loans and credit

With 14% of homeowners either in foreclosure or behind on their payments, the Obama administration is facing increasing pressure to provide aid to distressed homeowners. The chief method that the administration is pushing to help struggling homeowners is loan modification and they’re patience with lenders and loan servicing companies is wearing thin. In all, 71 companies are participating in the government incentive program that is worth over $75 billion in aid to homeowners.

One of the biggest problems slowing down the flow of loan modifications is that modifying a loan involves mountains of paperwork and is administratively difficult. Another issue is that borrowers simply don’t know what their options are and how to get started. Still, the Obama administration feels strongly that companies could be doing more to help homeowners in need of assistance and last week the government announced a few ways that they will turn up the heat on loan servicing companies.

Public Shame: Beginning next week, the Treasury will publish a list of the companies that are not pulling their weight in the push for loan modifications. Many of the names that will be on the list are already known and there are a variety of excuses being made in advance of the list being released. Most companies are blaming homeowners that have applied for a modification, saying that 60% of the paperwork that has been filed was completely incompletely or incorrectly. Participation in the program was voluntary for lenders and loan servicers, but many signed up in order to receive government incentives for loan modifications and the government is now asking lenders to hold up their end of the bargain.

SWAT Teams: This week, the government will send three person teams that they’re calling SWAT teams into the eight largest financial institutions in the program to monitor their modification activity. The teams will report twice a day on the activities of the companies in an effort to push for continuous progress in assisting homeowners.

Borrower Education: The government is encouraging lenders and loan servicers to be proactive in contacting borrowers who might qualify for loan modification and encourage them to get their documents in before the end of the year. Some companies have already taken measures to educate their customers. For example, Fannie Mae has hired realtors to contact borrowers in person to discuss their modification options and help borrowers complete their paperwork. The government has also set up ways for homeowners who don’t know where to begin to get help through the website www.makinghomeaffordable.gov or calling 888-995-HOPE. Many borrowers don’t realize how modification works or what the benefits of modification are.

Withholding Incentive Payments: The final way that the government is punishing lenders for a lack of progress in helping homeowners is by withholding incentive payments. The downside for the lender is that they miss out on money that is earmarked for them. However, because the program is voluntary, the government really can’t come down with any other financial penalties for lenders that choose not to focus on the program.

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Credit cards are amazing financial tools that allow consumers to have a great deal of flexibility and purchasing power. Unfortunately, many consumers don’t have the discipline or the financial ability to simply pay off their credit card balance every month and for some consumers credit cards become a curse rather than a blessing. A key to remember is that just because a credit card issuer gives the cardholder the ability to carry out a certain transaction doesn’t mean that transaction is a good idea for the consumer.

Credit card transactions are important because your credit history is one of the key elements in being able to finance the purchase or a home, a car, or other sizable financial events. Making the wrong decisions with your credit card can make financing your dreams in the future much more difficult. Here are some credit card transactions to avoid as much as possible to keep yourself out of harm’s way.

Cash Advance: It seems harmless enough, using a credit card like an ATM card to access cash instantly. However, the penalties for a cash advance are generally very stiff. There is almost always a few associate with receiving the cash, interest starts accruing instantly instead of after a grace period, and the interest rate attached to that cash advance is usually at a higher rate than your rate for other types of purchases. If the only way you can get your hands on some cash is with a credit card advance, it’s time to evaluate your overall finances because there are deeper problems in that situation.

Missing A Payment: It’s estimated that between 30% and 40% of your credit score is based on your ability to make payments on your debt on time. A late payment hurts but many late payments aren’t reported to credit scoring agencies. Missed payments are devastating to a credit score. In addition to the late fees and interest charges you’ll accrue, your lower credit score will make every future loan more costly and more difficult to obtain for years to come.

Balance Transfer: Many people with credit card debt are constantly playing the game of transferring balances to a new credit card with no interest for a promotional period of time. Every balance transfer is a new credit card application though, and about 15% of your credit score is based on having a reasonable number of credit applications. People with excessive applications signal to creditors that they’re high-risk borrowers.

Having Multiple Credit Cards: College campuses used to be targeted by credit card issuers because by offering a hat, a pair of sunglasses, or some other cheap trinket, student would line up to sign up for a new credit card. Retailers understand this game as well, offering discounts on purchases to customers who sign up for a card that day. Each new card is another credit application and soon keeping track of all of these balances becomes more trouble than the discount is worth. In addition, having multiple credit accounts increases the likelihood of situations that involve fraud or identity theft. A better idea is to have one card that offers rewards, one with a high spending limit just in case, and one with a low interest rate if you are carrying a balance.

