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Three tips for buying a home on shaky credit

Geoff Williams — 2008-05-13T16:30:00+00:00

Filed under: Borrowing, Debt, Home, Real Estate

It's a buyer's market, they say. You can get a house for a really low amount of money, they say. In fact, they say, it's a wonderful time to purchase a home.

(Who are they? I'm not sure, actually. But I know that they say this sort of thing a lot, and besides, it's a useful device we writers employ when we don't quite know how to begin writing.)

Anyway, I've been wondering -- with banks tightening their policies for lending and being reluctant to give anyone a loan, is it really a buyer's market if people aren't given home loans so they can buy?

Ernestine Crews is the founder and president of eCrews Enterprises, which is what she calls a wealth building academy and opened last month. And Crews, who hosts "The Road to Wealth and the Guide to Financial Freedom" on KLSX-FM in Los Angeles, says, "The easy lending with low FICO scores -- the party is over. If you don't have prestige 700-plus credit, you're going to have a difficult time."

Well, sure, tell me something I don't know.

But then she did.
Tip #1
If you have credit as low as 580 and are having trouble convincing a bank to give you a home loan, sometimes you can offset your low score if you have enough in reserve in your 401K. (I'm not saying it's a great idea to use your 401K as a way to pay for your house, and Ms. Crews isn't either. Just that it's an option and possibly a bad one. I can just picture my fellow blogger and ultra-responsible accountant Tracy Coenen starting to write me a stern note right now.)

Tip #2
Ms. Crews also says that if you can offer a large down payment, of at least 20% down, and verify your income with W2's, "there are hard money lenders who are non-traditional and their guidelines are more lenient, but may accept lower FICO scores." But she warns that by taking out what is literally called hard money loans, you'll walk away with a higher interest rate, a prepayment penalty and a choice between interest only or a fixed rate loan. In other words, an option, but again, not a great option.

So what can you do, if you have shaky credit, but a good job, and you really want a home? You're probably not going to like it, but...

Tip #3
Wait it out, suggests Ms. Crews, adding, "This is a good time to spend time now, learning how to enhance your credit."

Her advice is a wee bit self-serving, since that's what eCrews Enterprises does. They offer classes on wealth management and teach people how to improve credit scores. Still, self-serving or not, it's probably the best advice out there for someone who is almost, but not quite, ready to buy their own home. After all, not waiting to improve their credit is how a lot of people got into this mess in the first place.

Geoff Williams is a business journalist and the author of C.C. Pyle's Amazing Foot Race: The True Story of the 1928 Coast-to-Coast Run Across America (Rodale).

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Suze Orman answers financial questions from consumers

Tracy Coenen — 2008-05-11T10:00:00+00:00

Filed under: Borrowing, Cards

Suze Orman knows what she's talking about when it comes to personal finance issues. She's written several books about finance, and she made Time Magazine's top 100 most influential people in the world this year because people are listening to her!

She answered some common questions on The Today Show this week. Watch the video below for some "tough love" answers to questions like:

Is it bad to have a lot of credit card accounts?
I have student loans and credit card debt... can I buy a house?
What's the difference between a Roth IRA and a traditional IRA?
Should parents co-sign on a car loan for their child?

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.

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Where's my economic stimulus check?

Julie Tilsner — 2008-05-09T14:00:00+00:00

Filed under: Borrowing, Budgets, Debt, Shopping, Tax, Relationships

I hate sitting by the phone, so to speak, but my mail carrier came and went today and there is no sign of my economic stimulus check.

I was a loud and bitchy critic of the economic stimulus plan from the start. It always seemed more politics than fiscal responsibility (but then when was this Republican administration ever about smaller government and fiscal prudence?). What's $600 going to do for the average debt-burdened consumer? Buy a month of groceries? Notch down one credit card? Yeah, I rolled my eyes and ranted and raved.

And then I figured out that I would be getting $1,800. That's $1,200 for being married and filing jointly, and $300 for each kid. My husband and I looked at each other sheepishly. Then we launched into the Happy Happy, Joy Joy dance.

According to the IRS, I should be receiving this windfall no later than today, May 9. This, I gleaned from the site, because of the last two digits of my Social Security number, the fact that I filed electronically in March and had my return direct deposited into my account.

And so we waited. "You'll probably see it earlier," my husband told me. "There were news reports that the first wave of people got theirs earlier in the week than expected." He then optimistically did his part for the economy by spending his half on a new laptop, since his old one had just died.

"President Bush thanks you for being a good American" I sneered. Then I went out last weekend and let myself get carried away at the mall, spending $160 on clothes I wouldn't otherwise have spent, all because I knew my economic stimulus check was coming the next week to cover me.

But where is the money? As a freelance writer, I'm used to the proverbial "check is in the mail" waiting game. But I also know that radio silence is cause for suspicion. So this morning I went back to the IRS site, and clicked on its tool, "Where's my stimulus payment?" I plugged in my information.

