‘Rapid rescoring’ can provide quick credit fix

Kenneth R. Harney on Jan 26, 2018

WASHINGTON – Many http://www.closettrail.com/rd/r.php?sid=11478&pub=300908&c1=mortgage%20appl icants&c2=Arcamax&c3=https://www.arcamax.com/homeandleisure/consumer/thenati onshousing/s-2042147> mortgage applicants have never heard of “rapid rescoring” or CreditXpert score simulations – in part because some lenders choose not to educate them.

That’s unfortunate, because anyone who’s looking for the most favorable http://www.closettrail.com/rd/r.php?sid=11478&pub=300908&c1=interest%20rate s&c2=Arcamax&c3=https://www.arcamax.com/homeandleisure/consumer/thenationsho using/s-2042147> interest rates and terms in 2018′s rising interest rate environment ought to know at least the basics about them – especially if their current score puts them near a break point between getting a better deal or qualifying for a loan altogether.

Here’s a quick primer. Say you spot one or more errors in your http://www.closettrail.com/rd/r.php?sid=11478&pub=300908&c1=credit%20report s&c2=Arcamax&c3=https://www.arcamax.com/homeandleisure/consumer/thenationsho using/s-2042147> credit reports – maybe an account you’ve paid off in full but is still being reported as open and delinquent or a collection-account issue you’ve settled with a creditor but is still reported as ongoing. Both are potentially significant negatives for your credit score but if you have documentation, you can show they’re out of date.

What to do? You could begin the standard process of getting them corrected by asking the creditors involved to request the national http://www.closettrail.com/rd/r.php?sid=11478&pub=300908&c1=credit%20bureau s&c2=Arcamax&c3=https://www.arcamax.com/homeandleisure/consumer/thenationsho using/s-2042147> credit bureaus to amend your files. But here’s the problem- You’re under contract to buy a house and you need the errors corrected immediately – or you risk not qualifying for the mortgage or interest rate you need.

Fixing the errors directly with the http://www.closettrail.com/rd/r.php?sid=11478&pub=300908&c1=credit%20bureau s&c2=Arcamax&c3=https://www.arcamax.com/homeandleisure/consumer/thenationsho using/s-2042147> credit bureaus could take weeks. Enter rapid rescoring – a process that frequently can get the erroneous information corrected in as little as two to three days. It works like this- You provide the documentation about the accounts to your loan officer, then request a rapid rescore using the loan officer’s mortgage credit-report vendor. The vendor’s staff will then verify your documentation with the creditor(s) involved and provide the corrected information directly to the http://www.closettrail.com/rd/r.php?sid=11478&pub=300908&c1=credit%20bureau s&c2=Arcamax&c3=https://www.arcamax.com/homeandleisure/consumer/thenationsho using/s-2042147> credit bureaus.

The updates should show up quickly on your credit files, allowing the vendor to supply a new and more accurate http://www.closettrail.com/rd/r.php?sid=11478&pub=300908&c1=credit%20report &c2=Arcamax&c3=https://www.arcamax.com/homeandleisure/consumer/thenationshou sing/s-2042147> credit report to your lender along with a new – and typically higher – credit score.

Paul Wohkittel of CIS Inc., a national credit-reporting company, says that although the improvements in scores vary with the severity of the erroneous credit-file information being corrected, he’s “seen scores that go up by 50 to 60 points,” saving applicants thousands of dollars in higher http://www.closettrail.com/rd/r.php?sid=11478&pub=300908&c1=mortgage%20paym ents&c2=Arcamax&c3=https://www.arcamax.com/homeandleisure/consumer/thenation shousing/s-2042147> mortgage payments over time.

Terry Clemans, executive director of the National Consumer Reporting Association, a credit-industry trade group based in Roselle, Illinois, calls rapid rescoring “a great tool anytime consumers find something in error but need to expedite the [correction] process.”

