Greetings,
Before we get into the review and forecast, here’s wishing you a Happy New Year! Please make it a safe and profitable one!
This is a long one; my longest and most detailed to date as these times demand it. So you may want to get a cup of your favorite beverage and settle in before you begin; don’t be pouring anything in that cup that you shouldn’t. I do have a rather bold prediction in the forecast and you’ll need a clear head.
2010 in review:
I would say 2010 was quite a ride but I got bucked off awhile back and bent my forecaster….the truth is my 2010 forecast was actually pretty accurate so if you're a glutton for punishment and saved it you can go back and see if I'm stretching the truth or not. A local Certified Financial Planner tells me I'm often more accurate than the national guru's so I guess I'm in trouble for sure now.
2010 was a year of adjustment and frustration. We all learned new ways of bending our mental golf clubs (some of you literal types bent real ones). As new disclosure and lending guidelines were implemented, we learned that the real estate and lending landscapes were significantly altered. Some would say for the good, some not. One thing is certain; you will need to be prepared to thoroughly document why you wear your hair like you do, in addition to everything else a lender wants to see, and be prepared to get a required new hairstyle right before your loan is supposed to fund. True.
What were (are) the big issues? Lender underwriter guidelines (more strict), and dare I say it: appraised values. If you have the stomach for it, check this recent appraisal commentary from Reuters via Mortgage Daily: http://www.mortgagenewsdaily.com/12172010_appraisal_hell.asp. Distressed inventories have severely impacted values, there's just no getting around it.
What about home sales? They were up! No, down, Wait, up! No, down. Huh? Exactly. How about interest rates? Mostly down, for the most part. Pretty much.
So, who won and who lost in 2010? I believe I am safe in saying that the required disclosure, appraisal, and underwriting practices now in place have added cost and confusion to what was already an expensive and confusing process. The required consumer protections will protect consumers until those limited few who are inclined to be unscrupulous figure out how to circumvent these new rules. It’s tough to legislate morality, folks. I'll let you know when I find out who won, but for certain the losers are you & me.
Fact is, if you are reading this, not only will your sanity be questioned; you have actually survived another year. Hard to imagine going through this entire mess if we knew what we were going to face in advance. Some of you are doing quite well with the distressed property inventories and more power to you! Now, to the other 98.7%; hang in there if you dare.
2011 Forecast
Housing; let's take the big one first.
Housing is lagging while the economy rebounds. Declines in home values are a constraint on consumer spending. “The housing sector continues to be depressed,” Fed officials said in a statement after the 12-14 meeting, at which they reiterated a plan to expand record monetary stimulus and said economic growth is “insufficient to bring down unemployment.”
Even so, economists in the past two weeks have boosted projections for fourth-quarter growth, reflecting a pickup in consumer spending and passage of an $858 billion bill extending all Bush-era tax cuts for two years. The legislation also continues expanded unemployment insurance benefits through 2011 and cuts payrolls taxes by 2 percentage points next year.
What will happen to home values in 2011? Here’s a little 2010 info to digest first:
The following table shows the historical price change according to the S&P/Case-Shiller home price indices. Cities are ranked by largest monthly gain using non seasonally adjusted data.
============================================================
1-months 3-months 1-year 2-years 3-years
earlier earlier earlier earlier earlier
============================================================
US Composite-20 -1.32% -2.39% -0.80% -8.08% -24.70%
------------------------------------------------------------
Washington DC -0.20% -0.28% 3.65% 1.00% -17.97%
Las Vegas -0.21% 0.06% -3.57% -29.26% -51.61%
Denver -0.57% -1.65% -1.79% -1.90% -6.98%
Los Angeles -0.75% -1.26% 3.34% -3.21% -30.24%
Tampa -0.90% -2.19% -3.61% -18.27% -34.48%
Miami -1.11% -2.60% -3.39% -16.95% -41.06%
Phoenix -1.11% -3.93% -4.28% -21.61% -47.21%
Dallas -1.13% -3.83% -3.13% -3.68% -6.66%
Charlotte -1.14% -2.54% -4.19% -10.90% -14.87%
============================================================
1-months 3-months 1-year 2-years 3-years
earlier earlier earlier earlier earlier
============================================================
Boston -1.23% -2.82% -0.23% -3.03% -8.85%
Seattle -1.34% -2.66% -4.11% -16.03% -24.61%
Portland -1.48% -4.16% -5.15% -14.59% -23.20%
San Diego -1.50% -3.05% 2.97% 0.55% -26.28%
Cleveland -1.52% -4.76% -2.64% -6.03% -11.83%
New York -1.61% -1.99% -1.67% -9.58% -16.56%
San Francisco -1.91% -3.07% 2.23% -0.43% -31.28%
Minneapolis -1.91% -4.35% -2.80% -10.79% -25.18%
Chicago -1.99% -3.08% -6.48% -15.95% -25.04%
Detroit -2.45% -3.25% -5.52% -20.02% -36.33%
Atlanta -2.90% -6.11% -6.19% -13.77% -22.83%
This represents a disaster by any measure if you ask me. So, what's the forecast? Not good in the near term. I am now a proponent of a double dip, subject to other factors. What factors? Inflation, unemployment, and interest rates, to name a few. I believe we will see further retraction in values to some degree in Q1-2 11 as we work through new rules in lending and appraisal, and based on how quickly distressed inventory goes away. All of that being said; lower values, combined with low mortgage rates (increased affordability), may turn the “buy now” light bulb on for many. It really should as the perfect storm of catastrophic economic events may turn into the perfect storm of why it makes sense to buy a home.
