Richard's Real Estate Thoughts

FTC targets credit repair companies with law suits

Thu, 13 Nov 2008 18:00:13 -0600

With tightening mortgage guidelines, increasing foreclosures, growing credit card delinquency, credit standards have become more and more important. In response to growing consumer need, numerous companies now offer "for fee" credit repair. I had written about concerns with some of these services in a previous post.

A recent NPR story addressed the growing industry that offers to "power wash" consumer credit scores. Many companies promise to increase credit scores over 100 points by removing negative references, including items that are correct and accurate. Most companies even advertise to remove bankruptcy, foreclosure, and judgment references.

In the interview, Charles Helms with non- profit Consumer Counseling North West, points out that credit repair companies cannot do anything that a consumer cannot do on their own. An informed consumer hiring a repair company to do something that the consumer could do themselves does not bother me.

Disputing credit report items can be tedious, and it may very well be worth it to hire a service. The problem for me is that so many of these services advertise to remove legitimate derogatory items. This would basically make the credit report grossly inaccurate. In cases where accurate bankruptcy, foreclosure, and judgment references were removed, it would either invalidate the credit report for mortgage purposes or would encourage false disclosure on an application.

The FTC has recently coordinated efforts with many states to crack down on credit repair companies for false advertising, unfair and deceptive practices, violations of the Credit Reporting Act, and violations of various state laws.

List of companies sued by FTC and various states.

The NPR report indicated that federal law provides for a free, relatively easy way for consumers to dispute items on their credit report." I have helped many clients with their credit disputes. In most cases, I have found that it is not so "easy."

The important matter for a consumer is to have an accurate credit report.

Here is a link to some FTC information on credit .

My process to help clients with credit repair is to start with a detailed review of each reference, verifying that the information is accurate. We determine what the target credit rating is, what the client resources are, and develop a step by step plan.

Possible steps can include paying collections, requesting a deletion letter, issuing disputes with the credit repositories, rapid rescoring.

Clients who need an immediate improvement in their credit scores should be careful not to take well intentioned steps that might actually lower the scores.

Credit is one of the most significant barriers to home ownership, more so in the current lending environment. Credit repair can be done, but it must be done right.

Richard Smith
American Acceptance Mortgage, Inc
Toll Free 888-474-9920 Cell 423-280-0345
Home financing in Tennessee, Georgia, and Alabama.
Experience matters when it is your home loan.

FHA, VA, Rural Development, Reverse Mortgages, Construction Permanent, Renovation,
FHA Renovation, Mortgage Modification and Loss Mitigation

Mortgage lending offices located in Chattanooga, TN
rsmith@aamonline.com

Join me on LinkedIn, Facebook, Twitter

Down Payment Assistance Needed - Call Congress for upcoming lameduck session

Mon, 10 Nov 2008 06:41:09 -0600

With all the misspent funds for the $700 billion Bucks for Banks program now well underway, we are still left with millions in home inventory and millions of prospective home owners unable to buy because of a lack of down payment.

Congress will meet next week and look at economic stimulus. The approach will be to spend more money.

If housing is at the center of the problem, it is time to take another look at proven programs that do not use the US Treaury.

Restore 100% conventional programs - My Community, FNMA Flex, Freddie 100, Home Possible, Community Reinvestment Act programs. I have not seen the delinquency figures for these programs. My guess is that the assumption is being made that delinquency is high for these low down payment loans, but that actual statistics do not support the assumption.

Restore FHA seller funded down payment assistance - This program has helped millions. Delinquency has not been unmanageable for these home owners, and can be improved simply by the guidelines similar to what is proposed in HR 6694.

Restore FHA loan amount calculation to 97.75% - Effective January 1 the FHA down payment will be increased to 3.5% and will no longer allow for a portion of buyer closing costs to offset some of the funds required for closing. This makes no sense, if the goal is to build up our housing market.

These three steps would make a great impact helping qualified families purchase homes, and would go a long way to stabilizing our housing market.

Ameridream video - Truth about down payment assistance.

Contact your representatives.

Richard Smith
American Acceptance Mortgage, Inc
Toll Free 888-474-9920 Cell 423-280-0345
Home financing in Tennessee, Georgia, and Alabama.
Experience matters when it is your home loan.