But rapid rescoring is not for everyone who seeks a quick score boost. For example, if the negative information depressing your score is accurate, it won’t help. Then there’s the expense. Rescoring can cost $30 or more per updated account per http://www.closettrail.com/rd/r.php?sid=11478&pub=300908&c1=credit%20bureau &c2=Arcamax&c3=https://www.arcamax.com/homeandleisure/consumer/thenationshou sing/s-2042147> credit bureau. So if you’ve got multiple accounts to correct in all three major national bureaus, the total cost can be significant. Plus, there’s another wrinkle- You as a consumer are not permitted to pay directly for rescoring. Your lender is required to foot the bill, though that might find its way into your total loan fees at settlement.

The expense of rapid rescoring is why some lenders are reluctant to raise the subject with certain applicants. Paul Skeens, president of Colonial Mortgage Group in Waldorf, Maryland, told me that “a lot of people who have problems on their http://www.closettrail.com/rd/r.php?sid=11478&pub=300908&c1=credit%20report s&c2=Arcamax&c3=https://www.arcamax.com/homeandleisure/consumer/thenationsho using/s-2042147> credit reports simply don’t have a lot of money to spare.” But for those who can afford it, “it really does work.” One applicant who had a good income but a 680 FICO credit score – too low for the best available mortgage rate – zoomed to a much better 740 after a rapid rescoring, recalled Skeens in an interview last week.

Here’s another valuable mortgage credit tool you should know about. If your score isn’t quite what you need but the information in your files is accurate, your lender should be able to obtain a “what if” simulation through its credit vendor. Using a proprietary model marketed by Baltimore-based CreditXpert Inc., the simulation can estimate the credit score changes available to you by taking certain actions. For instance, the simulation might reveal that by paying down a specific credit card balance or by lowering your currently maxed-out “utilization ratio” on another account, you could improve your score by enough points to get you approved for a better deal.

Bottom line- Be aware of these options. When you apply for a mortgage, you’re not necessarily locked into your score. You just might be able to do better.

Don’t worry- HELOCs will survive despite new tax law

Kenneth R. Harney on Jan 19, 2018

WASHINGTON – It’s a big and confusing question for many homeowners in the wake of the December tax law changes- Are new interest-deductible home equity credit lines (HELOCs) and second mortgages now totally out of reach going forward?

The new law eliminated a long-standing section of the tax code that allowed homeowners to borrow against their equity and use the proceeds for whatever purposes they chose, while deducting interest payments on their federal taxes. That provision of the new tax law took effect Jan. 1, so it’s logical to assume that popular tax-deductible HELOCs no longer will be available.

They’re dead. Right? Not quite! To borrow a phrase from Miracle Max in “The Princess Bride,” the traditional uses of HELOCs may be “mostly dead” – but not all dead.

A close reading of the final language rushed through Congress last month reveals that interest-deductible HELOCs and second mortgages should still be available to homeowners provided they qualify on two criteria- they use the proceeds of the loan to make “substantial improvements” to their home, and the combined total of their first mortgage balance and their HELOC or second mortgage does not exceed the new $750,000 limit on mortgage amounts qualified for interest deductions. (The previous ceiling was $1.1 million for the first mortgage and home-equity debt combined.)

“The key here is (how) you use the proceeds” of the HELOC or second mortgage, Ernst & Young tax partner Greg Rosica told me in an interview. You can’t buy a car anymore. You can’t spend the money on http://www.closettrail.com/rd/r.php?sid=11478&pub=300908&c1=student%20loans &c2=Arcamax&c3=https://www.arcamax.com/homeandleisure/consumer/thenationshou sing/s-2038773> student loans, business investments, http://www.closettrail.com/rd/r.php?sid=11478&pub=300908&c1=vacations&c2=Ar camax&c3=https://www.arcamax.com/homeandleisure/consumer/thenationshousing/s -2038773> vacations or most of the things you used to be able to do. Now, to take deductions on the interest you pay, you’ve got to limit expenditures to capital improvements on your house, or – less likely – buying or building your principal residence.