I anticipate a leveling off period by Q3-4 11 and (dare I say it?) a more stable market. Appreciation (gasp!) will begin to poke its tiny little head out of the ground in some areas by then.
I am not a proponent of the gloom and doom forecasters that insist we will see markets ranging from another round of jaw-dropping value reductions to nuclear winter, resulting from a complete meltdown of global markets. Not going to happen. Sorry guys, you’ll need better marketing to sell those books other than screaming sensationalist titles on glossy book covers with catchy colors. I rank most of these in the category of those wanting to be the first to say “I told you so” in the odd event they may actually be right in some small way. We would all be better off to work in our communities and insist on a mindset of improving the economy; it’s often what you and I think that will chart our course. Start thinking positive!
Next up: Inflation
This is a key driver of the overall effect on housing. The Fed is committed to driving this up and we’ll see how successful the Fed strategy is. I believe we will see the rate top out at about 1.00% by Q3 11. No double digits for you gloom and doomers.
Unemployment
Not a rosy picture but I do expect slight improvement in 2011, ending the year at about 9.00% overall. I just don’t see business activity that will generate jobs until about Q2 2012.
Interest Rates-The Fed
30 year fixed rates were in the mid 6’s about 18 months ago, so don’t panic at the recent spike. After years end 10 I expect to see reduction in the .500% range, than back up, topping out in the mid to high 5.000% range by Q3 11.
The Fed has made a concerted effort to drive rates lower, with some success. I believe we will see slightly over 1.00% by Q3 11 for the Fed Fund Rate. This means the prime rate will be in the 3.5 to 4.0% range.
Housing Affordability
Here’s something to hang our hat on (maybe). Housing is more affordable now than it was in the 70’s. We are at a point, or will be soon that will represent the best time to buy a home in about the last 50 years, relative to affordability.
And finally, a Housing Shortage as soon as 2012.
OK, now I’ve gone and done it; I drove right off the edge. Really? Better check this out as I believe we are singing a different tune by 2012. Hey, wait a second; you can’t predict 2012 for a 2011 forecast! Sure I can, it’s my dang forecast!
After personal research, I’m going to say it, and recently found out that I am not alone in this opinion (Google it!). We are likely going to see a housing shortage sometime in 2012.
The first economist to warn of a coming housing shortage was Brian Wesbury, chief economist at First Trust Advisors in Wheaton, Ill., who told Forbes magazine last month that "we're starting one-third of the houses we need just to keep up with population growth" and that shortages could develop in some areas as early as 2011.
Not all economists share this view. Rick Sharga, chief economist at foreclosure tracker RealtyTrac in Irvine, Calif., told the Inquirer that he found a looming shortage "hard to fathom."
The lack of consensus stems from the fact that predicting future housing needs is a complex task, combining both hard numbers -- new-house starts, sales of existing houses -- and guesswork -- forecasting new household formation.
But one set of numbers backs up the economists predicting a shortage to come: data from the National Association of Realtors shows that the United States needs to build 1.3 to 1.7 million new houses annually to absorb both the 300,000 old houses torn down each year and the 1 to 1.4 million new households formed annually; numbers released by Freddie Mac last week show that only 910,000 units were started in 2008 and 550,000 in 2009. The agency predicts an increase in activity for 2010, but still far below what is needed at only 700,000 units.