Join me on LinkedIn, Facebook, Twitter

Nonfarm payroll employment drops - leading indicator of foreclosures

Fri, 07 Nov 2008 20:40:10 -0600

Today the significant nonfarm payroll report came out with worse than expected numbers. We have been reading about job losses for weeks, and they continue with evidently quicken pace. Of the 1.2 milliion lost jobs this year, 651,000 have been lost the last 3 months.

Some predictions have unemployment growing to over 8%. We are 6.5% now.

FNMA's economic analysis for October points to the nonfarm payroll as a leading indicator of foreclosures. Of course this should not be a surprise, but for a nation already in a foreclosure crisis caused by dropping property values and high interest adjustable rate mortgages, the threat of additional foreclosure problems from declining employment is not good.

Taken from FNMA Economics and Mortgage Market Analysis

We are using $700 billion to bailout banks for the apparent purpose of purchasing other banks. Our economy is faced with mounting job losses, and the real prospect of a major automotive industry crash.

Over the next few months there will be a debate about the nature of an economic stimulus. The Bush administration is insisting on a targeted immediate impact. Obama seems interested in a more long term solution for employment, such as infrastructure construction or alternative energy development.

My guess is that the new stimulus will stall out until the new administration and the significant democratic majority get started on their economic package during what will likely be a very friendly honeymoon period.

Not real sure what our employment picture will be in three months, but it seems to me the quicker our leaders get started on a broad and coordinated economic plan the better. It seems to be a mistake to rely solely on the $700 billion bank bailout and federal funds target rate cuts.

We need to get people back to work. We need to create a real mortgage modification program. We need to find ways to increase the number of buyers. Two simple ways to do this is to bring back seller funder down payment assistance (or a 100% FHA purchase program) and to bring back 100% conventional loan programs.

We need these quick, before things start to get out of hand.

Richard Smith
American Acceptance Mortgage, Inc
Toll Free 888-474-9920 Cell 423-280-0345
Home financing in Tennessee, Georgia, and Alabama.
Experience matters when it is your home loan.

Join me on LinkedIn, Facebook, Twitter

Treasury reports bailout progress - bucks for banks

Fri, 07 Nov 2008 16:16:28 -0600

The Treasury gave its first update on the progress of $700 bailout package. So far $125 billion has been distributed or pledged to 9 major banks. The money has not been used for purchasing defaulted mortgages, as was the original proposal. Of course, soon after passage of the bailout proposal, the target was changed to focusing on bank capitalization. Buying defaulted mortgages took a back stage, as it was thought that a capital stock investment would provide more capital for lending. This seemed a good plan with good hopes to open back up the credit markets, although it did not directly address the housing market woes by helping with foreclosures, struggling home owners, mortgage modifications, or home inventories.

As things worked out, the bailout bucks have not been used for new lending either. So far banks receiving bailout bucks seem intent on acquiring other, weaker banks. Supposedly these moves will help our economy.

There are more reports that the Treasury has plans to focus bailout bucks on other, non-bank institutions.

The report this week does not give any specific information on perceivable improvements. Treasury cautions that we should give the bailout time to bring about economic improvement.

NPR reports some economists comments about the progress report. "Too early." "Banks were evidently worse off than initially thought." "Banks are scared to lend." "We should not expect too much from the bailout." "Lending is just going to be tighter with or without the bailout."

So there you have it. The big bailout may not have been so big after all.

GM lost $2.5 billion, with sales down 45%. Ford sales down 30%. The big three are looking for their own bailout.

Credit card losses are at historical highs, with a $6.8 billion increase in consumer debt.

Unemployment is at a 14 year high, at 6.5%, with nonfarm payrolls dropping 240k jobs. Employment losses are widespread among all industries and businesses.

Two articles in my paper today spoke about consumer and business credit. Local banks in Chattanooga state that they have plenty of funds to lend. The bottom line is customers need better credit and will pay higher rates. They were speaking about credit cards, consumer loans, car loans, and commercial loans.

An AP article by Stevenson Jacobs indicates that the credit markets are opening, but many potential consumers are not borrowing. Recent retail sales reports indicate that many people may not be interesting in borrowing, even when credit is available. This is likely fears over employment stability. I'm not sure how to reconcile this reported lack of borrowers with the $6.8 billion increase in consumer debt, but there it is.

President-elect Obama is already receiving daily economic briefings. I suspect that much of what takes place over the next few weeks will be done in line with his objectives. We should soon be hearing about a new stimulus package.