I don't expect much when it comes to forthcoming government information. But hope springs eternal. Alas, up pops this message: Not any information on this taxpayer."

Then I notice this cryptic note, "If filing or preparation fees were deducted from your 2007 refund, or you received a rapid refund, you will be receiving a check instead of a direct deposit."

So...the $30 electronic filing fee I paid Turbo Tax means I won't be getting my money today? That's the first I'd heard of that stipulation. I check the paper check payment schedule.

June 20.

I feel a little like a jilted date. He said he'd call and he didn't. Really, I should know better by now. Monies promised should never be anticipated or waited on. And I'm feeling a little foolish because hey, I thought this was a bad idea to begin with. That didn't stop me from quickly spending more than was in my budget though. I guess that makes me a "better" American than I thought I was.

So have you gotten your stimulus money yet? What are you doing with it. Really...

Ideas for spending your stimulus check:

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Stimulus check sales

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Tricks credit card companies play: Seven to watch out for

Ken and Daria Dolan — 2008-05-02T16:00:00+00:00

Filed under: Borrowing, Cards, Debt, Saving, The Dolans

Folks, we might have a new winner in the contest for the most hated consumer industry. For years, the hands-down winner was car dealers.

But we think that credit card companies are giving them a serious run for their money!

Most credit card companies are downright ingenious when it comes to cooking up sneaky new credit card fees and dirty tricks that take more money out of your pocket. If you've had enough, keep reading because today we are going to reveal seven of the industry's dirtiest tricks. We hope this list will help you protect yourself, slash your costs and be credit card smart.

Dirty Trick #1: Say "Bye-Bye" to Your Grace Period

No grace period means that you'll start accruing interest the moment you charge something. That can cost you a bundle of "extra" interest.

Most credit card issuers have already reduced their grace period from 25 days to 20 days. Many others have eliminated the grace period altogether. Now they are coming up with more and more reasons to take away your grace period. Miss a payment? Stop carrying a balance? Bye-bye grace period!

Dirty Trick #2: Punishing you when you are credit smart.

If you want to see my beautiful wife throw a complete fit, just mention any of these scandalous fees in her presence! These fees are the lowest of the low because they penalize you for being a responsible credit card user.

Some of the biggest offenders include charging you a fee for:

Closing your account
Failing to use a card for a period of time (such as six months or a year)
Not carrying a balance (how DARE you!)
Every transaction each and every time that you use your card

If your card charges you any of these fees, it's time to look for a new card! Click here for our tips on how to find the best card for you.

Dirty Trick #3: Doing you the "favor" of sending you "convenience" checks.

Credit cards often send you "convenience" checks so that you can write checks against your credit card account. Isn't that nice of them? Please!

DON'T do us any "favors"!

What they bury in the fine print is that these checks usually carry very high interest and fees -- even higher than regular credit card charges. Some cards also give you no grace period on convenience checks, so you start paying interest from the day you write the check! Shred these little "gifts" whenever they arrive.

Dirty Trick #4: Psst... Hey, buddy, want to skip a payment?

In their infinite generosity (ha!), some cards will "invite" you to skip making a payment. This "helpful" offer, which sounds great at first blush, often comes after the holidays when your balance is big and your wallet is feeling stretched. DON'T DO IT!

Skipping that payment can lead to a host of trouble -- from a higher interest rate to possibly having to make extra payments in the future.

Are you starting to notice a pattern? You should be skeptical whenever your credit card company does something "nice" for you without you asking for it.

Dirty Trick #5: Lowering your minimum payment due.

Another way some cards try to jack up their profits and lure you deeper into debt is by lowering the minimum payment due on your balance. It used to be cards required a minimum monthly payment of about 4% of your balance, but many now require as little at 2%. Don't fall for it!

Going from a $40 payment to a $25 payment on a $2,500 balance means it will take you an extra 19 months to pay off the debt.

Dirty Trick #6: It's 5 o'clock... Do you know where your payment is?

We all know that our payment is due on a certain date or it's late, right? But a new twist being thrown into the mix is having your payment due by a certain time on the due date. If your payment is due at noon and gets processed at 12:01, you get socked with a late fee AND likely a higher interest rate.

Gimme a break! Carefully check your statement so you avoid this trap.

Dirty Trick #7: "Over the limit" fees

Credit cards charge you a hefty fee for going over your credit limit. Look, we don't have a problem with penalties for that. But now these fees have gotten excessive -- almost $40! Plus, credit card issuers don't exactly discourage you from going over your limit when they approve charges and balance transfers that put you over your max.