Even “fuzzy math” would indicate a minimum potential shortage of about 1.7 million units. From The Wall St Journal “Smart Money” published 7-26-10:
SmartMoney
Real Estate by Lisa Scherzer
A Housing Shortage on the Horizon?
With all the talk of excess inventory and flood of foreclosures, the idea of a looming housing shortage sounds unrealistic if not fanciful.
After all, the most recent data from the National Association of Realtors (NAR) out last week showed a 5.1% decline in existing home sales in June. Meanwhile, total housing inventory increased 2.5% to four million homes available for sale, an 8.9-month supply, up from an 8.3-month supply in May.
Foreclosures, too, are an issue with a vast backlog of distressed properties and underwater loans sitting just below the surface, according to RealtyTrac, an online foreclosure marketplace. The company forecasts that more than three million properties will get hit with foreclosure filings by the end of the year.
But if you take a step back from the current doom and gloom of foreclosures and declining sales and focus on the low construction levels over the past few years, some economists say a housing shortage might be in the offing. A 2009 report by Massachusetts Institute of Technology economics professor William Wheaton says that despite the glut of existing homes, with current depressed levels of construction, there might be “excess demand” for newly constructed homes.
In the past seven years, housing starts first exceeded – but then fell short – of the historical norm of 1.6 million, according to the NAR, with a deficit forecasted to grow into 2011. The chief economist of NAR said last month that the big drop in home construction suggests a shortage could become an issue later.
Longer-term demographics support this theory, says Ross DeVol, executive director of economic research at the Milken Institute, an independent think tank based in Santa Monica, Calif. We’re only adding about 600,000 new housing units a year now, and the long-term growth in new households is 1.3 million to 1.4 million per year, says DeVol.
That household formation rate has fallen off somewhat because of the recession. But that decline is misleading because college graduates have chosen to live at home with their parents while they find their financial footing, and people defer getting married for a year or two. But long term that household growth says that “if we build substantially less than that amount, which we’re doing
now, in four, five or six years, if we don’t ramp up housing starts, we could see a shortage,” DeVol says.
There’s a tendency in any market that when you overshoot on the upside – which we did through 2007 in real estate – you undershoot on the downside, DeVol says. But underlying growth in population demographics – namely, how many people will be entering the work force – is somewhere in that range of 1.3 million to 1.4 million, he says. One risk is that so many home builders leave the field during the current downturn that there could be “capacity constraints” in the long term as the U.S. population continues to grow, says John Vogel, professor of real estate at the Tuck School of Business at Dartmouth.
Consider that at the peak of housing bubble in 2005 nearly 2.1 million new units were built. In 2006, that number dropped to 1.81 million; in 2007, as the bubble deflated, new units fell to 1.34 million. By 2009, only 550,000 new units were built, says DeVol.
There won’t likely be constraints in overbuilt places like Las Vegas, Phoenix, Riverside, Calif., or Miami and Ft. Lauderdale. But if the pace of home construction doesn’t pick up, “we are going to begin to see some tightness in some areas of the country that didn’t have the boom and bust occur,” DeVol says.
The regions most likely to be undersupplied by mid-2012 are those where supply and demand are now in balance, says Celia Chen, senior director of housing economics at Moody’s. Chen includes states like Washington, Oregon, New Mexico and Utah in this group. This is where strengthening demand, combined with construction that will remain below trend, would result in under-supply, she says.
Well, there you have it. If you lasted this long and are reading this you either are desiring information that can help you in your career, you have nothing better to do, or you’re an absolute nut case that should be locked up.
Wednesday, December 29, 2010
Monday, December 27, 2010
Kuncklehead's Guide to Building Credit
Correcting and Re-building Credit
Welcome to The Knucklehead’s Guide of how to correct and re-build your credit. This blog is designed to help you get back on your feet. No strings attached. Really. Read on for stuff you can really use.
Got Credit Issues? Need to re-build your credit fast?
Had a foreclosure? Short Sale? Deed in Lieu? Bankruptcy? Job Loss? Health issues?
How long before your credit will be OK again?
A lot of people have credit issues these days. No matter how bad yours are... some knucklehead has worse credit than you do. I'm going to tell you how to get your credit back. I'm a mortgage banker who helps people rebuild credit every day; I've done it for over 10 years.
What I am going to share with you is probably worth thousands of dollars, and many before you have paid thousands of dollars for exactly what I am going to give you for free. Why am I providing this advice for free?
