06.18.08
Posted in Education, Money and Finance at 1:46 pm by Jeanne
Americans are failing. It is happening right before our eyes. A Nation once so proud is failing quicky. We are happy to spend money on Fancy Coffee Drinks and Nintendo Games. We are happy to run up credit card debt to get what we want today . But when it comes to paying higher taxes for better roads, education and health care we balk. We spend more time watching TV than planning our futures or helping our children plan theirs.
Have Americans become arrogant, because we think we are the best? We have lost a proud focus on what our parents and grandparents taught us - to evaluate and plan for what is most important to us. We should learn to SAVE for a rainy day. We should PLAN for retirement. We should BUDGET our expenses. We should TEACH our children good habits about money. We are not setting a good example.
Point in case - How much time have you spent educating your children about money? Do you know if they can define “interest rate?” How about “Annual Percentage Rate.” Can they tell you how long it takes to pay off a credit card when they only make the minimum payment with a 21% interest rate? Can they tell you how much that $1,000 hi-def TV really cost on that same credit card?
And the older we get, the worse it gets, apparently. We are lazy. On the most important decision of most people’s lives, their mortgage (note I didn’t say house.) Studies from the FTC show us that in reviewing standard mortgage documents:
• Half the borrowers surveyed couldn’t correctly identify the loan amount.
• Nine in 10 couldn’t figure out the total up-front loan costs.
• Two-thirds did not recognize that they would have to pay a penalty if they paid off the mortgage within the first 3 years. And 95% didn’t know how much that penalty would be.
• Three-quarters did not know when substantial charges for FHA or PMI insurance had been included in the loan and monthly payments.
• One in five couldn’t correctly identify an annual percentage rate, the amount of cash due at closing or the monthly payment, nor did they know if their payment included charges for taxes and insurance.
And why can’t we read and interpret these documents? Partially, because we do not educate our children about economics. Not in the home. Not in school. At home, we are setting bad examples. At school, only 17 states require students to take an economics class to graduate from high school and only seven states require a basic personal-finance course, according to a survey by the National Council on Economic Education
With the economy as it is, and all the worry about gasoline prices, we have more than just oil to worry about. We need to take a better look at our priorities. Let’s look in the mirror and recognize where we are going. Then stop, and think, where do we really want to be.
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05.31.08
Posted in Industry News, Money and Finance at 4:27 pm by Jeanne
A recent study by the FHA has unearthed a big surprise – in 2007, lower-income borrowers had higher credit scores than higher-income borrowers. The analysis showed that borrowers with median incomes of $48,756 year had credit scores that were a better credit risk than Borrowers with average incomes of $53,388. Even in studying loans with the minimum 3 percent down, lower income clients had were statistically more likely to repay. The study is now causing a major shift in FHA lending.
The FHA always has required at least a 3 percent down payment, full documentation of income and assets, and has never allowed prepayment penalties. Historically it used a fixed approach to pricing home loans, but now plans to shift to a risk-based premium tied to FICO credit scores and down payments, similar to the private sector approach of matching down payments and credit scores with the loan rate.
Under the old FHA system, buyers with first-rate credit scores paid the same as borrowers with bad credit scores, paying 1.5 percent premiums up front, and 0.5 percent annually. That created a disadvantage for borrowers who presented low risks and a subsidy for borrowers who were more likely to default. Under the new FHA Premium system, low-income borrowers with higher credit scores will benefit by lower rates.
Under the new system, starting July, on a 30-year loan with down payment of 10% or more, borrowers with FICO scores above 680 will qualify for the lowest premiums – 1 ¼% of the loan amount up front with annual renewal premium payments of ½%. Borrowers with down payments under 5% and poor credit scores (500 to 559) will be charged premiums of 2 ¼% up front and 0.55% annually. Every borrower will continue to receive the same market-based interest rate.
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03.30.08
Posted in Money and Finance at 8:48 pm by Jeanne
The relatively new concept of “risk-based pricing,” is now happening in the mortgage industry. The idea is that a person’s credit score plays a major factor in the interest rate charged. The better your credit rating, the lower your interest rate. This makes it important for us, as consumers, to improve our credit before seeking mortgage or other loan approval.
The good new is that the process is controlled by the US - we have power over our credit ratings! If a Lender is unwilling to lend, or the rate is too high … we can get a better rate by cleaning-up our credit.
I believe that good credit scores will be of increasing importance in obtaining favorable interest rates. It just makes sense! This means – we, as consumers need to pay attention to our credit reports! We should review the three national credit reporting agencies — Experian, Equifax and TransUnion files periodically. Discrepancies should be corrected. And, if there are negatives on a credit report, consumers should take advantage of the Fair Credit Reporting Act (FCRA) to file a dispute. Unless the credit agencies can validate the problem, they will have to remove the item. One way to increase a credit score is pay off credit cards, but leave them open— this leaves more available credit, and a longer credit card history, both of which actually increase your credit score.
To obtain a free credit report, you can go online, to the FTC Website or call (877) 322-8228. And, for those inundated by pre-approved credit cards, (which can lower you score, because credit bureaus know when a bank has pulled a credit report before making the offer) there is an opt-out service at the www.FTC.gov Web site or call 1-888-5-opt-out. (It’s similar to the do-not-call registry.) The opt-out is good for five years, and within about 30 days some of that pre-approved junk mail should cease. But beware, many of those reportedly “free credit report” sites have strings attached, and are not really free.