The reason, said Rosica, a widely recognized expert on real estate tax law, is that although Section 11043 of the new tax law eliminated home-equity debt interest deductions, it left virtually untouched interest deductions for primary home mortgage debt (“acquisition indebtedness”) that is used to buy, improve or construct a http://www.closettrail.com/rd/r.php?sid=11478&pub=300908&c1=new%20home&c2=A rcamax&c3=https://www.arcamax.com/homeandleisure/consumer/thenationshousing/ s-2038773> new home. As long as you follow the rules on what constitutes a capital improvement – spelled out in IRS Publication 530 – and do not exceed the $750,000 total debt limit, “it is deductible,” said Rosica.

Banks and other http://www.closettrail.com/rd/r.php?sid=11478&pub=300908&c1=lenders&c2=Arca max&c3=https://www.arcamax.com/homeandleisure/consumer/thenationshousing/s-2 038773> lenders active in HELOCs and second-mortgage arenas agree with this interpretation and plan to continue offering home-equity products. Bob Davis, executive vice president of the American Bankers Association, told me “HELOCs will still be in the mix,” despite widespread concerns that they might disappear after the elimination of http://www.closettrail.com/rd/r.php?sid=11478&pub=300908&c1=the%20home&c2=A rcamax&c3=https://www.arcamax.com/homeandleisure/consumer/thenationshousing/ s-2038773> the home-equity section of the tax code.

Michael Kinane, head of TD Bank’s extensive second-lien product offerings, said in a statement for this column that HELOCs and home-equity loans remain available and popular, whether interest is tax-deductible or not, and can be “the best, lowest cost option for homeowners.” In mid-January, TD’s rates for owners with solid equity and http://www.closettrail.com/rd/r.php?sid=11478&pub=300908&c1=good%20credit&c 2=Arcamax&c3=https://www.arcamax.com/homeandleisure/consumer/thenationshousi ng/s-2038773> good credit on a $100,000 HELOC were 3.99 percent APR, about half a percentage point below the prime bank rate.

A survey of HELOCs and second-lien http://www.closettrail.com/rd/r.php?sid=11478&pub=300908&c1=lenders&c2=Arca max&c3=https://www.arcamax.com/homeandleisure/consumer/thenationshousing/s-2 038773> lenders active on the LendingTree.com loan-shopping network conducted for this column found a “consensus” that not only will lenders continue to offer such financing, “but more lenders will offer them as home prices [and] values rise,” according to spokesperson Megan Grueling.

Lenders generally won’t advise you on interest deductibility, urging instead that you consult your tax adviser. Also, the final word on interest deductibility will need to come from the IRS. But the attorneys, CPAs and legislative tax experts consulted for this column were unanimous in their belief that the IRS will agree with their interpretation of the law changes.

Bottom line- Despite rampant rumors to the contrary, home-equity-based lending won’t be disappearing anytime soon. Borrowers who want to deduct interest will need to restrict their expenditures to qualified home improvements. Others who simply want to tap into their equity they’ve built up at attractive http://www.closettrail.com/rd/r.php?sid=11478&pub=300908&c1=interest%20rate s&c2=Arcamax&c3=https://www.arcamax.com/homeandleisure/consumer/thenationsho using/s-2038773> interest rates and use the money for whatever they choose will be able to obtain HELOCs or second mortgages, just as they did in the past.

And for those owners who now plan to opt for the standard deductions of $12,000 or $24,000, there’ll be no issue at all. Since they will no longer be itemizing, no big deal. They won’t be thinking about interest deductions anyway.

WASHINGTON — The practice is called “greenwashing” and home shoppers need to be on guard: It means a house is being marketed as environmentally friendly and energy-saving when it doesn’t really deserve that description.