I’m a mortgage banker….just think of me when you can get your next home loan (I'll tell you how), and send everyone you know to me (http://www.mijoymortgage.com/) for any kind of real estate loan. Tell everyone you know about this blog and if it helped you. I lend in 50 States so no excuses...fair enough?
First, if you have family members, friends, relatives or other misinformed Knuckleheads grinding on you about how dumb you were to get into this position tell them I said to shut up and leave you alone.
Hardly anyone saw this "perfect storm" of economic catastrophe's that have never before occurred over the last few years. Warren Buffett recently said that if he didn't see it coming then it wasn't fair to expect that anyone else should have either.
No matter how bad your credit is it can be better, but only if you decide to do something. You can pay to have this stuff done, or you can do it yourself for free. There is a lot of free credit help available; be sure and stick to credible resources like what HUD offers: http://portal.hud.gov/portal/page/portal/HUD/i_want_to/talk_to_a_housing_counselor.
A little background on credit reports: most credit reports are accessed directly from the credit bureaus (there are 3 main bureaus, more later on these), or through a credit agency. Agencies compile a “merged” report into a logical (well, mostly) and readable (somewhat) format. They often have a toll free number you can call to get information if you don’t have account info otherwise (old bills, statements, etc). You may need to be a detective to track down credit account info but you must have the accurate info in order to permanently fix erroneous items.
Get a copy of your credit report (keep reading) and make sure it has the scores with it. You will have 3 scores, one from each of the 3 major credit bureaus. Mortgage lenders will use your middle score for qualifying.
While there is a free report you can get annually, it doesn’t provide your scores; there is no sense in trying to fix credit if you don’t know your scores. You can get a copy of your report and get the scores if you have been denied credit (ask the creditor who denied you), or you can do it on-line. The on-line method will cost a few bucks…it’s worth it! Nothing is more important than getting your scores back so think of this as an investment. To get your scores, you might try a site such as http://www.myfico.com/. There are others so find one you like. On many sites you can even run "what-if" scenarios that will show you what your scores will do by paying/not paying delinquent accounts. This can be very helpful.
OK, so you’ve got your report in hand. What is it you’re looking at? What are you looking for? You are looking at your credit scores, and your credit account history as reported by your creditors. You can pretty much ignore the language on the report for now as to why your scores aren’t perfect; the scores are more important at this stage. More about creditors later, but let’s talk scores. What is a good score? For a mortgage/home loan you generally need a minimum score of 620. You might/will pay a bit higher rate of interest for anything less than a 740 score (your middle score).
Got some stuff on there that you need to fix? Let’s fix stuff first, and then talk about re-building your credit (below). Here we go:
Correcting the Credit Report – Time to read VERY carefully
1. Verify your name, social security numbers are correct. If not, contact the issuing agency/bureau and correct the info (more on this later….don’t worry…I’ll tell you how to do this).
2. Verify that credit accounts listed on the report are your accounts. If not, contact the issuing agency/bureau and advise them they aren’t yours. Be certain of this; if you’re wrong all you’ll do is cost yourself time and grief. Ask that any duplicate accounts be removed and any old accounts you know are closed be reported as closed (instruction on this to follow).
3. Verify that what is reported is accurate. If it isn’t, you must prove what is being reported is wrong and you better have ironclad documentation that proves you are right. It doesn’t matter what you think, it matters what you can prove.
4. If there are old accounts or collection accounts and they have been written off you may be better off not to contact those creditors. Any recent activity reported by a creditor usually means you will need to deal with it. However, collections and other accounts can be sold and "re-upped" so you may have to pay these regardless. Negotiate them to the lowest balance the creditor will agree to (pay monthly if you have to; the lowest amount the creditor will accept...you can always pay more if you want to). Make sure that based on what you agree to, the creditor will report to the bureau's and will provide you with a "paid in full/zero balance" letter. To be certain of a clean report, pay them if you can. Talk to a HUD credit counselor about which items to pay attention to (did you forget the HUD link above? Use it to talk with a HUD counselor…be persistent!). Run your "what-if" scenarios on these.
5. OK, you’ve determined what needs to be fixed and what to ignore. How do you fix erroneous reporting? There is no short cut and it may take repeated attempts...stay after it! Write a letter to each/any creditor that outlines exactly what is being reported erroneously, include your ironclad documentation, and a copy of the credit report (see step by step in items 7, 8, 9, & 10 below).
6. Do not call the credit bureaus unless you enjoy pain and hold times that last longer than your last root canal. Don’t be a Knucklehead.
