Foreclosure Industry » Blog

Credit Scores are Not the Best Predictor of Default?

christine — Thu, 29 Jul 2010 23:27:10 +0000

This is a very interesting article…do you think credit scores are the reason banks aren’t lending? This NYT article makes it sound as if the banks have “drawn the line in the sand” and if you don’t make the cut, forget about getting a loan.

The mortgage broker in this story made the following statement:

” the mortgage lenders had swung too far in the other direction, depriving perfectly creditworthy borrowers of the chance to get a mortgage at a reasonable rate. “If the loan criteria says you need to have a 700 credit score, and you have a 699, you don’t get the loan,” she said. “It makes me nuts.”

However, the people from FICO say that it’s just another tool in the banks’ toolbox to evaluate lending risk. Interestingly enough, the article says that FICO is not the best predictor of default.

“The amount of equity a person has in his home, his debt-to-income ratio, his job stability and his cash reserves are all better predictors than credit scores, according to Dave Zitting, the chief executive of Primary Residential Mortgage, a leading mortgage lender.”

Does this suggest the banks need a new benchmark? Why would they continue to use FICO as a predictor when there are other factors that might better predict default?

What does this mean in light of the overall foreclosure crisis? What do you think? I’d love to hear your opinions.

Got questions? e-mail me: Christine@desertedgelegal.com

DISCLAIMER:

****CHRISTINE SPRINGER IS NOT A LICENSED ATTORNEY. THIS BLOG IS COMPRISED OF HER OPINIONS, OBSERVATIONS AND INTERPRETATIONS AND IS NOT INTENDED TO BE CONSTRUED AS LEGAL ADVICE. PLEASE CONSULT WITH AN ATTORNEY BEFORE RELYING ON OR TAKING ANY ACTION BASED ON THE INFORMATION IN THIS BLOG.****

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Will Wall Street Will Beat Financial Reform?

christine — Thu, 29 Jul 2010 19:28:51 +0000

A few weeks ago, I talked about the banking system and that I thought it would not exist in its current form for much longer. Today I read this article on CNBC from Jeff Cox, whose article says that Wall Street will be bigger and stronger as a result of the new financial reform bill. (Maybe I was right, just not about the end result!)

His points mention that the people working for the banks will outsmart the regulators. This is a distinct possibility, in my opinion. It seems like the regulators are always years behind technology and innovation and by the time they catch up, the money has already been made by the big institutions.

Other points he mentions are that banks will go offshore using subsidiaries in other countries to avoid regulation and increasing their prices across all lines of business.

Finally, the author says that the financial reform bill will actually make the bigger banks even bigger, because the smaller banks will be swallowed up by them in takeovers.

These are all valid possibilities, but they don’t take into account Americans’ anger with the big banks. What’s interesting to me is that there is absolutely no discussion whatsoever in this article about what consumers want. Wall Street is going to keep making money the way they always have as long as consumers keep paying for it.

What do you think about this article? Post your comments below.

Got questions? Send me an e-mail: christine@desertedgelegal.com

DISCLAIMER:

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Cleaning Up After Financial Disaster

christine — Wed, 28 Jul 2010 20:00:18 +0000

As many of you know, I’ve been through my own financial disaster over the last year. I am ready to start figuring out how to clean up this mess, which is why I’ve started writing the blog at Have Good Credit.

Today I posted an article about how important it is to get your finances under control before trying to clean up your credit. I know some of you are not ready to fix your credit, but some of the topics I’ll be blogging about will apply to those of you who are watching the housing mess, especially as they pertain about moving beyond financial disaster.

You can check out the article here. And please, join the discussion there…we’d love to hear from you!

Christine
christine@desertedgelegal.com

DISCLAIMER:

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Why TILA/RESPA Claims Don’t Win Lawsuits

christine — Wed, 28 Jul 2010 17:06:53 +0000

Here it is in black and white….if you read this 9th Circuit Appeals Brief filed by Bank of America, you will understand why TILA/RESPA and other “alphabet” claims will probably not win a lawsuit. I hate to say it, but the Bank’s attorneys did an outstanding job on this brief. I haven’t read the entire court file on this particular case, but I’ve seen too many people file these lawsuits based on TILA/RESPA and lose. I will be surprised if these homeowners prevail.

Merritt Case – Federal Appeal – The opening brief by Countrywide & Bank Of America

Got questions? Send me an e-mail: christine@desertedgelegal.com

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Credit Scores, Financial Responsibility and a Challenge

christine — Mon, 26 Jul 2010 21:57:10 +0000

Josh and I have been hard at work on our newest project, the blog at www.havegoodcredit.com.

