FHA to eliminate “post payment” interest charges

WASHINGTON – Aug. 27, 2014 – The Federal Housing Administration (FHA) today announced that borrowers who prepay their FHA-insured mortgages will not have to make interest payments beyond the date their mortgage is paid in full.
FHA's rule, Handling Prepayments: Eliminating Post-Payment Interest Charges, applies for FHA-insured mortgages closed on or after Jan. 21, 2015. This rule explicitly prohibits lenders from charging borrowers post settlement interest, which is broadly defined as a "prepayment penalty" by the Consumer Financial Protection Bureau (CFPB), for all FHA Single Family mortgage products and programs.
In addition, FHA announced a new rule to ensure borrowers have early access to information when making decisions about their FHA mortgages. Effective for FHA-insured Adjustable Rate Mortgages (ARMs) originated on or after Jan. 10, 2015, this rule makes two revisions to FHA's ARM Program. It requires lenders:
″ To provide borrowers with FHA-insured ARMs at least a 60-day, but no more than 120-day, advance notice of an adjustment to their monthly payment. FHA currently requires a 25-day advance notice.
″ To base an interest rate adjustment that results in a corresponding change to the borrower's monthly payment on the most recent index value available 45 days before the date of the rate adjustment (commonly referred to as a "look back period"). FHA currently requires a 30-day look-back period.
The new rules result from regulations in the Truth-in-Lending Act (Regulation Z) as revised last year by the CFPB.
© 2014 Florida Realtors®
 

U.S. consumer confidence hits seven-year high

NEW YORK – Aug. 26, 2014 – U.S. consumers continue to feel better about the economy as the Conference Board Consumer Confidence Index hits 92.4 – its fourth consecutive monthly increase and the highest level in almost seven years.
In July, the Index stood at 90.3. The Present Situation Index that gauges attitudes about today increased to 94.6 from 87.9. However, the Expectations Index, which gauges attitudes about the future, edged down slightly to 90.9 from July's 91.9.
"Consumer confidence increased for the fourth consecutive month as improving business conditions and robust job growth helped boost consumers' spirits," says Lynn Franco, director of economic indicators at The Conference Board.
"Looking ahead, consumers were marginally less optimistic about the short-term outlook compared to July, primarily due to concerns about their earnings," she adds. "Overall, however, they remain quite positive about the short-term outlooks for the economy and labor market."
Current conditions
Consumers saying business conditions are "good" edged up to 23.9 percent from 23.3 percent, while those claiming business conditions are "bad" declined to 21.5 percent from 22.8 percent.
Consumers' assessment of the job market was also more positive. Those stating jobs are "plentiful" increased to 18.2 percent from 15.6 percent, while those claiming jobs are "hard to get" declined marginally to 30.6 percent from 30.9 percent.
Short-term economic outlook
The percentage of consumers who expect business conditions to improve over the next six months held steady at 20.4 percent, while those expecting business conditions to worsen fell to 10.2 percent from 12.1 percent.
Consumers, however, were somewhat mixed about the outlook for the labor market. Those anticipating more jobs in the months ahead fell to 17.0 percent from 18.7 percent, although those anticipating fewer jobs also declined to 15.8 percent from 16.6 percent.
Fewer consumers expect their incomes to grow: 15.5 percent in August versus 17.7 percent in July. Those expecting a drop in their income rose marginally to 11.9 percent from 11.1 percent.
Consumer confidence hit a low of 25.3 in February 2009. In the 20 years before the recession, however, it averaged 102.
Nielsen conducts the monthly Consumer Confidence Survey, based on a probability-design random sample, for The Conference Board. The cutoff date for the preliminary results was Aug. 14.
© 2014 Florida Realtors®
 

Why You Should Call Your Credit-Challenged Prospects Now

From Market Leaders Blog by Jason Van Steenwyk on August 18, 2014

Agents! Brokers! Have you been working with someone who wants to buy a home, but has some credit issues? Anyone who was a borderline case and got denied for the credit terms they needed to make the deal work? Have any clients who backed out of buying when they saw their FICO score?
The good news is that the rules are changing to the benefit of consumers. This gives you the all-important opportunity to call them back – this time as someone who is clearly in their court and has information that can help them!

Shifts in the FICO Score System

Last week, Fair Isaac Corp., the company that administers FICO, the most important measure of consumer creditworthiness in commerce today, announced that it is cutting people who have experienced past hardships a little slack when it comes to calculating credit scores.
The new algorithm, called FICO Score 9, includes some key updates:

1. If a consumer has had a debt that went to collection – and later paid it off or settled it – then that former debt will no longer count against them in their FICO score calculation.
2. Debts related to medical bills will not be weighted so heavily against the consumer.
3. The company is also rolling out some new methodologies to better assess the credit worthiness of people who don’t have an extensive credit history.

Medical Debt Considerations

In part, the changes come from pressure from the Consumer Financial Protection Bureau, which has held that medical debts should belong in a different category than other consumer debt, because they are frequently not the result of irresponsible consumer behavior, but rather the result of fallout from disputes between health care providers and insurance companies.
The medical debt provision alone could affect as many as 64.3 million Americans, according to data from Experian. The American Association of Credit and Collection Professionals indicates that medical debt accounts for about 38 percent of the debt that gets collected, according to a report from the Associated Press.
Further, The Commonwealth Fund reports that as of 2012, 75 million people, had trouble paying medical bills, up from 58 million in 2005. That’s 4 in 10 people.  
The rule change associated with medical debt alone won’t be a total game changer – for consumers whose only major black mark is medically-related debt, the typical FICO score will probably increase by about 25 points, according to Fair Isaac.

Time to Pay Up on Old Debts

The first new provision provides consumers looking to finance homes or cars with a strong incentive to contact their creditors and settle up.
And if they haven’t done so yet, a call from a real estate agent informing them of the new rules could give them the prompt they need to clear up outstanding debts.  It will cause red marks to disappear from credit scores, as far as FICO is concerned (though they may still show up in credit history reports from TransUnion, Experian and Equifax).
This provision could make a 100 point difference, John Ulzheimer, the president of consumer education at CreditSesame.com, told the Wall Street Journal. Now, that is a game changer for a lot of people.
The effects won’t be immediate: The rollout of FICO 9 won’t be online until this fall. And even then, not every lender subscribing to FICO is going to buy the new version.

Credit Basics Still Apply

Naturally, agents should still remind clients and prospects that while the rules for calculating FICO scores have changed, the fundamentals of credit management have not changed at all.
Once they pass the basic FICO thresholds, borrowers still have to show that they can afford the payments. That is, unless the loan is an asset-based loan, secured by collateral and made without regard to income.
Homebuyers must still pay close attention to these important factors:

• Debt to income ratios (both front-end and back-end)
• Overall debt levels
• Age of average account
• Number and severity of delinquencies