7. You will send a cover letter (examples below; yes, you can copy and use them if you want to), the credit report, and all ironclad documentation to each creditor. You will then send all of this same information to each bureau; add a cover letter to the bureau, as outlined in items 8, 9 & 10:
8. Address a cover letter to each creditor; include a copy of the credit report and all of your ironclad documentation.
9. Address a cover letter to each credit bureau (find current addresses on-line for: Equifax, Experian, and Trans Union).
10. Mail the cover letter to each bureau, and include everything you mailed to each creditor. Do this for each creditor issue. Yes, I know that’s a lot of stuff. Do it. It’s the only sure-fire way I have found that has the best chance of permanently fixing the error. Now, if this doesn’t fix the error you will need to know exactly why and the bureaus will tell you that; they are required by law to do so. Make sure you provide an accurate return address for them.
11. Be persistent. And be persistent again. It’s your future and you’ve got to do it right. Did I say be persistent?
Re-building Credit
What is the ideal credit mix? There are plenty of credit help sites on the net where you can research this. More or less, you won’t go wrong with one mortgage, one installment account, and 2-3 revolving accounts. Get those, make on-time payments, and eventually you’re golden. More credit is not necessarily better credit, but done properly won’t hurt you.
You will want re-established credit as soon as you can get it. Don't start applying for credit until you've gone as far as you can fixing the bad stuff; credit inquiries can hurt your scores. Don’t miss a single payment after you start building credit accounts. Here’s what you can do to build accounts:
1. Obtain a secured credit card. These cards provide credit based on savings you deposit. Check with local banks/credit unions or search the net for secured credit cards; there are many. Use the card; pay the balance each month.
2. Obtain 2-3 revolving accounts with local Department or Home Improvement stores, maybe a gas card. Make certain they report to all 3 credit bureaus. Use these cards; pay the balance each month.
3. Make certain you are not late on any account that reports to the bureaus.
How long before your credit is re-established?
Your scores will start recovering pretty quickly; usually within a few months depending on your individual circumstances.
After certain events, it may take awhile before you can get a good auto loan or any type of mortgage loan. Since I know mortgage loans I can tell you that right now here’s how long it takes to re-qualify after an event:
Conventional Credit Requirements
Time frames to re-establish credit to obtain conventional/conforming mortgage financing, after event:
BANKRUPTCY
CHAPTER 7 OR 11: 4 YEARS FROM DISCHARGE OR DISMISSAL DATE.
CHAPTER 13: 2 YEARS FROM DISCHARGE OR 4 YEARS FROM DISMISSAL.
MULTIPLE BK’S: 5 YEARS FROM MOST RECENT BK IF FILED WITHIN 7 YEARS.
REAL ESTATE
SHORT SALE/PRE-FORECLOSURE SALE: 2 YEARS FROM COMPLETION DATE IN ALL CASES.
DEED-IN-LIEU: 7 YEARS FROM COMPLETION DATE OR:
4 YEARS IF:
OWNER OCCUPIED, SECOND/VACATION HOME, OR NON-OWNER WITH
MINIMUM 10% DOWN PAYMENT ON PURCHASE. RATE/TERM OR CASH-OUT REFI OK.
FORECLOSURE: 7 YEARS FROM COMPLETION DATE OR:
5 YEARS IF:
OWNER OCCUPIED PURCHASE OR R/T REFI,
10% OR MORE DOWN PAYMENT, 680 MINIMUM CREDIT SCORE.
FHA Credit Requirements
For FHA loans, after any negative credit event you may qualify as soon as 2 or 3 years for a new FHA loan. You will need re-established credit; no late payments since the negative event, a good explanation for the negative event other than you were just a Knucklehead, and a minimum score of 620. A good explanation would be related to job loss, divorce or other family emergency, or poor health. Don’t forget that any/all events must be documented.
Credit Building Tips
1. Don’t close accounts that are active and reporting OK; you’ll hurt your scores.
2. Don’t’ close accounts because you’re mad you knucklehead.
3. Pay small balances that creditors say you owe even if you want to fight about it. Trust me, you’ll lose this battle. You may protect your honor but you darn sure won’t protect your credit. Don’t be a Knucklehead; you’re in this for the long haul.
Cover letter examples:
Letter to creditor:
Date
Creditor
Creditor Address
Regarding: Name of Account, Account # 999 999 999.