If you read my blog post on this site about whether credit scores really matter, you know where I stand on this issue. If you also read the comments on that post, you also know that Josh and I have differing ideas on whether credit scores matter.

Josh’s theory is that most consumers will pay higher interest rates because they need a car, or whatever it is they have to finance. I see where he’s going on that line of thinking, but I’m not sure I agree, and here’s why.

If 25% of the people in the US now have credit scores below 600, and the FICO score doesn’t really distinguish between people who strategically default on their mortgages and people who can afford to pay, I think it’s likely that there are a lot of people in that group who had good credit at some point and who probably were financially responsible before the economic mess. I think there are a lot of Americans who avoid debt, even though they may be in the minority or we don’t hear about them because they aren’t in trouble.

So, how many of you out there consider yourselves financially responsible? Have your ideas changed since the bottom dropped out of our economy? What is your idea of fiscal responsibility now? I am personally all for paying for things for cash these days, but there might be some of you out there who think differently.

I certainly don’t think there’s anything wrong with having a high credit score, and in case I’m totally wrong about credit scores not being of any value (does anyone else see the humor in betting against myself? Sounds like something we’ve talked about before…), we’ve decided to launch our “90 Day Credit Repair Challenge” which will start around mid-August.

We invite you to play along with us. What do you have to lose? I’m going to start the process by working on our scores myself to show you how we do it, and you can DIY your own credit repair.

Stay tuned for more details!

Christine
christine@desertedgelegal.com

DISCLAIMER:

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Principal Reduction Programs

christine — Mon, 26 Jul 2010 21:46:27 +0000

Over the last week, I’ve received several e-mails from readers asking for information about principal reduction programs. I’ve heard stories about investors buying notes directly from the banks, and other programs that require a homeowner to pay around $2,500 up front to participate, but I don’t have any personal knowledge of whether these are legitimate.

Most of the websites for these programs are vague on exactly what they do to obtain a principal reduction for a homeowner. My initial thought is that if these programs are legitimate, they are probably new loans and not a principal reduction on the old loan.

I think a lot of people are looking for hope and a way out of their mortgage mess and are vulnerable, and I don’t want to lump everything into the scam category, but I am curious as to whether they are legitimate.

Please post your comments below if you have something to add to the discussion.

Christine

DISCLAIMER:

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They Say It’s About the Numbers…

christine — Mon, 26 Jul 2010 21:43:53 +0000

This is a guest post by my friend, Stephanie Shaw. I’ve asked her to contribute to our blog, as I’d like to have a few more voices besides mine, and we want to talk about a few other things that are relevant these days.

If you like the post, let us know — post in the comments or send me an e-mail.

From Stephanie:

They say it’s about the numbers…

Ok, so I’m not sure why I expected anything less from The Arizona Republic, but in July 25, 2010 Sunday paper there is an EXCLUSIVE Republic Poll that says, “Arizonans back law, also want reforms – Majority would let some migrants stay.”

It caught my eye. I’m actually debating my own stance on immigration in Arizona. Should they stay or should they go? Either way I believe SB 1070 has been turned into a bunch of media hype that clouds the real issues and tries to get news paper sold by detracting from the actual purpose of the bill.

Back to the article. Arizona’s population according to the US Census Bureau, the population of Arizona is estimated in June of 2009 was at 6,595,778. The definition of “majority” according to the Merriam-Webster Dictionary 3a: “a number or percentage equaling more than half of a total.”

So in other words, at least 3.3 million Arizonans would let some migrants stay, right?

Well, not so fast. The article states that 616 Arizona adults were polled. Let’s do the math on their poll: 616 divided by 6,595,778 = .009 percent of Arizonans were polled.

Ok, so I’ll agree that my numbers are skewed too. Of the 6.5 million Arizonans, how many of them are adults? If we take the population estimate, and subtract the number of “Persons under 18 years old”, which was 26.3% of the population, we get:
6,595,778 – (6,595,778*.263) = 4,861,088 Arizona Adults.

So in other words, at least 2.4 million Arizonans would let some migrants stay, right?

Let’s take a look at the numbers provided by the article again, now that we have a more apple-to-apples comparison: 616 divided by 4,861,088 = .013 percent of Arizonan Adults were polled.

Ahhhh, that makes me feel so much better! Now we’re getting somewhere! Now I’m co¬nvinced that the majority of Arizonans back the law and want reforms!