Greenwashing is a growing issue in real estate as multiple studies demonstrate that consumers are attracted to — and will often pay premiums for — homes that are highly efficient in saving on utilities bills.

Just about everybody likes the concept of green, and builders and real estate agents increasingly use the term as a sales come-on. But experts say too often what’s marketed as green isn’t what it purports to be when you take a close look.

Sandra Adomatis, an appraiser in Punta Gorda, Florida, who is nationally known for her expertise in valuing green properties, says “look in the MLS (multiple listing service) and you’ll see lots of homes listed as having green features” but it may mean as little as “somebody put in some LED light bulbs or a couple of Energy Star appliances in the kitchen.”

In an interview, Adomatis described one listing she saw recently on a home built in 1959. It indicated that the house had a Home Energy Rating System (HERS) score of zero — as good as you can get. (The HERS index measures a home’s energy efficiency and requires testing of the home’s performance by a certified HERS rater. The lower the score, the better.)

Adomatis knew it was unlikely that an older home would come anywhere close to such an impressive rating, so she asked the listing agent why she was marketing the house with a zero HERS score. Her response: “I don’t know what HERS is or how they score, so I just put in zero.” Wow.

Allison A. Bailes III, founder and president of Energy Vanguard LLC, a home energy rating and consulting company based in Decatur, Georgia, says “absolutely, [greenwashing] happens all the time. A lot of [builders] are doing things that are just standard,” but they’re marketing them as green. He says he saw one company aggressively advertising its allegedly green homes, but most of the details didn’t amount to much. It was hype: Insulation R-values that met, but did not exceed, minimum local building code requirements; code-minimum HVAC systems; “digital thermostats,” which are commonplace; Energy Star appliances; and a long list of other unremarkable features. As to Energy Star appliances, Bailes noted in a blog, “if you’ve done any shopping lately, you may have noticed that it’s hard to find one that’s NOT Energy Star certified.”

Kari Klaus, CEO and founder of Viva Green Homes in Arlington, Virginia, a national listing portal exclusively for “eco-friendly” homes, says “greenwashing is a growing problem — clearly there’s a desire to jump on the train and use buzzwords” like “green,” “sustainable” and “high efficiency,” too often with little to back up the claims. Her website (www.vivagreenhomes.com) carries free listings for certified (HERS, LEED, Energy Star, Built Green, Net Zero and others) as well as non-certified homes that have some green features such as solar panels, geothermal, energy-efficient windows and doors, water conservation devices, etc.

When non-certified homes are listed on the site, the seller or agent must check off boxes indicating what green features the property offers. The site then produces a “Green Score” ranging from one to five stars to give potential purchasers a rough idea of how green the house really is.

The site also allows visitors to shop for specific features or high ratings area by area.

So how can buyers and shoppers recognize a bona fide green house? Adomatis says you need to look for six essential elements:

Changes in tax law may prompt homeowners to other states

By https://www.washingtonpost.com/people/kenneth-r-harney/ Kenneth R. Harney December 6

Whether you already own a home or are thinking of purchasing, the tax legislation pending before Congress poses serious questions: Am I going to get smacked with punitive new taxes? Will the value of my home decrease because previous real estate tax benefits have been stripped away? Or am I one of the lucky ones, well insulated against big losses?

Prospective buyers such as Matthew Wie and Joe Weber already have figured some of this out and are taking defensive steps. Weber owns a house and lives with his family in the San Francisco Bay area, and Wie owns a home in Delaware. Both are looking to move and are considering shifting their home searches to locations where they will be less exposed to tax increases triggered by the new legislation.

https://www.washingtonpost.com/news/fact-checker/wp/2017/12/04/the-gops-100 00-cap-on-property-tax-deductions-and-how-it-affects-one-congressional-distr ict/> The GOP’s $10,000 cap on property tax deductions and how it affects one congressional district

Weber told me in an interview that as residents of California, he and his family face a dilemma: If the final federal tax bill slashes deductions of state and local taxes (SALT), purchasing a new home in high-tax California will be significantly more expensive.