Dolan Smart Credit Moves

So there you have it: Seven tricks and traps you now know how to avoid. But credit card companies will keep dreaming up new ones. So here's the bottom line on how to protect yourself:

Don't sign on with a card until you have a list in writing of all fees that the company charges. You can find these in the small-print section of your credit card application. Or, if you apply online, you will have to agree to all of the terms and conditions as part of your sign up process. You can always call the company, too. Whether in print, online or on the phone, read carefully before you agree!

Also be sure to actually read any notices your credit card company sends you about changes to your card agreement. That's your chance to catch any changes before they come back to bite you.

For more tips on being credit smart and successfully managing your debt, visit Dolans.com.

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Tell George Bush I have his economic stimulation package... right here

Gary E. Sattler — 2008-05-01T17:30:00+00:00

Filed under: Borrowing, Debt, Shopping, Tax

If George W. Bush wants to do something to stimulate the economy and cement a positive legacy for himself, I have his magic solution right here. If he could get this done, he'd salvage his entire presidency. I'll warn you right up front though, Democrats won't like this idea. So, if you are of the progressive socialist ilk, you may want to move to the next blog post right now. Here's my plan.

If even only temporarily, we need to make the interest charged on consumer debt tax deductible. If I'm not mistaken, didn't they do away with that consumer perk sometime in the mid seventies? If I'm right, and that was part of the old tax code, we should reinstate it immediately. If it's a new and original idea of my own, please leave a dollar in the hat on your way out.

By making consumer credit interest charges tax deductible (again), we'd get an economic triple play. First, consumers would get excited knowing they could finance stuff again, Second, they'd get those interest charges back as tax credits. Third, banks could get a helping hand because consumers might step up their borrowing activity again. The government would just have to bite the bullet and tighten it's belt.

There are only two facets to this plan which would require some serious attention in order to make it work. First, we have a majority of society which needs to be schooled in responsible credit usage. That means we have to teach them how to understand budgeting and what it means to over extend yourself. Second, we need a complete overhaul of the tax code from top to bottom. In fact, the enactment of a "Fair Tax" system might render this entire blog post moot.

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Payday Lending, Part III: Will loan caps bring the return of the neighborhood loan shark?

Geoff Williams — 2008-04-30T12:00:00+00:00

Filed under: Borrowing, Debt

Some time ago, a woman wrote a letter to The New York Times, explaining how her life had been pretty much ruined by a loan shark.

She had borrowed $50 when her daughter was sick and had to pay three consecutive monthly payments of $22. It began a cycle where she wound up broke and then foolishly went to another loan shark. She eventually lost her job (the loan shark went to her boss when she couldn't make a payment), and finally began working at a new place of employment for a very small salary and naturally couldn't pay the loan sharks she owed money to. She ended her letter by noting that "the blood-suckers are hounding me to death."

She signed her letter, "Helpless."

The year was 1908. One hundred years ago.

Today, that same letter could easily be written, only with the words "payday lending store" in place of "loan shark." That said, a payday lending company may telephone a home relentlessly, trying to get their money back and then some. They may sue a person in court. They may help make life miserable for some people, decimate their credit score, send them into bankruptcy and financially ruin them for years to come, but at least they can't legally send someone to appear in your doorway and threaten your health, or stalk your boss.

Borrowing money with interest rates you can't afford is still a poor idea -- pun intended -- but at least predatory lending offers a safer option out there than loan sharks.

Payday lending stores started to swell in the early 1980s when many banks, angling for better profits, moved out of poorer neighborhoods. That's when the industry truly started to come into its own. It also didn't help when, in 1979, laws were loosened governing interest rates on loans. Before 1979, every state loan capped how high an interest rate could go.

Arguably, the predatory loan industry can evolve even more beyond not breaking people's legs -- much, much more. On the other hand, with 13 states having banned or virtually eliminated the payday loan practice, and many others looking like it may, one has to wonder if this path is just going to take us back where we started. Sure, plenty of people abuse the system, but I half wonder if this will just encourage anxious, occasionally-cash-strapped citizens who feel helpless to someday do something they never dreamed of doing -- like meeting a loan shark in a dark alley.

Geoff Williams is a business journalist and the author of C.C. Pyle's Amazing Foot Race: The True Story of the 1928 Coast-to-Coast Run Across America (Rodale).

Payday Lending Part II: the state of the industry today

Geoff Williams — 2008-04-30T10:00:00+00:00

Filed under: Borrowing, Debt

In the last year, there has been a lot of movement afoot in state governments to either quash payday lending establishments or at least force them to bring down their interest rates. Here's a quick snapshot of how things are going -- or not going.

California: Earlier this month, just as legislators were going to vote on a bill that would have forced payday loan stores to cap their annual interest at 36%, they pulled back. That would have effectively meant that for every $100 a consumer borrowed, he would only have to pay back that $100 plus $1.60 within a two week period.

Oregon: Last July, a 36% annual cap was put on the payday lending industry, and 80% of the stores closed up and went out of business.

