Tag Archives: Reiss

No-Credit-Check Loan Red Flags

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photo by Rutger van Waveren

OppLoan quoted me in 6 No Credit Check Loan Red Flags. It opens,

Welp. A kid just threw a baseball through your window and ran away before you could get his parents’ information. Now you need a loan to fix it. But what if your credit score isn’t exactly a home run? What are you going to do now?

It’s a fact of modern life: a “good” credit score (a FICO score of 680 or higher) can make little financial emergencies like these much more bearable. Unfortunately, just over half of American consumers have weak or bad credit. According to credit expert David Hosterman of Castle and Cooke Mortgage (@CastleandCooke), “Customers with bad credit can have trouble financing a home, renting a home, obtaining credit cards, car loans, student loans, and more.” And it’s not a problem that goes away overnight. Hosterman says rebuilding credit can “sometimes take years to complete.”

So how can people with bad credit get a loan if an urgent need arises? One option is a “no credit check” loan. And if these loans sound too good to be true, it’s because they often are. Many “no credit check” loans are nothing more than financial traps designed to suck away as much of your paycheck as possible. Keep an eye out for these red flags before you end up in a very bad situation.

1. They Don’t Care About Your Income

Lenders see a bad credit rating and take it as a sign that a potential borrower might never pay them back. That’s why a good “no credit check” lender will make sure that you have a source of income—so they know they’ll get their money back eventually.

But not every “no credit check” lender will check your income. So how do they know you’ll pay it back? They don’t. In fact, it’s worse than that. They’re expecting you not to. Because if you can’t pay your loan in time, you’ll be forced to roll it over and pay an additional fee to extend it. These predatory practices are often associated with payday lenders, because you could end up having to turn over your paycheck as soon as you get it to pay back the loan. That doesn’t leave much money for luxuries like rent, so you could find yourself having to take out another loan or pay to extend the first one. This can easily trap you in a dangerous cycle, having to continually rollover your loan without any hope of paying it off. You want to avoid this situation at all costs.

2. Short Payment Terms

Any good lender wants you to have a real shot at actually paying back your loan in full. A bad lender, on the other hand, wants you to be trapped into rolling over your loans so that you can give them money forever. They’ll require you to pay back the entire loan, with interest, after only a few weeks—and sometimes less!

Instead, find a lender that will offer you an installment loan. David Bakke (@YourFinances101), a finance expert at MoneyCrashers.com, says that one of the main benefits of installment loans is that they “usually come with fixed interest rates, meaning that you know what your monthly payment is going to be.” A good “no credit check” lender will be certain that you have a source of income and then work with you to create a repayment plan that you can handle.

3. They Talk About Interest Rates Instead of APR

APR stands for Annual Percentage Rate. According to David Reiss (@REFinBlog), a law professor and editor of REFinBlog.com, the APR number shows the total cost of a loan, including fees and interest. Reiss points out that APRs allow potential borrowers to make an “apples-to-apples” comparison between loans. It gives you a full and clear picture of how expensive a loan really is. In other words, it’s a number that many “no credit check” lenders would prefer you never see.

They’d rather show you a basic interest rate, even though federal law requires APRs be used in most cases. Not only can that hide all sorts of fees, but it forces you to do some pretty complex math if you want to actually know how much you’ll be expected to pay. Friends never make friends do complex math problems, so if a lender isn’t talking in terms of APR, they’re likely not your friend.

Whither FHA Premiums?

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Various NBC News affiliates quoted me in What You Need To Know About Trump’s Reversal of the FHA Mortgage Insurance Rate Cut. It opens,

On his first day in office, President Donald Trump issued an executive order to undo a quarter-point decrease in Federal Housing Administration (FHA) mortgage insurance premiums. The rate decrease had been announced by the Obama administration shortly before Trump’s inauguration. Many congressional Republicans, including incoming Department of Housing and Urban Development Secretary Ben Carson, opposed the Obama administration’s rate cut because they worried that the FHA would not be able to maintain adequate cash reserves.

What does this mean for potential homebuyers going forward? We’ll explain in this post.