“I’ll only be able to afford less,” he said, with presumably a lower price tag and less space than he and his family could obtain elsewhere. So the Webers are seriously thinking about expanding their home search to either the Reno, Nev., area, where taxes and prices are much lower and where Weber has identified good school opportunities, or Seattle.

Wie and his wife and daughter are contemplating a similar scenario – moving from Delaware to Pennsylvania. “We’re relatively high earners,” Wie said in an email, “so the flat 3.07 percent Pennsylvania [income] tax would benefit us more than the higher property taxes or [the federal] tax change would hurt us.” Wie’s wife’s employment location and local school quality also are key considerations.

https://www.washingtonpost.com/realestate/portions-of-senate-tax-bill-are-h arsher-on-homeowners-than-the-house-proposal/2017/11/14/9bb04aec-c8b6-11e7-8 321-481fd63f174d_story.html> Portions of Senate tax bill are harsher on homeowners than the House proposal

Wie and Weber participated in a national survey of 900 prospective home buyers conducted by real estate company Redfin. https://www.redfin.com/blog/2017/11/a-third-of-homebuyers-will-consider-mov ing-to-another-state-if-salt-deductions-are-eliminated.html> The survey found that 33 percent of people who expect to purchase within the coming 12 months say they would consider moving to a different state if Congress eliminates SALT deductions. The Senate- and House-passed tax overhaul bills would https://www.washingtonpost.com/news/fact-checker/wp/2017/12/04/the-gops-100 00-cap-on-property-tax-deductions-and-how-it-affects-one-congressional-distr ict/?utm_term=.2cdfa9ea3656> cut maximum SALT deductions to $10,000 and limit them to property taxes only.

Other matters for owners and potential buyers to consider:

● Home values impact. Although no independent or academic studies have been published estimating the effects of the new tax legislation on home values and prices, most studies to date have concluded that federal tax benefits are a component of property values. Strip these away and buyers will not obtain the full traditional financial benefits of ownership, and they will pay less for homes.

Economists at the National Association of Realtors estimate that https://www.washingtonpost.com/news/business/wp/2017/12/02/trump-waffles-on -corporate-tax-rate-demand-central-plank-of-gop-tax-plan/?utm_term=.3f1ab954 1a91> the tax changes could whack 10 percent off average prices around the country, with declines steeper in states with higher home costs and tax burdens, lower in areas with more moderate prices and taxes. The flip side of all this, of course, is that if prices do decline, that will make purchasing a home more affordable – potentially good news for renters and move-up buyers priced out of the current marketplace.

● Tax-free capital gains exclusion. Under the legislation, https://www.washingtonpost.com/realestate/portions-of-senate-tax-bill-are-h arsher-on-homeowners-than-the-house-proposal/2017/11/14/9bb04aec-c8b6-11e7-8 321-481fd63f174d_story.html?utm_term=.6768f24e662d> owners will still be able to “exclude” up to $500,000 ($250,000 for single filers) of gain on their home sales. But to qualify, they will need to have lived in their house for five of the preceding eight years; for decades, the standard has been two out of the preceding five years. For many buyers who own homes for extended periods, this change won’t matter. But for others it could pose problems, especially for people who transfer jobs in less than five years and owners forced to sell because of divorce, health or other issues.

● Mortgage interest, second home deductions. As of this writing, House and Senate conferees had not agreed on https://www.forbes.com/sites/kellyphillipserb/2017/12/03/from-tax-rates-to- deductions-comparing-the-house-senate-bills-to-current-law/#788dde9673b0> whether to cut the home mortgage interest deduction maximum to $500,000 or to eliminate interest write-offs on second homes. Both are only in the House version and would primarily affect upper-income owners.

