Operating under federal control and still burning through cash like it’s going out of style, Fannie Mae and Freddie Mac have decided it’s the perfect time to twist the knife in our backs and make it even more costly to get a home loan in this horrific lending environment. Effective April 1st, the dynamic duo plan to implement a new set of mandatory loan fees based on tighter down-payment and credit scoring rules.
Perfect timing guys! Just what our economy needs to pull itself out of this seemingly never-ending slump. And while I can understand their desperate need for additional revenue-generating fees, it just doesn’t make any sense to penalize future buyers that come to the table with solid credit scores and sizable down payments for the sins of the past. That’s not going to improve the situation for anyone but Fannie and Freddie.
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Author: Joshua Heckathorn, Date posted: February 17th, 2009
Category: Credit Crisis, Credit News, Mortgages
I’ve received several emails lately from ‘Creditnetters’ expressing concern about their HELOCs getting frozen without much notice from lenders. Yes my friends, they can do it, and there’s not a whole lot you can do to fight it. HELOCs, just like credit cards, can be frozen or shut down at any time.
In some cases, reductions in home values have triggered the HELOC freeze (you may be able to fight this by using comparables to prove them wrong). In others, a minor drop in credit score or a late payment gave the lender enough of a reason to reduce their risk by completely removing the exposure from their books. As credit issuers are rushing to stanch the bleeding in every way possible these days, I wouldn’t expect things to get much better in the near future. It’s just the reality of the world we live in at the moment. Read the rest of this entry »
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Author: Joshua Heckathorn, Date posted: December 4th, 2008
Category: Credit Crisis, Investments, Mortgages
“How can I save your money”, answered the ING customer service rep. I responded and said, “By giving me a good rate on a home loan with low closing costs.” He uttered a fake courtesy laugh in return. I did the same.
I’ve been planning to call ING since a bright orange postcard arrived in the mail a few days ago marketing the popular Orange Mortgage. Low closing costs and a 5.25% rate sounded pretty good, and since I’m in the market for a new place, I thought I would check it out. I’ve always been impressed by ING’s customer service and the ease of doing business with them as well, so I was interested to experience first-hand how things have changed in their lending division given the current state of the credit markets. It didn’t take long to see that they too have become like everyone else.
I’m serious. Have you talked to anyone at a bank lately? It’s like talking to a bunch of zombies! Everyone is wound up so tight they have completely forgotten how to actually take care of a good customer, listen to what you say, and try to meet your needs. You would think that if anyone could hold onto the customer-centric approach, it would be ING. But alas, tightened underwriting standards and the fact that they are just plain scared of any risk have forced them to become internally focused. I can certainly understand why, but it’s still a shame.
So, if you’re in the market to finance the purchase of a new condo, don’t even bother calling ING. They won’t care if you’ve been a long-time customer with excellent credit history, solid credentials, and a big chunk of cash to make a down payment. All they will care about is following the new underwriting standards by the book, which require at least a 55% down payment on new-construction condos. That’s right, the maximum loan they can offer is a measly 45% of the purchase price. In regards to the estimated closing costs, they weren’t that low either. So, my search for a lender who actually wants to “lend” continues, and ING has lost the opportunity to make a great deal of money off someone who has never made a late payment in his life.
Have you had difficulties securing a loan lately? We would love to hear about your experience, so send us an email at creditcents@creditnet.com, or post a reply below.
Author: Joshua Heckathorn, Date posted: October 29th, 2008
Category: Credit Crisis, Mortgages
Real estate values continue to do a big cannonball in the deep end, and some lenders are trimming their exposure to home equity by shutting down idle lines of credit on their books. If you’re lucky, you may receive a nicely written letter in the mail explaining how you haven’t drawn against your line in quite some time, so the bank wants to give you the opportunity to close the HELOC before the agreement permits. How thoughtful, right? They want it to sound like they’re doing something nice for you, but it really has nothing at all to do with you or what the original agreement states. They’re just hoping you won’t have the time to sit down and write a letter back within 14 days so they can terminate the HELOC at will. But at least they gave you a chance. Other banks may send zero correspondence before shutting it down. The bottom line – they want the exposure off their books.
If you currently have a HELOC that hasn’t been shut down yet, perhaps it’s a good time to think about how you can safely use it before the bank attempts to snatch it away? There are certainly some risky ways you can use home equity to invest in stocks or real estate, which have the “potential” to provide a high yield. However, I wouldn’t suggest you take that risk in this market, unless you have some serious investment skills and plenty of reserve cash to bail you out in an emergency. It’s generally never a good idea to gamble with your home. But if you want to get some of the cash in your hands, avoid letting your HELOC get terminated without notice, and invest it safely for a small return, then try this simple arbitrage method.
The prime rate is currently 4.5%, which means your HELOC’s interest rate is probably less than 5%. You should be able to easily locate your current rate by looking at your last bank statement or checking your account online. The next step is to apply for a 0% balance transfer credit card that should provide you with a reasonable credit limit. Let’s say $15,000.
Now, it’s time to spend a few minutes shopping around for the best place to park cash these days. For example, take a look at an I Savings Bond, which provides a return of 4.84% if purchased before November. Using your HELOC, you could purchase $5,000 in I-Bonds, and then take advantage of your new 0% balance transfer card by using it to pay off the HELOC. For the next 12 months you will enjoy a low-risk investment returning 4.8%, and your HELOC will no longer be considered inactive by the bank. At the end of 12 months, cash out of the I-Bond, pay off the balance on your 0% credit card, and pocket the difference. Voila – you have made money without using any of your own actual cash. Of course, your total profits will depend on how much money you’re willing to move around and what kind of fees you’ll have to pay. I just chose $5,000 to keep it simple.
If anyone has a personal experience applying this strategy, I would love to hear about it! Post a reply or send us an email at creditcents@creditnet.com.
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Author: Joshua Heckathorn, Date posted: October 24th, 2008
Category: Investments, Mortgages
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