monthly update to our clients, colleagues, family & friends
By: Randy Mitchelson, March 2011
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In Issue 36 We Touch On:
Charlie Sheen Guide To Credit Scores
HUD: Job Loss NOT Extenuating Circumstance
Two Signs Inflation Is Here
As promised in last month’s newsletter, I have completed all of the new requirements that our federal government has in place for mortgage professionals and I can continue on in this ever-changing industry. Not too many people can say that. The vast majority of mortgage brokers have chosen to abandon their license. For example, in Florida, there were over 81,000 licensed mortgage brokers in 2007. Now, less than half remain (about 39,000) and that number will likely go down even more as legacy licenses officially expire March 31, 2011 if the new federal licensing requirements have not been met. Keep in mind that the mortgage originators employed by banks are still exempt from being licensed (although they must be registered in the national registry). Banks have huge influence over our elected officials and so the uneven playing field between banks and brokers continues.
The current newsletter and all prior newsletters are archived at the Mortgage by Randy blog. Bookmark it and share with your friends and family. You can make your own comments and feedback as well. Time for the news…
Mortgage Market: Government Does Not Consider Job Loss An Extenuating Circumstance
In the July 2010 Mortgage by Randy newsletter, we reported on the new rules lenders have put in place for mortgage loan applicants who exercised a strategic default on a previous property. In other words, they deliberately allowed their mortgaged property to enter foreclosure despite having the financial means of keeping the mortgage current. Banks can set their own rules for loan applicants in this category and we have seen banks institute waiting periods of 3 to 7 years depending upon the circumstances which lead to the default. Some lenders considered a job layoff as an acceptable extenuating circumstance which would result in a shorter waiting period. However, our own government does not.
The Federal Housing Administration (FHA) is part of the U.S. Department of Housing and Urban Development (HUD) and provides mortgage insurance to FHA-approved lenders for low down payment mortgages. Like lenders, HUD has waiting periods in place for potential borrowers who have completed a short sale, pre-foreclosure sale or simply walked away from their home and mortgage obligation. HUD does not consider loss of employment due to company closings or reductions in work force an extenuating circumstance beyond the borrower’s control. Also, borrowers with Chapter 7 bankruptcies and foreclosures in their credit history are not eligible for an FHA loan if their sole extenuating circumstance is loss of employment due to company closings or reductions in work force.
Should the borrower lose their employment due to a long-term illness, HUD will make an extenuating circumstance exception. Another example of an allowable extenuating circumstance is death of a primary wage earner. Click here for more info about these waiting periods.
Personal Credit: The Charlie Sheen Guide About Credit Scores
Love him, despise him or pity him, but Charlie Sheen has provided an entertaining side show to all the disturbing news from North Africa, Japan and the Middle East that the next generation of kids will undoubtedly study in their history textbooks. This month’s credit lesson pays homage to Wild Thing, so have some fun as I, “exercise the poetry in my fingertips”, and imagine how Charlie Sheen would offer advice on credit scores. Charlie will never need to worry about his personal credit score given his arsenal of cash and Austin Powers-inspired one hundred million dollar lawsuit. Although you might not have “tiger blood” or “Adonis DNA”, Charlie would agree that even “fools and trolls” can take control of their credit score.
“Come On Guys, We’re Talking About Practice? I Missed Practice?”
This Charlie Sheen quote is borrowed from an infamous quote by NBA great Allen Iverson. Sometimes people who are at the very top of their profession can get lazy about practicing their skills. Ultimately they learn the hard way that practice is the key to staying on top. For those of you with great credit scores, don’t get lazy – keep up your practice of paying bills on time, inspecting one of your three credit reports every four months, protecting yourself with real-time credit monitoring and keeping your debt levels under control.
“Duh!”
Pay your bills on time. Every time. If you do nothing else about your credit, do this one thing and it will be like “effortlessly and magically converting your tin cans into pure gold”. The “Goddesses” of the credit world will bestow high honors upon you. Having a strong credit score will shout to your creditors that “I am battle tested bayonets”!
“Like In Baseball, The Scoreboard Doesn’t Lie”
Not happy with your credit score? Then take action to change the scoreboard until you are “Winning!” The good news is that you can change the scoreboard all the time. By using every credit account you have at least once per month and then paying the bill on time you can rack up points month after month. Charlie’s baseball nickname is “Wild Thing” because of his character’s unpredictable pitching. Likewise, your credit score represents to creditors your predictability of paying your bills on time.
“On A Quest” to “Right Every Single Wrong”
Sorry Charlie. This quest is an exercise in futility. Once you have negative (but accurate) info on your credit history, you can’t get it removed (legally). Only a combination of passing time and positive payment history can lead you to the holy grail of credit scores. As time elapses, older info on your credit report has less importance and most of it disappears after seven years. You can’t control time, but you can control the fresh (and most relevant) info that is being reported to the credit bureaus now.
“Winning, Anyone? Winning!”
Who can argue with winning? It’s the American way! Take a “defeat is not an option” attitude and you will be on the right track. If you follow the core principles of managing credit, you will see your score improve. It won’t be overnight. It won’t be in a few weeks or even a few months. Rebuilding credit is a marathon, not a sprint. It takes approximately 24 months of on-time payments to establish a good track record. Picture yourself in 24 months when you are asked about your credit score and you can proudly exclaim – “Winning!”
Does Charlie have you pumped to tackle your credit? “You’ve been warned dude. Bring it.”
