Bill McCord's Blog

 FICO scores measure the risk that an individual will default by evaluating their history of credit management. The exact formulas used are top secret but FICO has given the following components and the approximate importance of each:

35%- Payment History. Late payments of bills such as Mortgage, Credit Cards, Car loans etc will lower a person’s FICO score . Paying bills as agreed over time will improve the score.

30% – Credit Utilization. The ratio of current revolving debt (Credit Card and Charge Account balances) to the total available credit (Credit Limits). Consumers can improve their FICO scores by paying off debt and reducing balances to less than 50% of the available credit. Closing existing revolving charge accounts can have a negative effect on this ratio, and lower your score. Before closing accounts be sure to do some more research, or get qualified advice.

15% – Length of Credit History. Time improves FICO scores without any action other than paying all bills on time.

10% – Types of Credit Used. FICO scores are improved by having a good history of managing multiple types of credit (Installment, Revolving, Consumer finance etc).

10% – Recent Credit Applications. Multiple requests to obtain new credit over a short period of time can hurt an individual’s FICO score. However, individuals shopping for the best rate for a Mortgage or Auto Loan over a short period will not see any negative impact on a FICO score.

For more detail on this and other Credit Related questions the following link is a Gold Mine of factual information.

http://www.myfico.com/CreditEducation/

I won’t try to explain the pro’s and con’s of any of these options, but will strongly suggest that whichever of them you choose, you consider working with a REALTOR. My reason for this specific advice is as follows:

 

1. There are more than Half a Million Licensed Real Estate Agents in California. This is the minimum required qualification for the job.

2. Only 165,000 of them are REALTORS who have voluntarily agreed to subscribe to a strict Code of Ethics, and are paying members of their Local, State, and National Associations of Realtors.

Amongst many other services Realtors provide to the public is the web site Realtor.com. the most popular of all on-line Real Estate sites. Check out http://www.realtor.com/.

Here we are at the start of the annual self flagellation period otherwise know as Tax Preperation Time.
Given the amount of bad/wrong advice freely floating around on this topic you might find it helpfull to see what the rules really are as the I.R.S. sees it.
Check out this link: http://www.irs.gov/pub/irs-pdf/p936.pdf

Drugs, Drink, Gambling. From the clutches of these escape is possible with  sufficient help and hard work. 

From Golf,  NEVER!

Like all other forms of compulsive behaviour, for golfahlics even nine holes is too much, yet 18 holes are not enough to satisfy their insatiable craving for humiliation and self abuse.

Have you ever know a man who gave up golf?

You probably didn’t see the reports that Goldman Sachs is talking to Fannie Mae about buying, at a discount, $1 billion worth of low-income housing tax credits from the government-controlled Agency.
Fannie Mae can’t use the credits because you have to actually earn money to use such an off-set against profits.
Goldman Sachs on the other hand is making profits hand-over-fist thanks in part to the Taxpayer Funded TARP program.
For the nation’s tax collectors the issue might boil down to this:
if we let Goldman buy the tax credits, that means a Wall Street firm that received Bail Out money, will be able to lower their taxes at a time when Uncle could really use the money.
It’s worth remembering that TARP funds were intended to help the Banks re-start making loans to individuals and small business’s.

The IRS will be releasing a new version of Form 5405, the First-Time Homebuyer Credit Form, for homebuyers claiming the extended housing tax credit. Homebuyers eligible for the tax credit must use this new version if they:

1. Purchased their homes on or after November 7, 2009,

OR

2. Will claim the housing tax credit on their 2009 tax returns, regardless of when the property was purchased.

The new form was due to be published last December. The old form (currently the only one available on the IRS website) will not be accepted for claiming the tax credit under the extended rules.

NOTE: At this time the IRS requires that owners claiming this tax credit 0n their 2009 tax returns must file on paper. Be sure to check this beforehand if planning to file electronically. It may have changed by then.

The Administrations well meant efforts to make it possible for many homeowners to avoid foreclosure has stirred up a hornet’s nest among some media commentators.

The Plan described at http://www.makinghomeaffordable.gov/ uses up to $75 billion to provide incentives to holders of FANIE MAE and FREDDY MAC loans to work with Borrowers to refinance, or modify existing problem loans, rather than simply go ahead and foreclose.

This is a classic version of the glass ½ full, or ½ empty. Typically, in our current exclusively partisan media, the answer is dictated solely by political affiliation regardless of the facts.

This is unfortunate because there are legitimate reasons for supporting, opposing, or, better still, improving the current process.

One the one hand it is a legitimate effort to try to help Joe Public get through a situation brought about by failures in our economic systems. Given the Trillions of dollars being ploughed back to the very people who caused this situation, the $75 Billion allocated to this program is peanuts.