Jim & Sally Knucklehead
Current Address
Current Phone #
Current e-mail address
To Whom It May Concern:
The above referenced account is not being reported correctly on my credit report. It should be reported as: (provide the correct account status).
I am enclosing a copy of the credit report, and supporting documentation. Please correct my report and advise me per consumer credit laws.
I am available via (e-mail, phone, etc – your choice) to answer any questions.
Thank you,
Jim and Mary Knucklehead
Encl: credit report, cancelled check, invoice, statement, letter, etc ----give ‘em all you’ve got!
Cc: Equifax, Experian, TransUnion
Letter to Bureau(s):
Date
Credit Bureau
Bureau Address
Regarding: Name of Account, Account # 999 999 999.
Jim & Sally Knucklehead
Current Address
Current Phone #
Current e-mail address
To Whom It May Concern:
The above referenced account is not being reported correctly on my credit report. It should be reported as: (provide the correct account status).
I am enclosing a copy of the cover letter, credit report, and supporting documentation that I provided to the creditor. Please correct my report and advise me per consumer credit laws.
I am available via (e-mail, phone, etc.) to answer any questions.
Thank you,
Jim and Mary Knucklehead
Encl: credit report, cancelled check, invoice, statement, letter, etc ----give ‘em all you’ve got!
Cc: Creditor
Final Words
I advise mailing these certified with return receipt. Yes, it will cost more to do that…I know. Do it. Don't be a knucklehead. It will pay off for you in the event there is a dispute about notification.
Finally, keep really really good records. Outline your course of action for each creditor and bureau. Track all communication/correspondence by date. Track who you talked to (always get a name), what time, what was discussed, and what the next step is. Then follow up and follow up some more.
Yeah, I know this is a pain in the backside. What’s worse though? Spending the time to fix your credit, or putting up with the nastiness of bad credit?
Don’t be a knucklehead. Get if fixed.
Welcome to The Knucklehead’s Guide of how to correct and re-build your credit. This blog is designed to help you get back on your feet. No strings attached. Really. Read on for stuff you can really use.
Got Credit Issues? Need to re-build your credit fast?
Had a foreclosure? Short Sale? Deed in Lieu? Bankruptcy? Job Loss? Health issues?
How long before your credit will be OK again?
A lot of people have credit issues these days. No matter how bad yours are... some knucklehead has worse credit than you do. I'm going to tell you how to get your credit back. I'm a mortgage banker who helps people rebuild credit every day; I've done it for over 10 years.
What I am going to share with you is probably worth thousands of dollars, and many before you have paid thousands of dollars for exactly what I am going to give you for free. Why am I providing this advice for free?
I’m a mortgage banker….just think of me when you can get your next home loan (I'll tell you how), and send everyone you know to me (http://www.mijoymortgage.com/) for any kind of real estate loan. Tell everyone you know about this blog and if it helped you. I lend in 50 States so no excuses...fair enough?
First, if you have family members, friends, relatives or other misinformed Knuckleheads grinding on you about how dumb you were to get into this position tell them I said to shut up and leave you alone.
Hardly anyone saw this "perfect storm" of economic catastrophe's that have never before occurred over the last few years. Warren Buffett recently said that if he didn't see it coming then it wasn't fair to expect that anyone else should have either.
No matter how bad your credit is it can be better, but only if you decide to do something. You can pay to have this stuff done, or you can do it yourself for free. There is a lot of free credit help available; be sure and stick to credible resources like what HUD offers: http://portal.hud.gov/portal/page/portal/HUD/i_want_to/talk_to_a_housing_counselor.
A little background on credit reports: most credit reports are accessed directly from the credit bureaus (there are 3 main bureaus, more later on these), or through a credit agency. Agencies compile a “merged” report into a logical (well, mostly) and readable (somewhat) format. They often have a toll free number you can call to get information if you don’t have account info otherwise (old bills, statements, etc). You may need to be a detective to track down credit account info but you must have the accurate info in order to permanently fix erroneous items.
Get a copy of your credit report (keep reading) and make sure it has the scores with it. You will have 3 scores, one from each of the 3 major credit bureaus. Mortgage lenders will use your middle score for qualifying.
While there is a free report you can get annually, it doesn’t provide your scores; there is no sense in trying to fix credit if you don’t know your scores. You can get a copy of your report and get the scores if you have been denied credit (ask the creditor who denied you), or you can do it on-line. The on-line method will cost a few bucks…it’s worth it! Nothing is more important than getting your scores back so think of this as an investment. To get your scores, you might try a site such as http://www.myfico.com/. There are others so find one you like. On many sites you can even run "what-if" scenarios that will show you what your scores will do by paying/not paying delinquent accounts. This can be very helpful.