Economy & Financial Insights: Two Signs That Indicate Inflation Is Here
Gas prices aside, there are more signs of inflation leaking into the marketplace. Listening to corporate earnings reports and reading my favorite economic newsletters in the last week, there have been price increase warnings issued by companies like Nike, Kimberly-Clark (Huggies, Cottonelle, Kleenex, etc.), Colgate (Speed Stick, Softsoap, etc.), Proctor & Gamble (Swiffer, Tide, Gilette, etc.), and others. We all buy stuff from these manufacturers and we’ll feel it in the pocketbook regardless of whether we buy from Wal-Mart or Wegmans. Strike one…
An unexpected natural disaster in Japan has created a wild card in the inflation conversation. Price increases are inevitable due to supply related challenges. As economist John Mauldin put it in his week of March 19 Thoughts From the Frontline “It is clear that, at least for a while, prices of electronics and tools are going to rise as one company after another is shutting its production lines down in Japan. Auto manufacturing plants in the US will have to close soon, as critical parts from Japan are not going to be forthcoming. Flat screen TVs? The iPad 2 I keep trying to find? All sorts of companies are going to get their costs squeezed even further.” Strike two…
Strike three could come in different forms. Wage pressure is one possibility as companies hire again but we are far away from that level of employment. A more likely source could be our own government. You see, the Federal Reserve has been keeping interest rates artificially low by purchasing federal debt. This subsidization is scheduled to end in several weeks. When the free market takes over, many experts predict a bit of chaos including rising interest rates, stock market contraction and continued swelling of gold and silver prices. Only time will tell.
Question of the Month: I own a condo with my ailing mom, but I am not on the mortgage. When my mom passes I want to keep the condo but what becomes of the loan?
This is less of a mortgage question and more of an estate planning matter that you should address right away with your attorney. Upon passing, the mortgage will have to get settled by the estate during probate. To avoid probate you could set-up a living trust and place the property in the trust. This can be done by a competent attorney for less than $1,000. If mom is no longer competent to sign documents of that nature then that may not be an option. If you do not expect the estate to have sufficient funds to pay off the mortgage at probate, then consider paying it off now to secure a satisfaction before mom dies. As long as payments keep coming in on time, the lender won’t know or care so if you can avoid probate, via trust for example, you could take over payments. There are whole books written about these matters – too intricate for this newsletter – that’s why consulting a competent elder law/estate planning lawyer is your best move.
Giving Back: Last Minute Tax Tips Regarding Charitable Donations And Your Volunteer Work
The personal income tax deadline of April 18 (the due date is the 18th instead of the 15th this year because of the Emancipation Day holiday in District of Columbia – regardless of whether you live there or not) is fast approaching so this month our Giving Back segment focuses on tax matters associated with charitable donations. For example, if you have donated used clothing and household items to a qualified charity during the year, be sure to follow these simple steps to remain compliant with IRA regulations:
1) Document an itemized listing of each article of clothing or other item being donated.
2) Determine either the thrift store or garage sale value of each item and document that figure on your list.
3) When delivering the donations to the charity ask for a receipt and ensure it is signed and dated by a representative of the charity.
4) Attach your itemized listing to the receipt and keep it with your tax records for at least seven years.
Another deduction to consider is if you drove to and from volunteer work, you can take the actual cost of gas and oil or 14 cents per mile. Add in other travel expenses like parking or tolls.
Need volunteers? Do you have a fundraising event upcoming? Do you have a personal web site where you are raising donations for your cause? Submit the information to randy@mortgagebyrandy.com by the 5th day of each month and we will do our best to include your information in the next issue.
Busy month ahead as we finally get our first experience of Napa Valley in mid-April, but not before a few days in San Francisco for ad:tech and a few more spring training games in Florida before Opening Day. Anybody see the cover of GQ Magazine this month?
Randy
Mortgage by Randy newsletter, Copyright 2008-2011 Randy Mitchelson. All Rights Reserved.
Randy Mitchelson is a licensed mortgage professional. All material presented herein is believed to be reliable but we cannot attest to its accuracy. All material represents the opinions of Randy Mitchelson. Recommendations may change and readers are urged to check with their financial advisors before making any decisions. Opinions expressed in these reports may change without prior notice. Mitchelson can be reached at 239-851-6738.
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You have permission to publish this article electronically or in print as long as the following is included:
Randy Mitchelson, of Estero, Florida, is a business professional, entrepreneur and author with over 15 years experience in financial services. Mitchelson has served in leadership roles for Global & Fortune 500 firms like Bank of America, KeyBank and CIBC.
As a member of National Association of Mortgage Brokers, Randy has earned the Lending Integrity Seal of Approval. He educates both individuals and groups about credit scoring by conducting personalized credit report reviews, action plans and one on one consultations. He is author of the free monthly newsletter, Mortgage by Randy as well as the Daily Dollar newsletter. A licensed mortgage professional, Mitchelson also founded Trinity Home Financing, LLC.
He is owner of Estero, Florida based National Web Leads, LLC, an internet lead generation service matching consumers with lenders for auto, cash advance and other financial products. Through its network of partners, National Web Leads delivers innovative Web 2.0 performance marketing solutions to advertisers and affiliate marketers.
Mitchelson earned his BS and MBA at Rensselaer Polytechnic Institute in Troy, NY. He is a founding member and Finance Chairman of the Southwest Florida Regional Technology Partnership Inc. and Vice President for the Michelle’s Angels Foundation Inc. He is married to Susan, a Pharmacy Supervisor in the Lee Memorial Health System in Fort Myers, Florida.
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