Illinois: In 2005, the state put forth many regulations for payday loans under 120 days. So lenders stopped issuing short-term loans and went for loans longer than 120, meaning their customers wind up paying more and going into more debt.

Ohio: They're currently trying to pass House Bill 333, which would do what California was trying to do.

Georgia: Since 2004, payday lending has been a felony. North Carolina has also banned the practice. All in all, there are 13 states in America that have banned or virtually wiped out the industry in their own states: Oregon, Arkansas, Connecticut, Georgia, Maine, Maryland, Massachusetts, New Jersey, New York, Pennsylvania, Vermont and West Virginia. They're also illegal in the Virgin Islands and Puerto Rico.

And our neighbors to the north? Just as the payday loan stores are popping up everywhere in Canada, partially due to the influx of Americans going north to get cash, many provinces like Ontario are looking into legislation to regulate the industry.

Geoff Williams is a business journalist and the author of C.C. Pyle's Amazing Foot Race: The True Story of the 1928 Coast-to-Coast Run Across America (Rodale).

Recession watch: My first payday loan

Geoff Williams — 2008-04-30T09:00:00+00:00

Filed under: Borrowing, Recession

This post is part of a series about real-life signs we're in a recession.

For years, I've lived by a couple rules. For instance, I never eat yellow snow, and I never step foot inside one of those payday lending establishments.

Well, at least my yellow snow rule is still intact.

Like many Americans, I've never had a high opinion of payday lending loan establishments, but earlier this year, utterly broke, I finally broke down. My reasoning was that I'd rather take out a few hundred dollars from a payday loan place than ask my parents for money, something that really loses its appeal after the age of, say, 25, let alone when you're 38. And the last thing I wanted to do was to try to play a cat-and-mouse game with my bank called, "Write a check to the store and hope it's not cashed for awhile."

So I confess. Earlier this year, for the first time in my life, I went to a payday loan place. But I only did it once. Well, twice.

OK, four times.I don't know if this a sign that I'm part of this unofficial recession or not. After all, as a freelance writer, not getting paid is nothing new. Even during the best of times, some publications seem to make paying the writer for their work their last priority. What I do know is that as lousy as the payday lending industry's reputation is and as distasteful as their interest rates are, I was glad to have the option of going to a payday lending store when I needed one (if you need to do it, here's how).

That, however, may not be the case much longer. Payday lending establishments are being put under the microscope by a lot of state governments lately, and there's a lot of talk of trying to regulate them out of existence.

Once upon a time, I would have said, "Good riddance, get rid of them, all of them." I have a relative who has a history of going to these payday loan places, and he put me down as a reference without warning me first, and so when he was late (repeatedly), guess who was called? There's no question in my mind that payday loan stores can be to debt-riddled people what the tar pits were to dinosaurs.

And yet -- I'm finding myself rethinking all of this and wondering if perhaps the credit card industry and banking industry should be examined more thoroughly first, since those are generally the first places where Americans tend to get into financial trouble. After all, a lot of people use payday loan stores, and it's likely happening now more than ever. Nationwide, in fact, Americans pay about $5 billion a year to borrow more than $40 billion from payday lenders. So if payday lenders are run out of town, what will happen to people who feel like these places are their last options?

Geoff Williams is a business journalist and the author of C.C. Pyle's Amazing Foot Race: The True Story of the 1928 Coast-to-Coast Run Across America (Rodale).

Payday Lending, Part I: if you have to do it, how to do it

Geoff Williams — 2008-04-30T08:00:00+00:00

Filed under: Borrowing

Admitting that I took out a payday lending loan isn't exactly something I'm proud of. I imagine it ranks down there with confessing to friends that you took your sister to the prom.

But since I'm admitting I became a payday loan customer earlier this year, I thought I'd give everyone a sense of what to expect if you find yourself in a similar situation. Hopefully what I'm about to tell you will help you know what you're in for.

How to know where to go: I'm not an expert on this, having only gone to one place, but I simply looked through an online phone book and picked out a national payday lending establishment that had a branch within a few miles of my house. I know that there are online payday lenders with no brick and mortar stores, but I know nothing about them, and I figured if I was going to wade into the sleaze, let's make it the most reputable, nationally-known sleaze possible.

What you need to bring: Well, photo ID for starters. I'd call ahead first and ask, since every establishment is different, but chances are, you'll just need your driver's license and some recent pay stubs to show that you're gainfully employed. If you're self-employed, it's more difficult to borrow but still possible. Again, you need proof of income, quite a bit more proof than an employee with a boss and a W-2.The money: You've probably heard that borrowers typically face annual interest rates of 350-650%, and, yes, this is true in the technical sense, but you're not borrowing money for a year, so that's a little misleading. You're borrowing cold hard cash that you're expected to pay back within two weeks. Basically, for every $100 you're given, you will owe the payday lender around $15 to $30. And so when I borrowed $300, I knew that two weeks later, I would owe $345.