How FHA mortgage insurance premiums work

FHA-backed mortgages are popular among first-time homebuyers because borrowers can get a loan with as little as 3.5% down. However, in exchange for a lower down payment, borrowers are required to pay mortgage insurance premiums. Lower mortgage insurance premiums can make FHA mortgages more affordable, and help incentivize more first-time homebuyers to enter the housing market.

On January 9, 2016, outgoing HUD Secretary Julian Castro announced that the administration would reduce the annual mortgage insurance premiums borrowers pay when taking out FHA-backed home loans.

For most borrowers, the rate reduction would have meant mortgage insurance premiums decrease from 0.85% of the loan amount to 0.60%. The FHA estimated that the reduction, a quarter of one percentage point, would save homeowners an average of $500 per year.

To see how the numbers would compare, we ran two scenarios through an FHA Loan Calculator — once with the reduced MIP, and again with the higher rates.

Using the December 2016 median price for an existing home in the U.S. of $232,200 and assuming a 30-year loan, a down payment of 3.5%, and an interest rate of 3.750%, the difference in the monthly payment under the new and old rates would be as follows:

Monthly payment under the existing MIP rate: $1,213.27

Monthly payment with the reduced MIP rate: $1,166.98

Annual savings: $555.48

What the rate cut reversal means for consumers

This could be bad news for people who went under contract to buy a house using an FHA loan during the week of Trump’s inauguration. Those buyers could find that their estimated monthly payment has gone up.

Heather McRae, a loan officer at Chicago Financial Services, says Trump’s move was unfortunate. “A lower premium provides for a lower overall monthly payment,” she says. “For those homebuyers who are on the bubble, it could be the deciding factor in determining whether or not the person qualifies to purchase a new home.”

David Reiss, a law professor at the Center for Urban Business Entrepreneurship at Brooklyn Law School, says the change will have only a “modest negative impact” on a potential borrower’s ability to qualify for a loan.

To be clear, the fluctuating mortgage insurance premiums do not affect homeowners with existing loans. They do affect buyers in the process of buying a home using an FHA-backed loan, and anyone buying or refinancing with an FHA-backed mortgage loan in the future. Had the rate cut remained in effect, Mortgagee Letter 2017-01 would have applied to federally-backed mortgages with closing/disbursement dates of January 27, 2017, and later.

Reiss does not believe the rate reversal will have an impact on the housing market. “Given that the Obama premium cut had not yet taken effect,” he says, “it is unlikely that Trump’s action had much of an impact on home sales.”

Mortgage Rates & Refis

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TheStreet.com quoted me in Mortgage Rates Expected to Rise and Push Down Refinancing Levels. It reads, in part,

Mortgage rates will continue their upward climb in 2017 as the economy demonstrates additional growth and inflation, but this will of course dampen the enthusiasm for homeowners who have sought to refinance their mortgages up until early this year.

The levels of refinancing will definitely “take a hit relative to 2016,” said Greg McBride, chief financial analyst for Bankrate, a New York-based financial content company.”

A survey conducted by RateWatch found that 56.57% of the 400 financial institutions polled said it is unlikely mortgage rates will fall and unlikely there will be an increase in refinancing in 2017. RateWatch, a Fort Atkinson, Wis.-based premier banking data and analytics service owned by TheStreet, Inc., surveyed the majority of banks, credit unions, and other financial institutions in the U.S. between December 16 and December 29, 2016 on how the Donald Trump presidency will affect the banking industry. The survey found that 35.71% said an increase in refinancing levels is very unlikely, while 6.29% said such an increase is somewhat likely, 1.14% said one would be likely and 0.29% said it would be very likely.

Mortgage rates, which are tied to the 10-year Treasury note, are predicted to fluctuate between 4% to 4.5% in 2017 “with a brief trip below 4% in the event of a market sell-off or economic stumble,” McBride said.

The 4% threshold is critical for homeowners, because when mortgage rates fall below this benchmark level, more consumers are in a position to refinance “profitably,” which is why 2016 experienced a “surge in activity,” McBride said.

When rates rise about the 4% level, the number of homeowners who opt to refinance declines dramatically and “refinancing levels will be notably lower in 2017,” he said.

The mortgages in the 3% range gave many homeowners the opportunity to refinance last year, some for the second time, as many consumers also chose to refinance their mortgages during the 2013 to 2015 period.