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They say everything has its time and its season, and auto loans are no different. December is traditionally the month of the year when car buyers have the most incentives and the best opportunities for deals on a new or used car. But will December, 2009, be the season and time like in years past for the auto industry and the auto consumer? Even though the economic outlook is better as we come into this holiday season, times are not what they used to be, and the auto industry as a whole is somewhat shaky regardless of recent reports of quarterly upswings.

Typically December is when car dealerships have the pressing need to get rid of excess inventory, and normally prices reflect this need to clear out old models to make room for the new models of the coming year. But inventory is lower this year because of the Cash for Clunkers program, and incentives may not be what they have been in the past. The credit crunch and unemployment rise to the double digits, also may make lenders less likely to fuel the end of year craze that we’ve come to expect from the automobile companies. Auto loans are harder to come by as more and more banks are reeling from their losses, and many of these losses are in the auto loan sectors of the banking industry.

Of course auto loans, like any consumer loans, are easiest to get, and have the best terms, for those with a FICO score around 750. For those with a lower FICO score, be prepared to have a larger down payment and pay a higher interest rate. In any season you will find offers for auto loans that are guaranteed regardless of credit score or down payment amount. But the interest amounts on these types of loans may be astronomical, and while it may seem worthwhile to pay this interest rate to get the car of your dreams or any car at all, for that matter, ultimately its best to be cautious and shop your credit terms around.

There is a time and a season for all things, unfortunately 2009 has not been the best time or season for consumer credit. Auto loans are always possible, but be cautious about agreeing to terms and payments that you can ill afford. Caution is the keyword in this economic season. After all, none of us want 2010 to be our year, or our season, or our time, for bankruptcy.

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Student loans, as we know them, may never be the same. On September 17, 2009 the House of Representatives passed the Student Aid and Fiscal Responsibility Act of 2009 (H.R. 3221) aimed at amending the Higher Education Act of 1965 . The legislation has now gone to the Senate for a debate and a vote, but the bill is expected to pass and be signed into law by President Obama.

Historically, college student loans have fallen under three categories:

– Loans made by the federal government directly to students – Loans made by banks or lenders directly to the students, but guaranteed by the federal government

– Loans made privately by banks or other agencies with no government involvement

The new legislation proposes, among other things, to end the federal subsidies and guarantees to lenders, and make all federal loans happen directly with the government. The belief is that this will save the government over 90 billion dollars which will be used to increase and fund other educational scholarships, awards and programs. Basically, the government is looking to cut out the middle-man when it comes to providing educational loans to our nation’s college students. Lenders who offer a federally guaranteed student loan have done so with the benefit of subsidies from the government and without the risk of any losses if the student does not pay back the loan. Lending money to our nation’s students is a profitable business, and like any profitable business there is, and has been, room for corruption. In 2007 there were questions, allegations, and scandals as the relationships between private lenders and college financial aid offices were scrutinized. Kick-backs were suggested as financial aid officers in some schools were directing students to specific loan companies and lenders.

Government backed student loans, whether direct or indirect, have always been the best deal going for students needing help to finance their college education. Interest rates are fixed and set by Congress, and the terms have always been skewed towards not burdening students with repayment while they are in school, and lowering or deferring payments if the student becomes involved in public service or the military. But as with the debate in health care reform, some feel that the student loan reform is just another example of an invasive takeover by an administration growing larger and larger. The question of consumer choice in student loans is much the same as the questions of consumer choice in health care. Bigger government is the dream for some and the nightmare for others.

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In today’s post, great recession economy, it’s become more important than ever to ensure your credit score is as strong as possible. Lenders are no longer taking a cursory glance at your credit report. Everyone from mortgage and auto lenders, credit card companies, and even potential employers are conducting thorough examinations of your credit worthiness. So, take action now to boost your score.

Establish Your Credit

While it may sound counter-intuitive, you’ll want to ensure you have a couple credit cards, an auto loan, or utility bills in your name. Make certain you pay these bills on time each month. This will show potential lenders you are able to make your payments each month.

This doesn’t mean you should run out and apply for 10 credit cards that you’ll never use. That will likely lower your credit score. Instead, start early and in advance of needing to take out a large loan and gradually build up your credit.

Check Your Credit Score

You should review your credit report on an annual basis. This will guarantee the information on your report is accurate and up to date. Checking your credit on a regular basis will also alert you to any fraudulent behavior that’s occurred. You’ll want to get any errors resolved immediately before it becomes too late.

Pay Your Bills on Time

This last step is not only the most obvious, but also the most important. The greatest method for improving your credit score is simply to pay your bills on time each month. This includes your mortgage, auto loan, credit cards, utilities, etc. Although you don’t have to pay off your credit card each month (though, you should), make sure you at least make the minimum payments and work to keep your balances low. The natural process of making payments consistently will improve your score.