OK, so you’ve got your report in hand. What is it you’re looking at? What are you looking for? You are looking at your credit scores, and your credit account history as reported by your creditors. You can pretty much ignore the language on the report for now as to why your scores aren’t perfect; the scores are more important at this stage. More about creditors later, but let’s talk scores. What is a good score? For a mortgage/home loan you generally need a minimum score of 620. You might/will pay a bit higher rate of interest for anything less than a 740 score (your middle score).
Got some stuff on there that you need to fix? Let’s fix stuff first, and then talk about re-building your credit (below). Here we go:
Correcting the Credit Report – Time to read VERY carefully
1. Verify your name, social security numbers are correct. If not, contact the issuing agency/bureau and correct the info (more on this later….don’t worry…I’ll tell you how to do this).
2. Verify that credit accounts listed on the report are your accounts. If not, contact the issuing agency/bureau and advise them they aren’t yours. Be certain of this; if you’re wrong all you’ll do is cost yourself time and grief. Ask that any duplicate accounts be removed and any old accounts you know are closed be reported as closed (instruction on this to follow).
3. Verify that what is reported is accurate. If it isn’t, you must prove what is being reported is wrong and you better have ironclad documentation that proves you are right. It doesn’t matter what you think, it matters what you can prove.
4. If there are old accounts or collection accounts and they have been written off you may be better off not to contact those creditors. Any recent activity reported by a creditor usually means you will need to deal with it. However, collections and other accounts can be sold and "re-upped" so you may have to pay these regardless. Negotiate them to the lowest balance the creditor will agree to (pay monthly if you have to; the lowest amount the creditor will accept...you can always pay more if you want to). Make sure that based on what you agree to, the creditor will report to the bureau's and will provide you with a "paid in full/zero balance" letter. To be certain of a clean report, pay them if you can. Talk to a HUD credit counselor about which items to pay attention to (did you forget the HUD link above? Use it to talk with a HUD counselor…be persistent!). Run your "what-if" scenarios on these.
5. OK, you’ve determined what needs to be fixed and what to ignore. How do you fix erroneous reporting? There is no short cut and it may take repeated attempts...stay after it! Write a letter to each/any creditor that outlines exactly what is being reported erroneously, include your ironclad documentation, and a copy of the credit report (see step by step in items 7, 8, 9, & 10 below).
6. Do not call the credit bureaus unless you enjoy pain and hold times that last longer than your last root canal. Don’t be a Knucklehead.
7. You will send a cover letter (examples below; yes, you can copy and use them if you want to), the credit report, and all ironclad documentation to each creditor. You will then send all of this same information to each bureau; add a cover letter to the bureau, as outlined in items 8, 9 & 10:
8. Address a cover letter to each creditor; include a copy of the credit report and all of your ironclad documentation.
9. Address a cover letter to each credit bureau (find current addresses on-line for: Equifax, Experian, and Trans Union).
10. Mail the cover letter to each bureau, and include everything you mailed to each creditor. Do this for each creditor issue. Yes, I know that’s a lot of stuff. Do it. It’s the only sure-fire way I have found that has the best chance of permanently fixing the error. Now, if this doesn’t fix the error you will need to know exactly why and the bureaus will tell you that; they are required by law to do so. Make sure you provide an accurate return address for them.
11. Be persistent. And be persistent again. It’s your future and you’ve got to do it right. Did I say be persistent?
Re-building Credit
What is the ideal credit mix? There are plenty of credit help sites on the net where you can research this. More or less, you won’t go wrong with one mortgage, one installment account, and 2-3 revolving accounts. Get those, make on-time payments, and eventually you’re golden. More credit is not necessarily better credit, but done properly won’t hurt you.
You will want re-established credit as soon as you can get it. Don't start applying for credit until you've gone as far as you can fixing the bad stuff; credit inquiries can hurt your scores. Don’t miss a single payment after you start building credit accounts. Here’s what you can do to build accounts:
1. Obtain a secured credit card. These cards provide credit based on savings you deposit. Check with local banks/credit unions or search the net for secured credit cards; there are many. Use the card; pay the balance each month.
2. Obtain 2-3 revolving accounts with local Department or Home Improvement stores, maybe a gas card. Make certain they report to all 3 credit bureaus. Use these cards; pay the balance each month.