As the economy expands and workers are experiencing pay increases, the number of home sales should also rise in 2017.

“People who are working and receiving a pay increase will buy a house whether mortgage rates are 4% or 4.5%,” McBride said. “They may buy a different house, but they will still buy a house.”

Refinancing activity is likely to continue ramping up in January rather than later in the year as the “recent dip in rates allows procrastinators to act before rates continue their movement up,” said Jonathan Smoke, chief economist for Realtor.com, a Santa Clara, Calif.-based real estate company. “As interest rates resume their ascent and get closer to 4.5% on the 30-year mortgage, the number of households who can benefit from refinancing will diminish. That’s why we expect lenders to shift their focus to the purchase market this year.”

Economic growth resulted in interest rates rising before the election and in its aftermath. The rates rose because of the expectation from the financial markets of expanding fiscal policies leading to additional growth and inflationary pressures, Smoke said.

Mortgage rates will continue to rise in 2017 as a result of more people being employed, and this economic backdrop will favor the buyer’s market instead of the refinancing market. Current data from the Mortgage Bankers Association already demonstrates that refinancing activity has declined compared to 2016 due to higher interest rates, Smoke said.

“Rates have eased a bit since the start of the year as evidence of a substantial shift in inflation remains limited and the financial markets oversold bonds in December,” he added.

*     *     *

Borrowers should be concerned with increased interest rate volatility in 2017, said David Reiss, a professor at the Brooklyn Law School. The Trump administration has been sending out mixed signals, which may lead bond investors and lenders to change their outlook more frequently than in the past.

“Borrowers should focus on locking in attractive interest rates quickly and working closely with their lender to ensure that the loan closes before the interest rate lock expires,” he said. “While there is no clear consensus on why rates went lower after the new year, Trump has not set forth a clear plan as to how he will achieve those goals and Congress has not signaled that it is fully on board with them. This leaves investors less confident that Trump will make good on those positions, particularly in the short-term.”

Gorsuch and the CFPB

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photo provided byUnited States Court of Appeals for the Tenth Circuit

Judge Gorsuch

Bankrate.com quoted me in Supreme Court Pick Could Spell Trouble for the CFPB. It opens,

President Donald Trump’s first Supreme Court pick has been identified as the “most natural successor” to the late Justice Antonin Scalia, whom he would replace.

Neil Gorsuch, 49, a judge on the 10th Circuit Court of Appeals in Denver, is said to share many of Scalia’s beliefs and his judicial philosophy. That could tip the high court back toward the 5-4 conservative split it held during controversial cases prior to Scalia’s death, although Justice Anthony Kennedy will remain a liberal swing vote on certain social issues before the court.

Gorsuch’s big judicial decisions have favored religious freedom over government regulation and state’s rights over the power of the federal government.

But how might that impact consumers or their wallets directly?

“I think with a judge like Gorsuch, you can see there probably will be a tendency in that direction to dissuade innovation,” says David Reiss, a law professor at Brooklyn Law School and the academic program director for the Center for Urban Business Entrepreneurship.

That could mean the Consumer Financial Protection Bureau, whose unique management structure a judge on the U.S. Court of Appeals for the D.C. Circuit last fall called unconstitutional, could face an obstacle on the bench should the legal fight over its construction ever reach the Supreme Court.

Judge Brett Kavanaugh, who wrote the majority opinion for the D.C. circuit panel, said because this independent agency is headed by a director whom the president cannot fire at will – and not, say, a set of commissioners like other agencies within the government – it is a threat to individual liberty.

“In short, when measured in terms of unilateral power, the director of the CFPB is the single most powerful official in the entire U.S. government, other than the president,” Kavanaugh wrote. “In essence, the director is the president of consumer finance.”

How Gorsuch May Rule

Supporters of the bureau are trying to get a hearing before the full U.S. Court of Appeals, but the issue could well wind up in front of the U.S. Supreme Court – that is if Congress doesn’t take action first.

Legal scholars say should Gorsuch win Senate confirmation he is unlikely to look favorably on the bureau’s structure.

Indeed, Gorsuch is likely to “echo the views of Judge Kavanaugh,” Melissa Malpass, senior legal editor for consumer regulatory finance at Thompson Reuters Practical Law, said in an email.