It seems to me that the bailout package has not been successful. It is not encouraging consumer spending, employment, credit, investment. It is not helping foreclosures, mortgage modifications, home inventories and prices, new construction. It is not helping to qualify new home buyers. The bailout payout is being executed by a fairly secretive process. It is evidently encouraging bank consolidations. Is that the plan?

I would really like to see how this can be coordinated with an overall economic restoration plan. We need to ease fears, to qualify more home buyers, to bring employment, to enact reasonable regulation to prevent future abuses with speculative lending practices.

We need something real, and fast. What I think that we will get is another batch of money to more banks and another drop in the federal funds rate.

Richard Smith
American Acceptance Mortgage, Inc
Toll Free 888-474-9920 Cell 423-280-0345
Home financing in Tennessee, Georgia, and Alabama.
Experience matters when it is your home loan.

Join me on LinkedIn, Facebook, Twitter

Credit defaut swaps - congressional approved swindle

Thu, 30 Oct 2008 21:16:22 -0500

Over the last several months, my persistent question is how 6% foreclosure rate can bring down a housing market, then a credit market, then a banking industry, then a national economy, then a global economy.

The numbers have never added up.

The Great Depression had 25% unemployment. We have been in the 5% unemployment range. GDP fell this quarter, but less than expected. Not a definition of crippling credit crisis and global recession.

The numbers do not add up.

FNMA and Freddie Mac made A paper loans, full documentation. How did they get in shape to require a bailout?

The numbers do not add up.

Then I learned Fannie and Freddie bought "credit enhanced" subprime loans and Alt A mortgages. These purchases were outside their charter. They bought the mortgages with full knowledge of Congress and the regulators.

How did they get away with it? My guess - lobby money.

What is a credit enhancement? At first I did not understand that phrase.

Some months later I learned what credit enhancement means - insurance in the form of a credit default swap.

A credit default swap is a way to share risk on an investment. It is an unregulated market. Why is it unregulated? It is allowed because of the Commodity Futures Modernization Act passed in 1999 and signed by President Bill Clinton.

Why was this move to unregulate the investment industry taken so soon after the S&L crash? My opinion is lobby money.

Reading about credit default swaps can cause confusion.

The credit default basically is a guarantee given for a paid premium. The guarantee is that should a bond fail the bond investor will be reimbursed in full the bond amount. Bonds typically do not fail. Seems like good income for the credit default insurer, for a low risk.

Even if the bond fails, most likely the failure should not wipe out the entire bond value.

My question is how did credit defaults cause the entire industry to crash. If the bond fails, credit default pays and takes the partial loss on the bond default. How can these losses be so high?

The numbers do not add up.

A little further study on credit default swaps. The actual credit default market is in the range of $60 trillion.

Now misplacing $60 trillion can mess up an economy.

The entire mortgage debt is $12 trillion. How can the credit default swap market that is supposed to be a guarantee for some of the bond holders (not all) in case of default of a particular bond?

I asked some knowledgable mortgage people this question. The answer. No one really understood. "It is complicated."

The numbers do not add up.

Take time to read this NPR report. Here is the NPR audio report of how credit default swaps work. Come to find out. Credit default swaps are not complicated. They simply are a swindle, a massive swindle, approved by Congress.

Investment bankers oversold the credit defaults. They swindled investors selling insurance that they could not back their guarantee. They allowed gambling on bond defaults by risk takers who purchased insurance on assets they did not own. They created mortgage loan programs that were fundamentally speculative and led to excessive defaults.

The authorities in Congress and in the regulatory agencies do not want a qualified family to be able to use seller funded down payment assistance to purchase a home with an FHA loan. But they are OK with a hedge fund overleveraging a bond guarantee and bringing down the world economy.

The authorities in Congress and in the regulatory agencies do not want a qualified family to be able to use community reinvestment funds or 100% conventional lending to purchase a home without a down payment. But they are OK with investment banks sellling bogus, unregulated, under capitalized insurance to bond investors.

Why are they OK with this? My guess - lobby money.

The authorities in Congress and in the regulatory agencies want to blame the families who worked to make house payments or loan officers who followed program guidelines. They want to distract attention from this very real and massive fraud and shift attention to minute errors on a truth in lending disclosure or lender paid service release premiums.

They want to focus attention on tens of dollars so we miss trillions of dollars.

My opinion is that a vote for an incumbent is a vote for corruption. But that is just my opinion.

