One item in the news is the restructure of the bail out plan. Henry Poulson has made a change to inject most of the remaining funds into consumer credit to help open up lending. I think it is a good idea and it should help retailers and automakers restore the financing they need to stay alive.

But, I am a bit skeptic of the end result myself. There is limited control over how these funds will be spent once they are received. This leads me to believe that the credit may not open back up the way it was intended too. Only time will tell.

This plan is proposed to bail out the banks and allows the federal government to acquire the worst mortgage securities the banks have through various methods. It also has other legislature that is still being debated on. I am keeping a close eye on this one. Something needs to be done quickly but I am somewhat upset that tax money would even be considered to bail out Wall Street! Unfortunately it appears to be the only quick solution that has a chance.

You can learn more about the program at www.ohiohome.org

HR3221 The Omnibus Housing Bill passed July 30th 2008. The bill provides relief for homeowners facing foreclosure. It provides tax rebate incentives to home buyer’s. It bans the use of seller funded down payment assistance. There are many more provisions in the bill but these are parts that effect consumers the most.

1) Relief for homeowners facing foreclosure: As of right now I have no opinion on this portion of the bill because I do not know exactly how it will be released by lenders and what expectations they will have for it. I do know it will be more loose than the FHA Secure program.

2) Tax Rebate Incentive: If you buy a home you may be eligible to receive a $7,500 tax rebate when you file your taxes. There are mixed opinions on this program but I fully support and encourage it. The money will be paid back to the IRS. However, it is 0% interest and they will require $500.00 to be paid each year back to them. It will typically be pulled out of your tax return each year or be due by the tax filing deadline. This is free money to help you right now during a struggling economy. You must be a first time home buyer which is defined as a person not owning a home in the past 3 years.

3) Down Payment Assistance: This might be the one that creates turmoil. Regulators claim that they have tracked loans with the top FHA lenders in the country and 20% of those loans funded using DPA are in default! Those findings support getting rid of the program. That default rate is outrageous! But, what I do not know is the breakdown of which credit scores are responsible for what portion of that 20%. This is important to me because that 20% figure includes an era when there was absolutely no credit score restrictions with lenders. I would rather see a more recent snapshot of default rates since most of the lenders restricted credit scores to 550 or above. Also 580 or above for manual underwriting. Getting rid of the program is absurd to me. I fully support the program and it’s ability to help people buy homes. It needs revamped and not banned.

In summary this bill makes the ability for people to buy a home with no money down nearly extinct. USDA and VA are the only 2 remaining programs which allow you to do this. USDA is for rural area’s and has income restrictions. VA is for Military Veterans. So if you live in the city VA is all that is left.

Grant money is acceptable for down payment. Loan Officers will be researching and trying to use these programs more frequently. That is the August update. I will write more another time.

Last year I had a vision of what 2008 would hold for the industry. I felt that Conforming lending would tighten up so much that Government financing would take over most of the market.

Sure looks like the vision was fairly accurate. However, can the Government financing avenues continue to stay where they are with guidelines and absorb the Conforming fall out? We will see what the investors allow in the upcoming months.

 The biggest problem we are seeing today is the way most real estate investors verify their income. Some investors are fortunate enough to work a job in which they receive a W2 and can fully document enough income to support the lenders requirements. But, the majority who were earning their living off buying and selling homes, renting homes, and sometimes self employed are not going to be able to show enough income on their federal tax returns to satisfy income requirements. Out of the applicants I see I would say it is roughly 95% of real estate investors cannot satisfy full documentation requirements.

Early last month the PMI companies stopped insuring reduced documentation loans. That meant a lender would have to risk the loan not being uninsured when over 80% LTV. Most lenders stopped doing reduced documentation loans over 80% period whether owner occupied or for investment. Very few do any loans under 80%.

With that being said the old method of buying a property, renting it out, pulling cash out of the home, and buying another is a hard dream to come by unless you can fully document your income. Most lenders who used to allow an investor to utilize full appraised value within 1 year of ownership have discontinued doing so. You are limited to the aquisition cost plus the cost of documentable home improvements.

So, if you are thinking of becoming a real estate investor and using financing to do so then many of the things you have heard about the past have expired. It is still a valid opportunity and it is still a great way to earn a living or to supplement your primary income. The minimum down payment these days is 10%. You would need to fully document your income. You may find a reduced documentation loan out there still allowing 75% LTV and 25% down payment. So be prepared. There also is rehabilitation loans for full documentation up to around 80% LTV.

 The first thing you need to do is find out what is on your credit report. There are a variety of free credit report companies out there. But, beware of their tricks to get you to pay money. You are entitled to 1 credit report from all 3 credit bureau repositories 1 time per year that is free with no strings attached. The site to order this report is annual credit report.  For additional services such as obtaining an additional free credit report or free credit score you can use another company but usually it is a trial and you must cancel within a certain period of time before being charged. It is a great service but just be aware you may need to cancel before the free trial ends or you will be charged.

When you get your reports verify everything on them is accurate. Then work on paying off creditors you owe. If you want to open new credit you should pay off the old credit you still owe first. After doing so take the time and dispute all items that are paid on your credit report so it reflects them accuratly.

One of the biggest problems I see is medical bills. The best thing you can do is follow up with the hospital or specialist and make sure the bill was paid by your insurance. If it was not try to work out an arrangement to pay payments. If you do not they usually sell them to a collection company who will likely not work with you and demand payment in full.

Also if you have filed a bankruptcy and discharged debt the creditors sometimes show delinquent and that you owe a balance. They should show 0 balance and discharged through bankruptcy. Most common reason for this is your attorney did not notify the creditors that your bankruptcy had discharged.

If you are trying to re-build your credit then a secured credit card or 2 will do the trick. Keep any credit card balance under 30% of the credit limit to maximize your score. I personally reccommend Orchard Bank for a secured card. They were charging 7.49% as of the date of this post and very minimal charges if any. You also earn money because your deposit sits in a savings account.

Avoid buying cars while your credit is not good. Paying 25% on a vehicle or a loan with a finance company is not the best thing you can do to re-establish your credit. Plus it is very expensive!

I will try to expand on this post over the next few weeks. There are many ways you can take control of your credit.

These loans were commonly used by individuals who were self employed. In the past there were loans that allowed Bank Statements to be used as Full Documentation. This method was vastly allowable in the sub-prime sector. Very few lenders remain that accept Bank Statements. Those who do typically have very high interest rates. If you are self-employed you should begin to consult with an accountant regarding how to show income on your taxes for future loan needs.