“Judge Gorsuch, through recent decisions, has expressed his disfavor with permitting government agencies to not only determine what the law is, but also to interpret and re-interpret the law as they see fit, often based on the political climate,” Malpass says.

If the Supreme Court were to uphold the Kavanaugh ruling, it “may, in effect, destroy the CFPB as we know it, and that will have an effect on consumers,” Reiss says.

Not everyone, though, thinks restructuring the CFPB as a commission-led agency like the Federal Communications Commission, for example, would be bad for consumers.

Gorsuch’s Path to the High Court

Democrats, still stung over the Senate’s refusal to consider Merrick Garland, then-President Barack Obama’s pick to succeed Scalia, could try to block Gorsuch’s nomination. Under current Senate rules, at least eight Democrats will need to cross the aisle to prevent a filibuster of the appointment.

Gorsuch, who was confirmed for his current post in 2006 by Senate voice vote, has won widespread acclaim in Republican circles. He also received a vote of confidence from a former Obama administration official.

“I think the Democrats are going to ask questions to determine if the nominee is outside what they call the political mainstream,” Reiss says. “We know this battle will be a brutal one, almost definitely because of the treatment of Merrick Garland’s nomination under the Obama administration.”

Foreclosure or Short Sale?

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photo by Taber Andrew Bain

BeSmartee.com quoted me in Which One Is Worse: Foreclosure or Short Sale? It opens,

If you’re faced with either a foreclosure or a short sale situation and aren’t sure what to do, read on. We asked some experts which one is worse.

You might have thought that you became a homeowner the day you closed on your home, but that wasn’t exactly the case. Although your status became ”homeowner” as opposed to, maybe, ” renter ,” you don’t really own the home if you have a mortgage. A more accurate term for what you became that day would be ”home borrower.” This isn’t just being picky about semantics. There’s a reason for the distinction.

If you stop paying your mortgage , the real owner of the home, your mortgage lender, could take it back. This process is a foreclosure .

Another option that may be available to you if you can no longer (or no longer wish to) make your mortgage payments is a short sale . A short sale occurs when you sell your home for less than what you owe. Your lender must be on board with this for it to happen.

So which one is worse: foreclosure or short sale? Here are five considerations.

1. Your Credit Score

Your credit score will take a hit, and a huge hit at that, whether you have a foreclosure or short sale on your credit report. ”They are pretty much equally rotten as far as your credit score is concerned,” says David Reiss , professor of law at Brooklyn Law School.

But just how rotten are foreclosures and short sales to your credit? You can probably count on your score tanking somewhere between 100 and 160 points. And like the saying, ”The bigger they are the harder they fall,” the higher your credit score was before the foreclosure or short sale the larger the drop will be. But the good news is that with either a foreclosure or a short sale, you can start to see your score rise in just a couple of years if you continue to pay all your other bills on time, according to myFICO , the consumer division of FICO .

2. What Future Lenders Think

If you wish to get back into the housing game some day, whether you went through a foreclosure or a short sale matters to many lenders. ”There’s not as much of a stigma involved in selling a house via short sale as there is in losing it in a foreclosure proceeding,” says Rick Sharga, chief marketing officer at Ten-X, an online real estate transaction marketplace. ”A short sale indicated that the borrower was willing to work with the lender, and in fact, an active participant in trying to come up with a solution that worked as well as possible for all parties.”

” Fannie Mae and Freddie Mac treat a foreclosure as worse than a short sale when it comes to future lending,” says Reiss. ”Fannie, for instance, won’t buy a mortgage from a lender who lent to someone who has gone through a foreclosure in the past three years in some cases (but as many as seven), but reduces that bar to two years for a short sale.”

Finding An Affordable Neighborhood

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Trulia quoted me in How To Find An Affordable Neighborhood. It opens,

There’s more to consider when buying a house than the house itself. The neighborhood can be equally, if not more, important. You might already have must-haves in mind for the type of property you’ll buy — at least two bathrooms to stay sane, for example. Now you need to focus on finding the best neighborhood that fits your budget. Read on for some tips, techniques, and practices to help you find affordable neighborhoods, whether you’re looking at homes for sale in Seattle, WA, or anywhere else across the country.