3. Make certain you are not late on any account that reports to the bureaus.
How long before your credit is re-established?
Your scores will start recovering pretty quickly; usually within a few months depending on your individual circumstances.
After certain events, it may take awhile before you can get a good auto loan or any type of mortgage loan. Since I know mortgage loans I can tell you that right now here’s how long it takes to re-qualify after an event:
Conventional Credit Requirements
Time frames to re-establish credit to obtain conventional/conforming mortgage financing, after event:
BANKRUPTCY
CHAPTER 7 OR 11: 4 YEARS FROM DISCHARGE OR DISMISSAL DATE.
CHAPTER 13: 2 YEARS FROM DISCHARGE OR 4 YEARS FROM DISMISSAL.
MULTIPLE BK’S: 5 YEARS FROM MOST RECENT BK IF FILED WITHIN 7 YEARS.
REAL ESTATE
SHORT SALE/PRE-FORECLOSURE SALE: 2 YEARS FROM COMPLETION DATE IN ALL CASES.
DEED-IN-LIEU: 7 YEARS FROM COMPLETION DATE OR:
4 YEARS IF:
OWNER OCCUPIED, SECOND/VACATION HOME, OR NON-OWNER WITH
MINIMUM 10% DOWN PAYMENT ON PURCHASE. RATE/TERM OR CASH-OUT REFI OK.
FORECLOSURE: 7 YEARS FROM COMPLETION DATE OR:
5 YEARS IF:
OWNER OCCUPIED PURCHASE OR R/T REFI,
10% OR MORE DOWN PAYMENT, 680 MINIMUM CREDIT SCORE.
FHA Credit Requirements
For FHA loans, after any negative credit event you may qualify as soon as 2 or 3 years for a new FHA loan. You will need re-established credit; no late payments since the negative event, a good explanation for the negative event other than you were just a Knucklehead, and a minimum score of 620. A good explanation would be related to job loss, divorce or other family emergency, or poor health. Don’t forget that any/all events must be documented.
Credit Building Tips
1. Don’t close accounts that are active and reporting OK; you’ll hurt your scores.
2. Don’t’ close accounts because you’re mad you knucklehead.
3. Pay small balances that creditors say you owe even if you want to fight about it. Trust me, you’ll lose this battle. You may protect your honor but you darn sure won’t protect your credit. Don’t be a Knucklehead; you’re in this for the long haul.
Cover letter examples:
Letter to creditor:
Date
Creditor
Creditor Address
Regarding: Name of Account, Account # 999 999 999.
Jim & Sally Knucklehead
Current Address
Current Phone #
Current e-mail address
To Whom It May Concern:
The above referenced account is not being reported correctly on my credit report. It should be reported as: (provide the correct account status).
I am enclosing a copy of the credit report, and supporting documentation. Please correct my report and advise me per consumer credit laws.
I am available via (e-mail, phone, etc – your choice) to answer any questions.
Thank you,
Jim and Mary Knucklehead
Encl: credit report, cancelled check, invoice, statement, letter, etc ----give ‘em all you’ve got!
Cc: Equifax, Experian, TransUnion
Letter to Bureau(s):
Date
Credit Bureau
Bureau Address
Regarding: Name of Account, Account # 999 999 999.
Jim & Sally Knucklehead
Current Address
Current Phone #
Current e-mail address
To Whom It May Concern:
The above referenced account is not being reported correctly on my credit report. It should be reported as: (provide the correct account status).
I am enclosing a copy of the cover letter, credit report, and supporting documentation that I provided to the creditor. Please correct my report and advise me per consumer credit laws.
I am available via (e-mail, phone, etc.) to answer any questions.
Thank you,
Jim and Mary Knucklehead
Encl: credit report, cancelled check, invoice, statement, letter, etc ----give ‘em all you’ve got!
Cc: Creditor
Final Words
I advise mailing these certified with return receipt. Yes, it will cost more to do that…I know. Do it. Don't be a knucklehead. It will pay off for you in the event there is a dispute about notification.
Finally, keep really really good records. Outline your course of action for each creditor and bureau. Track all communication/correspondence by date. Track who you talked to (always get a name), what time, what was discussed, and what the next step is. Then follow up and follow up some more.
Yeah, I know this is a pain in the backside. What’s worse though? Spending the time to fix your credit, or putting up with the nastiness of bad credit?
Don’t be a knucklehead. Get if fixed.
Subscribe to:
Posts (Atom)