On the other hand there is a valid argument to be made that subsidizing refinances, or modifying problem loans, is simply putting off an inevitable final default. This can often hurt the very people it purports to help by having them use up scarce funds in a doomed attempt to save an impossible situation, rather than simply give the property back to the Lender and getting  on with life.

The December report on the status of this program provides ample ammunition for both schools of thought, and the regulators have shifted emphasis to try to deal with the problems showing up.

The summary shows that 728,000 loan modifications are already in the required trial phase. Unfortunately only 31,382 have completed that phase and have become permanent, saving homeowners an average of $550 per month. The low rate at which Trials become Permanent  is a serious problem raising concerns that a significant number of these modifications are simply allowing the Banks to delay acknowledging the number of bad loans on their books and to avoid taking the losses on to their Balance Sheets.

If that is true then the inevitable result will be a longer period of foreclosed properties coming to market as these failed modifications fall apart.

As with most things there is not a simple answer, but on balance I come down on the side of giving the program a fair shot. This is based mostly on my view that given the countless billions we have poured into supporting the financial institutions that caused the problems,  a little effort to give similar assistance to the victims is not unreasonable.

The Fed and the Crisis

For anyone wishing to understand what the Federal Reserve actually did, and will continue to do in dealing with our current financial problems, here is a link to a San Francisco Fed web site where you will find a goldmine of facts and commentary. http://www.frbsf.org/econanswers/

It’s a great resource dealing with the process of digging out of the hole and getting back on track.

Maybe one day they will do an equally good job on their failure to prevent all this from happening. As far as I can see they did not have the courage to take away the cookie jar when this Bubble was so obviously getting seriously inflated.

Turns out that Mr. Greenspan really let us down by failing to spell out what was happening, and take the risk of being unpopular with his Political Masters. Like many before him he seemed to buy into the “New Paradigm” myth. Remember that phrase during the run up to the Dot Com bust.

This is a great time to refinance into a long term fixed rate mortgage, but it’s not always obvious how to do it in order to ensure the best combination of interest rate and costs, specifically Points. 
For example, the lowest rate is not automatically the best deal. This depends greatly on how long you plan to stay in the property.
My rule of thumb is if you expect to be moving within 5 years go for the lowest cost you can get and accept a higher rate for that short period.
If you expect to live there for more than 5 years pay some of the costs up front in order to get the lowest rate for many more years.
Next, take your preferred strategy to 4 different possible Lenders:
1. Your current Lender.
2. A local Credit Union.
3. A good Mortgage Broker.
4. A Major retail Bank i.e. BofA etc.
Ask each to give you a quote based on your situation. If you are not asked how long you plan to stay  in your  house get up, walk away, and go look for a professional.
One more thought. If tempted by an online or other mortgage advert, good luck, but be wary of the very common bait and Switch tactics often used in this business.
And last but not least, be aware that APR is a very flexible statistic which can be manipulated and interpreted in numerous ways. It is not a valid way to sellect a mortgage.

In the world of smoke and mirrors called “The Finance System” the word PRIME has two very different meanings.

One is PRIME RATE (the interest rate banks charge their best clients. Normally 3% above Fed Funds Rate.

The other is SUB-PRIME to describe a mortgage (SUB-PRIME MORTGAGE) that should never have made. Hence the “The Sub-Prime Mortgage Crisis“.

In the real world occupied by most of us “Ordinary Folk” the term Sub-Prime should not be linked to a Mortgage; It actually refers to the Borrower of the Mortgage i.e. The person whose Credit, Income, and/or Cash for down payment is not good enough to get a ”Prime” Mortgage. Hereafter referred to as The Sub-Prime Borrower.

This person has always been with us. Until the unbridled greed and avarice of Banks and Wall St intervened with their “No Possible Homebuyer Left behind” programs these folks rented until such time as their financial situation allowed them to qualify for a sensible mortgage.

Let’s be clear on this. The Sub-Prime Mortgages were and are High Risk loans made to High Risk people. These loans could only be made if the Bank knew it could sell them on to a 3rd party before the inevitable late payments started. This way the Banks got their profit with effectively no responsibility for the future performance of the flakey loan.

It was effectively a game of “Pass the Parcel in a Bagdad Pub”.

By the time these loans started going bad they had spread throughout the Worlds Financial systems leading to the current situation so often referred to as the Sub-Prime Mortgage Crisis.

At the end of the day we have a large number of Banks and other Wall Street hot shots who  made enormous profits by selling what they all knew to be an unstable product to an undereducated public.

This is a recurring story in our history.

If you don’t want to become a victim of the next wave then you need to get educated in how the system really works before you meet the next Bernie Madoff.

For some thoughts on how you might do this check out my posts from 04/25/2008 “Kick Start the Kids”.