But of course, that would be silly to assume that the numbers are still representative. The first paragraph of the article states, “A majority of Arizonans support Senate Bill 1070, though the numbers may be smaller than previous polling suggested, an Arizona Republic poll has found.” So that means that the previous polling is representing that people are changing their minds, or that there were errors or…

If you look at the representation of the article, it says that the poll by the Republic was of 616 Arizona adults. The other poll was 500 likely voters in Arizona. Are these the same group? I can’t help but think of my Arizonan adult friend who in the past hasn’t voted because he thinks that politics are a bunch of posers manipulating a social system of popularity. Kind of reminds me of this article.

We should all READ what articles are representing, ASK questions about how they are relevant, and most importantly, THINK about what the purpose is of information you are getting. Headlines are there to grab your eye, and get you to read the article.

But we’ve also been taught to not judge a book by its cover, so why should we judge an article by its headline?

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Changes to Our Loan Audit Services

christine — Wed, 21 Jul 2010 00:34:37 +0000

Arizona SB 1030, which was intended to target loan modification companies, goes into effect on July 29. The statute makes it illegal for foreclosure consultants in Arizona to take fees before a service has been rendered. I’m sure you’re all familiar with these laws, as they are already in place in many parts of the country.

The term “foreclosure consultant” as defined under the Arizona statute is fairly broad, in my opinion, and while we don’t make any of the claims delineated within the statutes, (making guarantees to stop foreclosure, contacting the bank to negotiate on a borrower’s behalf, take any interest in the borrower’s property, etc.) we have decided to stop selling our loan audit services to the general public until we get some clarification on the statute.

Please contact us before the statute goes into effect if you are a homeowner or an investor and want a loan audit. After that date, we will only work with attorneys, so if you need a referral, contact me and I’ll be happy to help you find an attorney who can engage us for an audit. If you are already working with an attorney, please ask them to contact me directly for assistance. We will also continue offering paralegal services to law firms and attorneys.

We will also continue to offer the digital audit product to help homeowners and other professionals educate themselves on loan audits. Clearly, the best way for you to avoid being scammed is to do it yourself, especially if you’re in a difficult financial position and cannot afford an expensive audit.

We are also really excited about a couple of new projects we’re launching that we think will help a lot of people, so stay tuned for more information on those!

Contact me with questions: Christine@desertedgelegal.com

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What Does the Next Generation Financial Institution Look Like?

christine — Mon, 19 Jul 2010 02:22:30 +0000

I read a very interesting article on MSNBC, and I’m sharing it because I think the author of the article actually has some good points for a change. I think he’s saying that the financial industry may have again been left to police itself under the new financial reform bill, which he says doesn’t make sense given that the banking industry was supposed to have already been policing itself. And then look what happened. That’s a no-brainer as far as I’m concerned.

What stood out for me in this article was this comment from a guy named Richard Bove, who is a bank industry analyst for Rochdale Securities:

“My guess is there will be at least 10 million people who lose their bank accounts in the United States over the next 12 months, and they will not get banking services,” he said. “Which means that they will have to use payday loans, they’ll have to use Western Union payment services, they’ll have to use a series of other methods of handling their banking because they won’t be profitable for banks and the banks won’t keep them.”

So, you might be wondering why I find this statement so intriguing, and here’s why: for the last year or so, I’ve had an idea rolling around in my head about the future of the banking system.

I don’t want to scare anyone, but I really think the banking industry will not exist in its current form for much longer. I don’t think it’s sustainable.

However, I have been thinking about what the next generation of financial institutions might look like, because I think it’s a discussion that needs to be had.

Is it possible to set up a financial institution that is nothing like the way they are now?

Can a financial institution exist without being tied to the US Treasury?

Can we sell memberships to financial institutions like Costco memberships and include a certain level of services without charging members ridiculous fees?

What about the Paypal system? I think Paypal is brilliant, although it has it’s downsides too. Can it be duplicated? I’m sure they are using the Fed’s system to transfer money, but it’s cheaper than using a bank’s merchant fees.

Can we have a financial institution that is profitable without taking advantage of its customers that isn’t totally corrupt or built on massive profits at the expense of the public? That’s what I really want to know. I will not be a profit center for a too big to fail bank anymore. Nor will I get myself in debt using credit cards that make millions for big banks.

I know we have a lot of smart, intelligent readers on this blog (and thanks for all the excellent comments lately, by the way) and I would like to hear your ideas for creating the next generation of financial institution. Let’s forget for a few minutes about restrictions and talk about what we’d like to see in the new financial institutions and how it can be done.

The people who are no longer profitable to the big banks probably want to bank somewhere…so I’m interested in talking about meeting the needs of that sector of the economy since it will be underserved, plus the other people who, like me, are tired of being a profit center for a big bank.

What do you think? Please post your comments below.

Got questions? Send me an e-mail: Christine@desertedgelegal.com.