That $45 is 15% and, indeed, it's a risky gamble, in the sense that if you're only going to receive, say, $600 in the next two weeks, you already know that over half that paycheck will go back to the payday lending establishment. Consequently, your odds of having to go back to the payday lending store certainly increase. If you're caught in a cycle of debt, and you know you can get a payday loan pretty quickly, it seems crazy not to go get the money -- and equally crazy to go and get the money.

How the transaction is handled: At least at the place I went to, I wrote a check for $345. If I had felt comfortable paying the money back anytime within two weeks, if I had wanted to, I could have gone back to the payday loan establishment and given them $345 in cash and "bought" my check back. Otherwise, you let the check go through.

More about the dangers: As financial experts will tell you, these places are a debt trap, and I briefly fell into it, as I feared I would. Within the span of two months, I went four times to get a payday loan because, of course, every time they took their money back, $345 disappeared from my bank account. Plus, I had experienced the zeal of receiving cold hard cash when I needed it. The first time had been hard going in; the second and third time, not so much. But on each occasion, I had the choice between putting cash in my bank account or letting it possibly slip into overdraft territory, and I'm convinced that the $180 in interest that I paid outweighed the benefits of being hammered by bank fees. Still, over the course of two months, I paid $180 to receive $1,200 of my money earlier than it was coming to me. Again, that's 15% of those wages. Or to look at it another way, since I constantly was borrowing to reclaim the $300 that I kept giving back to the payday loan store, you could argue that it turned out to be around be closer to the neighborhood of 50% interest. So I'm not about to suggest that this is a great financial plan for the long-term.

Going into the payday loan place: I hate to admit it, in a way, but everyone was very nice. Sweet, middle-aged women behind the counter. No thugs by door, looking like they might break my kneecaps should I not be able to come up with the money on time. It was a clean, quiet lobby, though it was nowhere near as professional and bank-like looking as they'd have you believe in some of the TV commercials I've seen. And I'd be lying if I didn't admit to feeling a sense of relief and gratitude when I was given the money, and when my check safely sailed through each time.

In essence: These are nice enough places to visit, but it's the type of place you hope you'll never, ever have to visit again.

Geoff Williams is a business journalist and the author of the well-reviewed (but obviously not a bestseller) book, C.C. Pyle's Amazing Foot Race: The True Story of the 1928 Coast-to-Coast Run Across America (Rodale).

Debt Smarts: Credit scores and their myths

Lita Epstein — 2008-04-25T16:30:00+00:00

Filed under: Borrowing, Cards, Debt

Lita Epstein is WalletPop's resident credit score expert. Write to her in the comments box below.

Many of the questions I receive relate to credit scores and how to improve them. There are many myths out there which I debunk below, but first let's take a look at what a credit is and who creates it. Actually there isn't just one type of credit score. The primary driving force behind most of them though is the Fair Isaac Corporation, known by most as FICO.

Each of the three credit reporting agencies has a score developed by FICO. Equifax's is called BEACON, TransUnion's is called FICO Risk Score and Experian's is called FICO II. Each one is tweaked slightly differently, so you'll find your credit score is not exactly the same at each agency, but scores are usually within 20 points of each other. If you find a greater difference, one or more of the credit agencies probably have inaccurate information in your credit file.

In addition to these three types of scores, there are new scores from Fair Isaac called NextGen. The names given to these new scores are Pinnacle (Equifax), FICO Risk Score (Experian) and Risk Score Next Gen (TransUnion).

That's not all. In addition to these scores there is scoring done for insurance companies and others designed for different types of businesses that set up a different set of parameters they want monitored. Insurance companies believe that people with a low credit score tend to file more claims, so in many states your insurance premiums can be higher if you have a low credit score.

So what goes into these scores? Generally your payment history has the greatest impact. For the three key credit reporting agencies, payment history accounts for 35% of your score. The next largest piece of the credit score pie is the amount that you owe, which accounts for 30% of your score. Next in line is credit history, which makes up 15% of your final score. Applications for new credit and types of credit in your record each account for 10% of your score. So 65% of your final score is impacted by whether or not you pay your bills on time and how much you owe.

Here are some of the common myths that need debunking:

Myth 1: Lowering your credit limits can help your score

Myth 2: Close cards to improve your score

Myth 3: You must pay in full to get a good score

Myth 4: Shopping for the best rates can hurt your score

Myth 5: Checking your credit score can hurt your score

Myth 6 : Credit counseling hurts more than bankruptcy

Myth 7: Putting a statement in your credit file can help your score

The most important thing you can do to improve your credit score is to be sure your credit report accurately reflects your credit history. If you don't know, get a free copy of your credit report from each of the credit reporting agencies. If you see any errors take the time to correct them.