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There’s no doubt that people are struggling to keep up with their home loans. We all read the dismal headlines regarding unemployment, tight credit, and banks and big corporations who are folding right and left. Foreclosures are on the rise and show no signs of slowing any time soon. Many borrowers are underwater on their mortgages and behind on their payments. The blame sometimes seems to fall on homeowners who bought more house than they could afford, and sometimes seems to rest on predatory lenders who cobbled borrowers into bad mortgage packages that were doomed to fail from the start. Regardless of where the blame falls, the grim story is that for lots of different reasons, more and more people have lost their homes or are in danger or losing their homes in the immediate future.

Some of the same characters, who sold homebuyers on adjustable rate mortgages or on interest-only payment plans, are now trying to sell those same home owners on scam loan modification programs. Modifying your loan to avoid ending up in either a short sale or in foreclosure, is a legitimate possibility. Foreclosures cost lenders quite a bit of money, and a short sale ends up with lenders accepting a loss on the original loan principal. So lenders are offering modification programs for home loans, but the process can be difficult for some and daunting for others. Often fear plays a factor for home owners who are behind in their mortgage payments, for others it can be simply that their loan has been sold so many times since its inception that they don’t even know who to contact in order to work out a modified payment plan or interest rate reduction.

This is where the scam comes in. Former mortgage brokers, real estate professionals, and even lawyers have been charged in virtually every State for preying on people who are in fear and desperate over the potential loss of their home. Ads in the paper and on the internet abound offering people relief from the threat of foreclosure and a restructuring of their current home loans. Most of these scam companies charge an up- front fee, sometimes in the thousands of dollars, and then either tell their clients they didn’t qualify for home loan modification or else simply close up shop and open up somewhere else under a different name. There are programs offered by the Federal government and programs offered directly from the banks and institutions that hold the notes on the loans in question, to help borrowers from losing their homes. It is best to pursue these avenues, all fear aside, rather than fall victim to con artists bent on taking advantage of people already in dire straits.

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There has been a plethora of housing data released in recent days with reports of home affordability and the latest building numbers leading the way. With so many distinct situations depending on where you live and when you purchased your home, it’s difficult to accurately gauge the health of the overall housing market. However, you can use the knowledge as a general guide as you analyze your specific housing situation.

Housing Starts Increasing

Housing starts increased at a higher rate than predicted in January. Experts point to the extension and expansion of the homebuyer tax credit as part of the reason for the higher than expected boost. Going forward, the stimulus should continue to lift sales higher. However, foreclosures continue to increase as well, so it will be a back and forth battle as the housing market struggles to stabilize.

Housing Affordable for Most Americans

According to a report from the National Association of Home Builders and Wells Fargo, home prices are now at near record levels of affordability. According to the data, the typical family making the median income could afford to buy nearly 71% of all homes in the country. That’s a drastic change from the second quarter of 2008 when only 55% of homes sold were affordable. This is a good sign that the housing market is priced more appropriately and prospective buyers now have much less downside risk.

Many Homeowners Owe More than Home Value

Despite the improving housing data, which favors house hunters, current homeowners are in a much less desirable situation. According to another housing report, more than one fifth of homeowners now owe more on their homes than they are worth. Further, the number of foreclosures climbed to record highs.

Sifting through all this housing data takes time and people should be aware that specific situations will vary greatly depending on the region of the country. Additionally, whether you are a current homeowner or are considering purchasing a home soon will determine whether the news regarding the housing market is good or bad. Regardless of your situation, however, it’s clear that the market is trending toward equilibrium, which is goods news for everyone.

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Homeowners who find themselves strapped with a great deal of debt may want to take advantage of getting a home equity loan if they could save themselves money in the long run. However, using a home equity loan as a way of consolidating their monthly payments into one is not always a viable option to reduce debt and lower payments. There are some essential points to consider before using such a home loan as a method of debt consolidation.

Assess Your Current Debt and Monthly Payments: To ensure that debt consolidation is a good financial move for you, find the payoff amount for each of the debts and add them up. This is the amount that would be needed to pay off all the combined debt with one home equity loan. Then calculate how much you pay each month for all of the various debts, but also calculate the length of time remaining on each of the debts because you need to understand how these debts compare with a home loan and the loan term, or length of time to pay it back.

Your Current Property Value vs. Amount of Equity in Your Home: You can check realtor postings of home sales in your neighborhood (if there have been recent sales) to get a better picture of the approximate value of your home in today’s market. If you do not have much equity in your home, it may be difficult to get another loan in addition to the loan in first position. If you have a sizeable equity in the home, the loan-to-value of your home should be acceptable to a lender and it would be possible to apply for a second loan.