BTW, that $700 billion bailout that was supposed to buy defaulted mortgages and rehabilitate them so they could be resold into the mortgage investment market - who is getting the money? And what is it being used for?

For those who are pissed at the media, it may be your anger is a little misplaced. Keep the finger pointed straight at Congress and the investment bankers. The ones who put us in this mess are the ones who are responsible now with getting us out, debating the new regulatory environment and in charge of $700 billion to bail out our economy.

Richard Smith
American Acceptance Mortgage, Inc
Toll Free 888-474-9920 Cell 423-280-0345
Home financing in Tennessee, Georgia, and Alabama.
Experience matters when it is your home loan.

Join me on LinkedIn, Facebook, Twitter

Bailout money rich richer - money directed toward bank acquisition

Tue, 28 Oct 2008 06:35:45 -0500

There is more on the use of bailout funds in today's AP press. Banks are apparently using the capital investment funds to purchase other banks. At least a partial purpose for these acquisitons was mentioned to ease the possible need for Federal takover of weaker banks and to strenghten the overall banking system.

This may be a good policy goal, although it looks more like government is now in the business of determining which banks will win out and which banks will lose.

To me it just seems like more indication that the bailout lacks direction and its effectiveness may very well be lessened as a result.

It may be that the markets are not responding well and quickly in part because the bailout is not restoring markets, it is not helping stabilize housing, assisting struggling home owners, reducing foreclosure trends, rewriting high interest rate adjustable loans, buying back defaulted mortgage, or even making new loans.

None of the intended use of the funds that I read said anything about helping big banks get bigger.

I would love to hear your comments.

Bailout plan without direction

Mon, 27 Oct 2008 12:56:10 -0500

One of the problems with approving the initial bailout plan was that there were few details about the details and the mechanics of purchasing defaulted loans. Further problems with passing the bailout was concerns whether purchasing the mortgages would actually help with the mortgage markets. Questions were also asked as to how the bailout purchases would help struggling homeowners and slow foreclosure trends.

The plan was passed after much pressure and much pork was added.

Then the plan was changed to focus more on purchases of bank stock, with the idea that adding capital rather buying defaulted mortgages would have greater impact on market liquidity.

Over the weekend it appears that bailout money might come available for other market participants, to include insurance companies, auto makers, transit agencies, hedge funds, security dealers, foreigh banks.

This is to me a scary proposition, that the funds will be misdirected and totally miss the intended purpose.

We passed a vague bill, with lots of pork, but little specifics for the main piece of legislation and little oversight.

Without a direction and a plan, we may now be about to misdirect the bailout funds so that they so diluted as to be insufficient to have the corrective impact that was hoped.

Richard Smith
American Acceptance Mortgage, Inc
Toll Free 888-474-9920 Cell 423-280-0345
Home financing in Tennessee, Georgia, and Alabama.
Experience matters when it is your home loan.

Join me on LinkedIn, Facebook, Twitter

Federal Reserve Open Market Actions - What is the target? the impact?

Sat, 25 Oct 2008 12:36:53 -0500

The Federal Reserve determines and carries out monetary policy to promote goals of high employment, sustainable growth, and stable prices. The Reserve tightens monetary policy to curb inflation. It loosens monetary policy to ease unemployment.

There are three basic tools that the Reserve uses to implement monetary policy. Open market operations, discount window operations, and establishing banking reserve requirements.

Open-Market Operations are the purchase and sale of government securities issued by the Treasury Department and sold by securities dealers. It is called Open Market because these purchases are made on the open market from approved securities dealers. Purchasing the securities infuses cash into the banking system by putting the cash into the dealers' own depository banks.

The reserves of these banks are increased which enables them to lend more to consumers or other banks through the federal funds accounts.

The use of open market operations - buying more securities to infuse cash or selling more securities to limit cash - has as the present goal targeting the Federal Funds interest rate. That has not always been the goal. In fact open market operations has not always been the primary tool for monetary policy. It has evolved into its present role since the Depression, focusing at times on the money supply and at times on the Federal Funds Rate.

The primary target now seems to be just bare liquidity.

Have the bank losses from foreclosures, securities, derivatives, credit default swaps, dropped the bank reserves so low as to require these hundreds of billions of dollars just to keep the banking system at its 10% reserve requirement?

Is the Federal Reserve infusing massive amounts of money, by buying securities, simply replacing balance sheet capital that has been lost?