Lita Epstein is the author of more than 20 books including the "Complete idiot's Guide to improving Your Credit Score."

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Home equity lines being frozen

Tracy Coenen — 2008-04-22T09:30:00+00:00

Filed under: Borrowing

Many homeowners have a home equity line of credit (HELOC) available to them. Some have used the equity lines to make improvements or consolidate debt. Others have not used their line of credit, but keep it open in case of emergency of for renovations down the road.

But Money Magazine is now reporting that some lenders are canceling or freezing HELOCs without any warning to consumers. The logic behind freezing the lines of credit is simple: Lenders are trying to limit losses related to real estate in the wake of the subprime meltdown. No doubt that this type of action may leave some homeowners disappointed, however. Some may be well into the process of planning a remodeling project, and the loss of a HELOC may put a stop to those plans.

Experts say that you should take a look at the real estate market in your area. If real estate prices have fallen by 10% of more in the last year, you might be at greater risk of having your line frozen. You might also be at greater risk of a freeze if you bought your home with little money down. Lenders simply want to cap their risk on your home.

If you do think you're in risk of having your line frozen and you need that money, you may want to draw off the line sooner rather than later. Then again, maybe a freeze on your HELOC is exactly what you need to make you reconsider home improvements or other major purchases. It's probably not a bad idea to wait until the housing market stabilizes before you increase your indebtedness.

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.

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How to reach executive customer service at Sallie Mae

Josh Smith — 2008-04-17T14:30:00+00:00

Filed under: Borrowing, College, Simplification

Sallie Mae is a huge student loan company, and often times it can be difficult to get routed to the correct department to straighten out your loan issue.

Earlier this week I shared a simple plan for using your congressman to resolve student loan issues at any company, but today I'd like to share a way to get satisfaction if your issue is with Sallie Mae. The executive customer service department at Sallie Mae is known as the "Consumer Advocate Unit" and from my experience, is staffed with small group of knowledgeable and friendly people.

Both our congressman and our attorney general referred us to the consumer advocate unit, where we were given one point of contact. If this person was out of the office, whoever took our call would literally walk over to his desk and grab our file in order to help us out. On more than one occasion they called another lender on our behalf to arrange for the consolidation of loans away from Sallie Mae!

You can reach the consumer advocate unit at (888) 545-4199. Please use this number responsibly, and remember these people are empowered to help you. Treating the caller with respect and kindness, no matter your previous experiences with Sallie Mae, will greatly benefit you in the long run.

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Mortgage Confidential: How to compare mortgage closing costs

David Reed — 2008-04-14T16:04:00+00:00

Filed under: Borrowing, Real Estate, Ripoffs and Scams, Saving, Mortgage Confidential

Mortgage expert David Reed invites Walletpop readers to ask him questions about real estate financing. leave your questions in the comment section of this post.

When comparing mortgage companies to try and find out who has the best deal, one is encouraged to ask for a "Good Faith Estimate of Settlement Charges," or simply, a "Good Faith," from each competing lender.

One lender may have a lower interest rate but tacks on a whole host of fees to make up for the lower rate. While yet another lender might offer fewer fees in lieu of a lower rate. There are several problems associated with reading a Good Faith, but the biggest problem is trying to understand all those fees, who charges them and what they're for.

Sneaky loan officers can write up a competitive Good Faith, with low rates and low fees, not by low-balling their own mortgage company fees, but by underestimating charges associated with third parties such as attorney or title charges. Unwittingly, consumers can compare three different Good Faith estimates and look at the bottom line...how much is this going to cost me? Loan officers have no control over third party fees; they are what they are. But loan officers do control what's entered onto the actual Good Faith.

If all the consumer does is look at the bottom line and see one lender quoting lower closing costs than all the others, it's important to compare the non-lender fees being quoted as well. If one loan officer is quoting you $50 for an attorney charge while the other loan officers are quoting $500 for an attorney charge, then it's possible you're being intentionally low-balled. When you go to your closing you'll find out the attorney does in fact charge $500 and not $50 and your loan officer will say something like, "Hey, I have no control over what they charge" and you're forced into a closing you didn't expect.

When comparing Good Faith estimates, only compare lender fees such as processing or appraisal charges. If all you do is look at the bottom line, you could be misled.

Real estate finance expert David Reed is president of CD REED Mortgage Bankers in Austin, TX and author of Mortgage Confidential: What You Need to Know That Your Lender Won't Tell You and Mortgages 101: Quick Answers to over 250 Critical Questions About Your Home Loan.