1. Use the Affordability layer in Trulia Maps

The most important factor when looking for an affordable home is price. No surprise there. But the listing price doesn’t tell you the full story. The seller could have simply picked a number because that’s what they’d like to get, a price that might have nothing to do with reality.

Use the Affordability layer in Trulia Maps to compare listing prices with recent sales prices. Just scroll over your neighborhood of interest to see the median listing price, change your filter, and then scroll over the same area to see the median sales price. There may be a huge price difference between the two, which besides a too-optimistic seller could also reflect a softening market. A once-unaffordable neighborhood, based on listing prices alone, might now be in reach once you see what homes are actually selling for.

Also look at the sales price per square foot, a real eye-opener. You can see exactly how much location affects a home’s price. “If using a price-per-square-foot comparison, the homebuyer must be sure to compare similar-sized properties or allow for the different results based upon the differences in size,” says Greg Stephens, chief appraiser for Metro-West Appraisal Co. in Detroit, MI.

2. Explore other neighborhoods

If you already have a neighborhood in mind, take some time to look at the bordering neighborhoods as well. You might find more affordable options that have the same benefits. “As home prices increase within desirable areas, generally speaking, locations on the periphery become in demand,” suggests Michael Kelczewski, a Pennsylvania and Delaware real estate agent.

Pick your neighborhood of interest and note the listing and sales prices. Then pick a bordering neighborhood that costs less to buy into. Compare amenities in Trulia Maps, and you can see where the restaurants, grocery stores, nightclubs, cafes, stores, arts and entertainment areas, spas, and active-life spaces are located.

Don’t rule out up-and-coming neighborhoods. Yes, you’re taking a risk here. “Up-and-coming,” as a description, might turn out to be a tad too hopeful if the neighborhood is really going nowhere. How do you minimize the risk? Look for warning signs. “Distressed areas generally are identified by low sales volumes, elevated value decreases, and poor access to amenities,” says Kelczewski.

3. Look for fixer-uppers

If your heart is set on a neighborhood that lets you bike to work and raise urban chickens, you might not be able to get a dreamy, move-in-ready abode with all new upgrades. Instead, target fixer-uppers, or remodels, or teardowns. You might wish to consider a house with “good bones,” as they say, meaning there’s potential in there somewhere. If the house doesn’t even have that, a teardown might be in order.

You can often find fixer-uppers in the foreclosure arena. But beware. “Purchasing an REO/short sale or auction property when the asset is sold ‘as is’ necessitates a network of professionals to understand the condition and to project rehab costs,” offers Kelczewski. “Contractors, electricians, plumbers, even structural engineers may be required in order to adequately analyze a property.”

You’ll also need to devote some time, or sweat equity, to save money when you buy a fixer-upper. “It is important to have a sense of how much work would be needed to get the house in the shape you would want it to be. You would need to get estimates for the work — the final cost will probably be higher than the estimates — and try to determine how long it will take to get permits approved and contractors in the door … [and] it will probably take longer than everyone tells you,” says David Reiss, professor of law at Brooklyn Law School in Brooklyn, NY. “But when you are pulling your hair out because you are cooking dinner in a half-finished kitchen, remember all of the money that you saved when you bought.”

New Protections for Homeowners

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Consumers Digest quoted me in Protections Coming for Homeowners. It opens,

New rules that cover mortgage servicing aren’t dramatic, but they should help certain consumers, experts say. In August 2016, Consumer Financial Protection Bureau finalized rules that focus on foreclosure protections and delinquencies.

“These changes are more at the margins,” says David Reiss, who is a law professor at Brooklyn Law School. “It’s looking at normal situations that occur and adding protections for consumers.”

The new rules, which are expected to take effect by 2018, would prevent dual tracking. Dual tracking is when foreclosure proceedings start while a homeowner who is current on his/her mortgage awaits a decision about a request to work with the loan servicer to avoid foreclosure. (This request is known as loss mitigation.)

In addition, borrowers who are current on their mortgage since a prior loss-mitigation application can avoid foreclosure by having their application reviewed again if they have unexpected financial difficulties. Loan servicers also have to notify borrowers when a loss-mitigation application is complete. Finally, if a borrower is in foreclosure and his/her loan is transferred to another servicer, he/she won’t have to restart the loss-mitigation application process with the new servicer.