So where does all this leave you? It depends on what you own, where you live, what you earn and what you may want to buy. Overall, the Republicans’ tax changes look like a net plus for corporations and stockholders but a net negative for people who have benefited the most from the tax code’s longtime preferences for homeownership over renting.

Less-stringent standards open options for home buyers

Kenneth R. Harney on Dec 1, 2017

WASHINGTON – Here’s an important question for anyone hoping to buy a home next year but who isn’t quite confident about qualifying for a mortgage- Is it true that lenders have eased up on certain key requirements, making it simpler for first-time buyers and others who can’t pass all the strict tests to get approved?

The good news answer is yes. A recent survey of banks and mortgage companies by giant investor Fannie Mae found that a record number of lenders report that they have relaxed at least some requirements for mortgage clients.

In recent months, standards on debt-to-income ratios, minimum down payments and student loan debt have been made less stringent. Both Fannie Mae and fellow mega-investor Freddie Mac – who are key to the mortgage market because they set the guidelines and buy vast quantities of the mortgages originated by banks and mortgage companies – have taken steps to accommodate a wider swath of home buyers.

Debt-to-income changes are at the top of the list. Under previous rules, your total monthly debt load could not exceed 45 percent of your monthly household gross income. Under the new rules, your total monthly debt can now go to 50 percent. With Federal Housing Administration (FHA) loans, you can push it even higher – 55 percent or 56 percent – provided that other aspects of your application are strong.

The net effect of the debt ratio policy change? “This is huge,” Paul Skeens, president of Colonial Mortgage Group in Waldorf, Maryland, told me last week. “It makes it much easier for a lot more people to qualify.” Often they’re younger buyers carrying the typical burdens of starting new households along with heavy student debt. They’re also families who’ve survived challenging economic times and are paying off lingering credit card balances and other bills.

Fannie Mae’s recent change in the way it handles student loans for calculating debt ratios is another big deal. In cases where mortgage applicants are covered by income-based reduced-repayment plans, and their artificially low payment is listed on their credit reports, lenders now have the option of qualifying them on the basis of that reported amount.

About 5 million Americans participate in reduced-repayment plans. Under previous rules, lenders were forced to impute payment terms for borrowers using these plans. Even when credit reports indicated the borrowers were paying little or nothing, lenders computing debt ratios were required to factor in monthly payments equal to 1 percent of the outstanding balance on the student debt. Say the reduced repayment plan cut the required payment to $75 or to zero. Instead of adding 1 percent of the student loan balance to the applicants’ monthly debt calculation, lenders can now use the actual amount being paid under the plan – zero if the credit report says zero.

Down payment minimums also have been slashed, with many lenders now requiring just 3 percent down on conventional mortgages. FHA still requires 3.5 percent. A handful of lenders are offering 1 percent or zero-down conventional loan options, where they provide gifts – guaranteed non-repayable and no hike in interest rate or fees – for certain borrowers, typically those with solid credit histories. One large Midwestern bank made a splash last month with a zero-down mortgage plan that also includes a gift of up to $3,500 toward closing costs.

What about credit scores? Any easing going on there? Not so much, but you have to look below the surface of the reported statistics to see what’s really happening. Though the average FICO credit score for home purchase loans at Fannie Mae and Freddie Mac in October remained near where it’s hovered for years – an elite 754 – the reality is different. According to Ellie Mae, a software and analytics company that tracks terms on new mortgages, nearly one-third of purchase loans closed at Fannie and Freddie in October carried FICOs below 700. Twenty percent had FICOs between 650 and 699. And a small but noteworthy few (0.64 percent) even had scores below 600.

The takeaway- Be alert to the changes underway. Standards are not necessarily as strict and exclusive as you may assume. It all depends on what your application looks like in total. If you’ve got solid “compensating factors” – maybe a low debt ratio or higher than typical down payment or reserves – your sub-par credit score may not be the deal-killer to a home purchase you assumed it would be.