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How to understand your credit score

Josh Smith — 2008-04-13T09:00:00+00:00

Filed under: Borrowing, Debt, Simplification

I find that some of the most educated and experienced people I know don't understand how credit scores are determined and maintained. It seems that this score which essentially controls your ability to achieve the "American Dream" is a mystery to most people. The slew of advice makes it even harder separate the wheat from the chaff. Thankfully the Today Show has provided some wonderful information to help inform consumers about their credit score.Having recently purchased a vehicle I can personally attest to how important it is to know your credit score when seeking financing. We mistakenly financed through the dealer and went through several rounds of negotiation during which they tried to say we had returned a C credit rating on their in house scale. Needless to say our credit score actually sat at the bottom of their "A" level even though they wouldn't admit it. We ended up refinancing with our local credit union saving a load of money on interest, fees and GAP even after any penalties associated with our dealer sponsored loan. As an additional take-away if your dealer tries to shaft you on the loan process it may be a sign they are also selling you a lemon, which is exactly what happened to us. The moral of the story is to know your credit score.

You will be in a much better financial state if you know your credit score and understand how your actions influence it. You can pull your credit report for free from each of the big 3 reporting agencies once a year at AnnualCreditReport.com but you'll need to pay to get your FICO score. Occasionally you can get this cheaper by visiting your bank rather than through third parties. For the love of god don't go to FreeCreditReport.com, if I have to listen to one more commercial featuring the guitar playing pothead lamenting his crappy job or car all while claiming that just knowing his credit score would help him, I'll throw my TV out the window!

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Mortgage Confidential: Should I pay off my mortgage or invest?

David Reed — 2008-04-09T18:30:00+00:00

Filed under: Ask WalletPop, Borrowing, Real Estate, Retire, Mortgage Confidential

Mortgage expert David Reed invites Walletpop readers to ask him questions about real estate financing. Leave your questions in the comment section of this post.

Q: I am 54. I currently have a 15-yr mtg. 10 yrs left as of this month. Should I consider refinancing to a 30 yr and using the 700+- to invest else where? 5 yrs to have enough equity in house vs. vs 45k in cash to invest in 5 yrs-
thanks. -Steve

A: Two things I noticed: Your current note is five years old, meaning you obtained your current mortgage in 2003 when 15 year rates were in the 4's. Second, in ten years you'll be close to retirement age. Without knowing anything else about your financial picture and assuming you're going to retire in that house, I would hold off from refinancing into a 30 yr mortgage, you'll be paying on that note until you're 84.

If you continue to pay off your current note and retire mortgage free that's like giving yourself an automatic "raise" when you retire. Instead, consider an equity loan on your current property and invest that. That's my take.

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Mortgage Confidential: Will part-time work help me qualify?

David Reed — 2008-04-08T18:30:00+00:00

Filed under: Ask WalletPop, Borrowing, Real Estate, Mortgage Confidential

Mortgage expert David Reed invites Walletpop readers to ask him questions about real estate financing. Leave your questions in the comment section of this post.

Q: David: I applied for a mortgage and got turned down because I didn't have enough income for the house I wanted. My loan officer suggested that I take out a part-time job to get me over the hump. I did get a part-time job but now the lender says they won't accept the part-time income after all. Who's right? The lender or the loan officer?

A: The lender. Unless you can show a two-year history of part-time employment a lender most likely won't use it. When a lender evaluates your loan application they want some sense of certainty your new part-time income is likely to continue well into the future to help you pay the mortgage. Without a history of part-time income, the lender won't be convinced of your intentions to work two jobs.

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Savers are screwed yet again

Zac Bissonnette — 2008-04-02T16:30:00+00:00

Filed under: Borrowing, Retire, Saving

With Ben Bernanke slashing interest rates in an effort to kick-start a slowing economy/housing market, it's worth looking at the victims of this policy -- even as the stock market cheers each rate cut.

The people who are getting screwed royally here are the retirees living off of fixed-income investments: it's a lot harder to get by when CDs are paying 2% than when they're paying 4%+, as they were not so long ago.

Let me sum it up this way: these interest rates cuts are helping out people who racked up debt and slashing the living standards of people who saved responsibly for years and counted on their savings to provide for them in retirement. That's wrong.

Financial guru Jim Rogers recently told Bloomberg that "Bernanke loves printing money. This man is a nut. The dollar is collapsing, commodities are going through the roof, which means inflation's going through the roof. These people are leading us to terrible problems down the line.''

Retirees on fixed incomes would probably be inclined to agree. The moral of the story here is that if you rack up credit card debt and buy a house you can't afford, the Fed will help you. If you save dutifully like your parents taught you too, you're on your own.

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To sell or not to sell or what to sell. That is the question.

Gary E. Sattler — 2008-03-31T11:00:00+00:00

Filed under: Ask WalletPop, Borrowing, Budgets, Debt, Home, Real Estate, Simplification, Wealth

Our man Abelicio Padilla has been blogging about his personal financial situation and he has been seeking advice for making sound money decisions. I wrote this piece as my input into his situation. If you'd like more background before you proceed, read Abelicio Padilla's interesting blog posts here.