DISCLAIMER:

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The Times, They Are a Changin

MattAzari — Fri, 16 Jul 2010 22:02:56 +0000

I would like to take this opportunity to thank all of our blog readers who comment and send me feedback, whether it is in the comments section of the blog or via email. As always, I invite a discussion/debate and I am grateful to have an engaged audience not shy about giving their 2 cents. I have been in touch with one reader via email who has some great insight regarding the mess plaguing our financial landscape, and has sent me some wonderful articles that I would like to share with you.

This first article details the FDIC’s civil suit against former executives of IndyMac.

“The FDIC has sent letters warning hundreds of top managers and directors at failed banks — and the insurers who provided them with liability coverage — of possible civil lawsuits, Osterman said. The letters go out early in investigations of failed banks, he added, to ensure that the insurers will later provide coverage even if the policy expires.
The four defendants in the FDIC lending negligence case, who operated the Homebuilder Division at IndyMac, collectively approved 64 loans that are described in the 309-page lawsuit.”

http://www.latimes.com/business/la-fi-indymac-fdic-20100714,0,4893259.story

The second is a Times article about lobbyists in Washington. I find it interesting that there is a good discussion centered on the practice and ethics of lobbying, especially given its long history in American politics. This morning I was listening to NPR and the host of the program was speaking with a lobbyist. The guy brought up some interesting points and helped to dispel some preconceived stereotypes I had about the bunch. One thing he said resonated very much with me; he discussed how everyone in this country has a right to freedom of speech, and those in power always have had others trying to influence the decisions they make.

Here is an excerpt from the Times article I found intriguing:

“Lobbyists [are] the best bargain in Washington. Capitol Tax Partners, for example, is one of 1,900 firms that house more than 11,000 lobbyists registered to operate in Washington. Last year, according to the Center for Responsive Politics (CRP), firms like Capitol Tax were paid a total of $3.49 billion for unraveling the mysteries of the tax code for a variety of businesses.”

http://www.ritholtz.com/blog/2010/07/2009-lobbying-expenses-3-49-billion- dollars/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A +TheBigPicture+%28The+Big+Picture%29

The third article is in regards to Countrywide being sued by the State of Oregon. The suit against Countrywide is a result of pension losses stemming from the risky mortgage-baked securities originated by Countrywide. Among other things, the suit alleges that Countrywide deceived investors by claiming all the mortgages that comprised the investment vehicle sold to Oregon met underwriting standards and guidelines, things like borrower’s income and ability to meet mortgage obligations. This suit adds to the total number of lawsuits now in court that seek to hold accountable these companies that contributed to the financial crisis. I think many more are either in the works or will be soon.

http://www.thetruthaboutmortgage.com/countrywide-sued-by-state-of-oregon/

This fourth article discusses the follies of TARP. It’s a pretty short article and it breaks down the debt rather well.

http://www.ritholtz.com/blog/2010/07/lies-divide-truth- unites/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+ TheBigPicture+%28The+Big+Picture%29

This fifth article was perhaps my favorite. Its goal is to explain the oversupply of houses and the reasons why the market cannot absorb such overabundant inventory. One thing I found highly interesting was the explanation given for why housing prices cannot appreciate right now and likely will not for an extended period of time. Loan to Values are 1.5 times too high, there is $4 trillion of excess mortgages on the market, and 24% of US mortgages have negative equity. The article also goes on to discuss why interest rates are so low and why the Fed MUST keep them so low in order to prevent a cascading wave of defaults. This article is a real eye opener and puts aside rhetoric in favor of cold hard statistics. I highly encourage all homeowners and anyone generally interested in the economics of mortgages to read this article!

http://www.ritholtz.com/blog/2010/07/the-4-trillion-dollar-question- 2/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+The BigPicture+%28The+Big+Picture%29

Its slim pickings to find some upbeat news these days; however I think ignorance is by no means a solution. Please remain informed and educate yourself as best as possible about what is going on so you don’t fall victim to the economy!

As always, I invite a discussion in the comments section below as to your comments and questions.

Got questions? Send me an e-mail: Matt@desertedgelegal.com

DISCLAIMER:

****MATT AZARI IS NOT A LICENSED ATTORNEY OR FINANCIAL ADVISOR. THIS BLOG IS COMPRISED OF HIS OPINIONS, OBSERVATIONS AND INTERPRETATIONS AND IS NOT INTENDED TO BE CONSTRUED AS LEGAL OR FINANCIAL ADVICE. PLEASE CONSULT WITH AN ATTORNEY/FINANCIAL ADVISOR BEFORE RELYING ON OR TAKING ANY ACTION BASED ON THE INFORMATION IN THIS BLOG.****

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