Your Current Debt Load vs. a Home Equity Loan: Sometimes, even though you may get a lower interest rate on the home loan, the length of the term will negate any overall savings hoped for through such a transaction. You may be able to lower your monthly payments, but in the end you pay more to the lender because the term of the home loan is generally much longer than it was for the other debts. For example: a car loan is for 3, 4, or maybe 5 years. When compared to a home equity loan whose term is 10 or maybe 15 years, there is a negation of long term savings. However, if extending your payments and reducing the monthly obligation can help you through these difficult times, it may not be a bad financial move.

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With unemployment still in double digits and an unforgiving job market making it difficult for people who are out of work to find new job opportunities, many are considering starting their own small business and giving self employment a try. Starting a business is one of the most challenging things an entrepreneur can do and many are unsuccessful. According to statistics, one in four businesses won’t survive their first year and half of all new businesses fail within their first three years.

Starting a business is always a challenge but it can also be one of the most financially rewarding decisions an individual can make. Being your own boss means no more clocking in and out, no more being micro-managed by a boss you don’t like, and in many cases no ceiling to the amount of income you can earn. To give your small business the best chance of success, here are some things you need.

An Idea: A business has to start with an idea that is feasible and useful. Whatever product or service you’re offering needs to have a market. In an economy like the one we’re in today, people aren’t spending a lot of money on unnecessary or luxury items so there has to be a need that your idea can fill or a problem that your idea can solve. Run your idea by some people that you trust and ask them for an honest opinion. Starting a business and failing can have long-lasting financial consequences and sometimes it can be avoided by asking for feedback.

A Business Plan: Starting a business is not something that can easily be thrown together. A successful business starts with a plan that is well thought out and efficiently executed. An effective business plan will help a business owner to convey his or her vision to potential lenders, customers, suppliers, and other stakeholders. Business plans won’t do any good gathering dust in a file cabinet—you should be constantly referring to your plan and making adjustments as necessary.

Financing: Most people don’t have a giant pile of money set aside that can be used to fund their business startup. Small business financing isn’t always easy to find. One of the first places to look is within your own family and circle of friends. Many of the people that trust you most might be in a position to help fund your dream. Banks are more likely to loan money for businesses if you have some kind of collateral to put on the line in case you’re unable to repay the loan.

Record Keeping: Many small business owners pour thousands of dollars into their business without really keeping track of where the money is going or what level of sales they have to achieve to be profitable. Proper record keeping can help a business owner become more efficient and provide more accurate information to lenders, stakeholders, and the IRS at tax time. Many business owners have great ideas but they don’t always do well with the details of running a business every day. If this is an area of weakness for you, consider finding a partner or hiring someone to run the financial side of your business.

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Regardless of how you feel about the amount of money being spent by the government, it’s hard to deny that at least some of the stimulus spending is having a big impact on the economy. Some analysts have even gone so far as to worry that the economy would slip back into another recession if the government wasn’t spending money at such a high rate. Right or wrong, it’s clear that consumer spending still has a long way to go before it’s able to contribute as much too economic growth as it normally does.

Over the past several weeks, the focus of government spending has gone more heavily to job creation. The unemployment rate is still at 10% and although job losses seem to be slowing down, we’re probably several months away from seeing strong hiring beginning again. Here’s a breakdown on the trends in where stimulus dollars are going.

Tax Cuts: So far, more than $93 billion has been spent in the form of tax relief. These tax cuts have been aimed at both individuals and businesses but if you haven’t noticed them yet, it’s because most of the benefit being given to individuals is coming in the form of slightly less withholding in each paycheck. Critics of stimulus spending say that a consumer receiving an extra $20 in a paycheck is not a meaningful enough amount to motivate increased spending.

Corporate And Industry Bailouts: The faucet of money that has poured taxpayer dollars into banks, insurance companies, automakers, and other industries that found themselves on the brink of failure has all but stopped and many of those loans are being repaid by the borrowers. The White House announced last week that because less money is going to be spent on bailouts than was budgeted for, the difference will be spent on job salvation and creation.

Public Job Creation: There’s a fine line between saving jobs and creating jobs and sometimes numbers get thrown around by politicians that are hard to verify. It’s impossible to know how many jobs have been saved or created with stimulus spending but most of those jobs have been in the public sector. Substantial sums of money have been spent to keep firefighters, police officers, teachers, and other public servants from losing their jobs.

Private Job Creation: The next step in job creation is aimed at growing employment in the private sector and stimulus spending can do this by funding infrastructure projects that require employers to hire workers. There is almost $400 billion remaining from President Obama’s $787 billion stimulus package and a lot of this will be focused on job creation. When spending is announced for a specific purpose, interested recipients must apply before being granted the funds. Some projects that have been funded haven’t even started yet but the additional dollars could help applicants that have been denied previously receive access to stimulus funds after all.

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