Now here's my input:

It sounds like you have a plan Abe. However, I'd like you to think a little more about if you really want to sell that house. The market is down right now which means you probably won't get your best selling price for it. Also, did you consider that if you sell the house, you'll lose your mortgage interest deduction when you file your taxes? That deduction loss will cut into the monthly savings you expect to get by selling. Even though you won't notice it month to month, you'll feel it when you file your yearly income taxes. Consider also the upset that moving can cause. It's expensive. It will disrupt operations. In the long run It could cost you more than you think.As much as it may hurt you, I'd still suggest that you consider selling your Harley. Remember, they're still making them, you can buy another one some day. Is the bike regular transportation or is it just a pleasure ride? Think about it hard. If you sell the bike now, you can probably buy another one in a couple years. If you sell the house now it could be a very long time before you can buy another one. Is $300 a month worth that to you?

Stop stressing about your credit score. For right now, it is what it is. Keep on a path of responsible buying habits and the score will slowly take care of itself. Besides, if you already own a house and you're trying not to buy things that you don't need, what do you need a higher credit score for so soon? Ease up on yourself, be proud of what you have accomplished so far. Hug your wife and kids in your own home. Screw the credit lending companies. They have no idea what you're really worth to us anyway.

Finally, understand that most of the people in this country of ours live paycheck to paycheck just like you. Don't let that bother you for a second. If your plan is to do what it takes to earn next week's paycheck, no one can ask any more than that from you. Worrying about what MIGHT happen if you lose your job is just wasting your valuable energy. Forget about it. It might never happen. If it happens, you'll deal with it then.

So, here's the short version:

1.)Decide if you really, really, really need and want to sell your house.

2.) Decide if you really, really, really, need to keep that bike.

3.) Focus on being financially responsible and let your credit score take care of itself for now.

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The road to financial freedom...

Abelicio Padilla — 2008-03-27T16:10:00+00:00

Filed under: Borrowing, Budgets, Home, Simplification

So here's the deal. We're broke. Not poor, just broke. We live paycheck to paycheck and it's just rough. We can't live like this forever. It's not safe and just doesn't make sense. So we have to develop a plan. A plan for today, a plan for tomorrow.

What can we do to get out of this financial mess? I think it's obvious to state that I'm not a financial planner or expert by any means. What I'm planning is based off what I have read and been told and plain ol' common sense.

We can't save money if we don't have money to spend. So the first thing I have done is lowered our monthly bills as much as possible. I've only made a few changes but already I have saved us about $120 a month on our TV and cell phone bills. We are all working on using less electricity and gas to hopefully bring those bills down as well.

Our biggest bills, the bike, the house and the car aren't negotiable. Those will be around for a while and won't lower themselves. So we need to work something out on that. I don't think that lowering our bills is enough to help build our financial future. We need better credit to help out for the future.

I've told you in previous posts that we are selling our house. In doing so, we can clear up $400-$500 a month to rebuild credit. This is a 5-year plan we are working on. We plan on renting upon selling the house. We know we can find a new place for about $400 a month in our area. That would save us $400 a month that we can put toward our bills.

I plan on using the Snowball method to pay-down our loans. If we take the $400 we are saving on the mortgage and apply it to our car and motorcycle loan, we can pay them both off in three years! That would be awesome.

After those three years, we would take the $1200 we were paying to our debts and use that to pay off our credit every month until we cleared our reports, hopefully driving up our score.

I think this entire process can be accomplished in about four years from the date of sale on our house.

What do you all think?

Credit problems aren't just for consumers

Tracy Coenen — 2008-03-25T16:30:00+00:00

Filed under: Borrowing, Recession

I'm sure it comes as no surprise to you that individual consumers aren't the only ones having money problems these days. Businesses are struggling too, and it's showing in the bankruptcy numbers. One website reports that so far this year, 24 public companies have filed for bankruptcy protection, which is more than 60% higher than the same periods in 2006 and 2007.

What happens when the companies go into bankruptcy? Hopefully they are just looking for a little more time to pay their bills, and creditors eventually get the money that's owed to them. Most times, it doesn't go that way, though. The creditors race to get in line to see who is going to get paid and who is not. The creditors almost always lose at least some part of the money that's owed to them.

Why do you care? When a person or a company ditches out on the debt they owe, we all pay the price. Someone's got to make up the difference, and we will see increased prices for goods and services and higher interest rates for our financing. And issues with borrowers can impact markets around the world, as we have seen with subprime mortgage problems.

Not to mention the fact that the shareholders in the public companies filing for bankruptcy usually lose their investments. The effects of bankruptcy, especially corporate bankruptcy, are wide-reaching, and that's why consumers should care about the issue.

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.

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