Who has the money that has been lost?

If a home is bought with a loan $100,000 and is foreclosed and sold at $80,000, the home owner has lost a home and the bank has lost $20,000. But has the money supply fallen by $20,000?

The bank has lost $20,000 capital, and therefore cannot make $200,000 in new loans.

Is this the problem that the cash infusion is fighting?

Are there other issues?

In normal times the Federal Reserve uses open market operations to offset normal fluctuations in money supply, technical adjustments to allow for moderate growth and to counter temporary supply fluctuations caused by the normal conduct of business at a national level.

At times the Federal Reserve decides to act to fight unemployment or inflation. To do this the Reserve will increase or decrease open market purchases more than needed for daily technical correction.

The recent infusions though go beyond technical adjustments or even inflation or employment targets.

What is the target? What is the future impact? Have we permanently increased the money supply? Who has the lost money? Will the Federal Reserve need to counter this current cash infusion later with an equally restrictive policy?

Who might know the answers to these questions?

Richard Smith
American Acceptance Mortgage, Inc
Toll Free 888-474-9920 Cell 423-280-0345
Home financing in Tennessee, Georgia, and Alabama.
Experience matters when it is your home loan.

Join me on LinkedIn, Facebook, Twitter

Chattanooga Education Initiative - education to compete in the global market

Fri, 24 Oct 2008 19:06:47 -0500

Dr Kay Andrews, Vice President of Education Initiative with the Chattanooga Chamber, spoke Thursday morning at the Enterprise Gateway Council Chamber meeting. She talked about the importance of education from kindergarten through the secondary grades to sustain the growth and development that Chattanooga has experienced over the last decades. She described the job expectations of the coming Volkswagen plant. Competency in math and science, loyalty, problem solving, dedication, experience, mature.

Additionally along with the Volkswagen plant, new suppliers for the VW plant will bring employment opportunity to the many counties around the Chattanooga area. These employers will also demand competent and educated workers. She offered statistics from Greeneville, SC who several years ago experienced the changes brought by the BMW plant, showing the promise and the demands which we now face.

Here are the headlines from today's news paper.

Times Free Press Training will ensure VW quality to maximize the benefit to the Chattanooga area - otherwise the "company will import talent from outside." We need to remember there are a lot of newly unemployed, experience automotive workers who may be interested in moving down south.

Associated Press Children less likely to graduate , the "US is stagnating while other industrialized countries are surpassing us."

The City of Chattanooga impressed the Volkswagen representatives by its successful transformation of the city - downtown renovation, the park system, the cultural offerings, the outdoor amenities, the push for environmental standards, the foresight to create the industrial park at Enterprise South.

Chattanooga has a proven track record of successful corporation between government, business, and community groups. We have cause for pride, but we also cause to get to work to be ready for the changes about to come upon us.

We are moving from being a town with world class potential to being a city with world class expectations and demands.

Richard Smith
American Acceptance Mortgage, Inc
Toll Free 888-474-9920 Cell 423-280-0345
Home financing in Tennessee, Georgia, and Alabama.
Experience matters when it is your home loan.

Join me on LinkedIn, Facebook, Twitter

Reverse Mortgage Limit Increased for FHA HECM

Thu, 23 Oct 2008 20:29:15 -0500

The Housing and Economic Recovery Act, the housing bill, passed in July provided for increased loan limits to $417,000 for FHA's Reverse Mortgage, the HECM. The bill called for the limit to be increased to equal the Freddie Mac limit for a single family home.

FHA has interpreted this provision by setting a single, national loan limit of $417,000. This new limit was expected to be effective November 1, 2008, but several lenders have been authorized to process and close HECM loans at the higher limit effective immediately.

This is exciting news for many of the nation's seniors, opening the availability of reverse mortgage to many who previously were not qualified.

FHA HECM reverse mortgages offer seniors the highest payout, significantly higher than is available with the conventional loan version, called

Reverse mortgages "do not require repayment as long as the home is the borrower's principal residence."

Basic borrower eligibility requirements are

minimum age 62
own the home
occupy the home as the primary residence
participate in an approved HECM counseling session

Call for more details.

Richard Smith
American Acceptance Mortgage, Inc
Toll Free 888-474-9920 Cell 423-280-0345
Home financing in Tennessee, Georgia, and Alabama.
Experience matters when it is your home loan.

Join me on LinkedIn, Facebook, Twitter