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03.28.08
Posted in Industry News, Money and Finance, Regulation of Insurers and Banks at 10:25 am by Jeanne
A Demotech Press Release/advertisement for the 2008 Edition of Demotech Performance of Title Insurance Companies states that the major Title Underwriters are in good financial shape. The press release says:
“Although the severity and duration of the downturn in the real estate marketplace will likely challenge smaller, privately held, regional Title underwriters, the overwhelming majority of the Title underwriters, including the publicly traded underwriters, will sustain exceptional financial stability. They have the financial resources to respond and settle meritorious claims as payments come due. Similarly, the majority will continue to possess sufficient financial strength to withstand agency defalcations that tend to accompany periods of declining Title insurance production.”
My first question is – “what constitutes meritorious claims?” The title industry has long reserved for “title problems” such as fraud, forgery, incompetent or incapacitated parties in the chain of title, etc. But now it seem to have taken on the additional liability for closing issues - not only for such things as simple errors in closing, but also for breaches of contract, fraud, conversion of funds and theft, by providing “insured closing letters” to lenders.
My second question is- “Has anyone taken into account that the policy says the title company will defend ANY claim against title,” meritorious or not. Recent costs of defense have skyrocketed. And, the quality of work done over the last few years, as has been well known and admitted to by the Underwriters, has been deplorable. A few years ago the American Land Title Assoc. claimed one in four titles had defects. They no longer talk about these ratios – too embarrassing, perhaps? After all, the title companies have been responsible for most of the problems. I would not be surprised if one in two titles were now deficient. All of these problems should be mitigated. It will be expensive. Or perhaps the Underwriters will just “insure over” problems, hoping in time they will go away.
Lastly, considering the seemingly daily uncovering of bad apple title agents and recognizing that only a hand full of national underwriters hold a 90% plus market share, when the press release says “the majority will continue to possess sufficient financial strength to withstand agency defalcations” does that mean one or more of the National Title Underwriters are suspect for not being able to survive this crisis?
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03.20.08
Posted in Education, Industry News, Licensing, Money and Finance at 2:23 pm by Jeanne
Yesterday, My Fox News in Minnesota, reported a MN Commerce Department raid, where officials found thousands of mortgage closings that were never completed at two additional title companies - Title Source Mortgage Company and Home Sweet Home Equity. The raid showed that “more than 3,000 homes nationwide” were affected. The Commerce Department revoked the license of the companies, whose owners allegedly spent some of the money for a suite at the Minnesota Vikings games, and $20,000 in political contributions.
I am not sure what all that means, but I would estimate that once again, the title insurance underwriter(s) will be up to their proverbial necks with trouble from owners, lenders and the secondary market, because:
• Thousands of homeowners have unfiled deeds. Of record, they have no title to their houses. They will be hard pressed to sell their homes, refinance, etc.
• Unwarranted Foreclosures will be forced. Money collected to pay off mortgages was likely not sent to the appropriate lender, causing these houses to be forced into foreclosure, through no fault of the owners.
• Unpaid monetary items on each closing will be a huge problem. Taxes, assessments, homeowner association dues, child support liens, mechanic’s liens, and other title issues, while collected at these closings, will remain unpaid on these homes until the title mess is cleaned up on each home. Penalties and interest accrue on many of these daily.
• Likely hundreds of lenders have unsecured mortgage loans on these 3,000 properties, because the mortgages have not been recorded at the respective county. These lenders will have loans unsalable on the secondary market, because no mortgage notes and collateral packages have been provided to the end lender. And, at a mere $260,000 per transaction, that would be about $780,000,000. worth of headaches on this one title agent.
I have long been outspoken in my concerns about the quality of title work, and signing of inept and unethical title agents, but hand in hand goes the similar responsibility about the quality and integrity of closing the transaction. Title Agents need to be both knowledgeable and ethical. Title agents handle Billions of dollars each year of the public’s money. The licensing and oversight of Title Agents is obviously not being appropriately handled by the five national title underwriters.
It seems to be time for state legislatures to step in. Why not fund State oversight of title companies by assessing significant enough penalties to really make them do the right thing. Title companies need oversight of funds, regular education and continuing education in laws and ethics, and they need a big stick to make it happen.
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Posted in Education, Industry News, Licensing, Money and Finance, Mortgage and title Fraud at 2:11 pm by Jeanne
Last month the Minnesota Department of Commerce announced it had taken action against another kickback scheme in which a title insurance agent set up sham affiliated businesses with real estate agents, mortgage originators and developers in order to get around state and federal laws prohibiting direct payments for referrals. The Department shut down six more sham affiliated business by revoking their title insurance licenses. Licenses revoked included: 1st Title, St Louis Park, MN; Timberland Title, Arden Hills, MN; Royal Title, Minneapolis, MN; St. Cloud Title & Abstract, St Cloud, MN and Foundation Title, Brooklyn Center, MN. The final company, Desert Sun Title, did not even have an address or any referral partners. It also fined Premier Title Insurance Agency $175,000 for the kickback scheme.
According to the MN Dept of Commerce enforcement web site, Premier Title Insurance “created and controlled sham Affiliated Business Arrangements (ABAs), employed or contracted with parties not licensed to sell insurance, ABAs sold Fidelity National Title’s policies, unlicensed people were paid commissions, and failed as a supervising agent to ensure that ABA relationships were disclosed..” They also “paid kickbacks or other things of value to its referral partners for the referral of title insurance business and real estate closings.”
Last year, the MN Department of Commerce fined First American Title Insurance Company of Santa Ana, California, $500,000 and shut down 35 of their sham affiliated businesses.
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