items:
-get new towels
-get new bedsheets
-get new soaps
Guess a visit to Target is in store...
Thanks :
Guy who wants to bang more chicks (HA) yet still save $$ for a cheap house when the bottom hits
See...I dont think you learned anything. I don't think she mentioned target ANYWHERE in her post. You will not find Baccarat stems or egyptian cotton at Target !!
Read the post again. :-)
See...I dont think you learned anything. I don't think she mentioned target ANYWHERE in her post. You will not find Baccarat stems or egyptian cotton at Target !!
Read the post again. :-)
You've ready got the killer bed and sheet set, right?
Great comments 'ol married chick! From another 'ol married chick, these are true words of wisdom. When I met my husband he was living in a one bedroom apartment with a card table a tv and a mattress on the floor..no bed for him! I was truly afraid to go into his bathroom the first night I stayed over there and needless to say I didn't stay the night. Soap was Ivory, it was a guy style apartment.
Forget Target for the important stuff. If you are buying an ice cream scoop Target is great, if you want decent sheets try Bed Bath and Beyond, or Linens n Things..who knows you just might meet someone there. Look for sales there , they have 600 thread count sheets on sale sometimes. Don't buy Frette, or any of the other ultra expensive brands as that would make many women suspicious as to who you really are and what you're up to. It is not a crime to spend a couple of hundred bucks on good bed lines and some kind of soft throw, the kind that James Bond always seems to have on hand to roll around on.
Good Bar -ware cannot be underestimated. If you're afraid of crystal, go vintage you almost cannot make a mistake with vintage. Think Deano and the Rat Pack.
A nice mat for stepping out of the shower or tub, keep an extra bathrobe, maybe one of those big hotel style bathrobes, even though we love wearing your shirts, we love wearing your bathrobes too.
A strategic candle or two does wonders.
Do not under any circumstances leave a bar of Ivory, or Irish Spring or Dial out on the sink or tub, especially one with hair on it.
Smaller apartments can be cozy. If the building is nice and the neighborhood is satisfactory to you. Houses are coming down, wait to make your move, and Good Luck!
December 16, 2005
Poll: Housing bubble won't burst
Rising home costs have led to speculation recently over when and if housing prices will take a plunge, possibly dealing a blow to the nation's economy.
But the majority of respondents to an informal Los Angeles Business poll say that won't happen.
Forty-one percent said they believe the housing bubble never will burst. To some, that means there never was a bubble to begin with.
"There is no bubble, therefore no burst" one respondent said. "Real Estate goes up and down -- but that is normal. The market certainly will continue to change, but there is no bubble to burst."
Another respondent said, "For so many low-income Californians there never was a bubble. They are among the 81 percent (and growing) whose incomes are not sufficient to buy what is being built."
Thirty-six percent of respondents said they think home prices will drop over the next few months.
"I think the housing market will burst. It will cause a recession. It will be caused by over-inflated housing prices and ridiculous mortgages that allowed people to buy more than they could really afford when the full burden of the mortgage was realized. It is going to be dismal."
Twenty-one percent said there was a housing bubble, but that it already has burst.
"The craziness seems to have stopped" said one respondent. "While the market is strong, it's not insane like a few months ago
Whats the higest score you have ever seen and is being over 800 hold any advantages? 760-780 good for the best rates, the special 0% finanching?
I'm not SoCal, but I am in the business. The highest score I've ever personally seen was 839. The lowest I've ever pulled was 405. At the company I am working at now, we have on the wall a copy of somebody's report with a 397 score (and I thought you had 400 for having a pulse.)
On the Alt A loans (no doc and no ratio), your credit score partly determines what rate a borrower will pay. 700 and above is kind of the magic number. The borrower gets an 1/8th off the rate (if the loan officer doesn't pocket the difference) if they have a credit score over 700. The lower the credit score will result in a higher rate for the borrower. Subprime loans also have rates determined by credit score, however, a borrower generally needs a 660 or above to get the "best" subprime rate. Ideally, no borrower with a 660, should ever be put into a subprime product. But you never know in this business.
Ol' married chick here again. If you are looking for quality goods on the cheap, go to overstock.com and you will find the Eygptian cotton towels for a bargain price. And Moon Valley is spot on, if you don't want to buy crystal, vintage glassware can be very charming.
DO NOT PREPARE FOR CASUAL SEDUCTION AT TARGET. Target is for people in a loving relationship who are saving for a mutual goal, like retirement.
Check out garnethill.com and sundancecatalog.com for ideas. All three sites mentioned in this post can have good clearance prices. And no, I don't work for any of them. I just hate to pay full retail.
Oh, and if of you are getting annoyed by this frivolous talk of furnishings, my husband and I own a 3 plus 2 townhouse with 2 car garage in Southern California which we purchased in 2000. I mention this because before he proposed I was on the way to buying an ocean front one-bedroom with this fabulous rhomboid shape to the unit. It had a panoramic view from the living room...but marriage changes things. We bought a mile away from the beach, instead. We had the simple dumb luck to buy when things were affordable. We aren't cashing out.
Lowest credit score response: 378 FICO
Of course they wanted to buy a home financing 100% and pay $1000 in closing costs. I advised them to buy a lotto ticket instead of looking for a home.
Sorry socalmtgguy you got it wrong.
Your response is a typical perspective of the short-term broker mentality. The GSE’s buy roughly 52% of all mortgages originated. If you do not pay your student loans on time, you eliminate the ability to sell the mortgage to the largest buyer of choice. You are then stuck having your loan priced by the private investor side of the business with higher rates and higher fees. You probably think canceling credit cards improves your FICO score as well. Given a choice, always pay your student loans after the mortgage, and BEFORE anything else.
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