TAKING AN INTEREST IN YOUR CREDIT CARD RATE… June 6, 2008
Credit cards are one of the most pervasive forms of your financial picture. On a daily basis, they provide the flexibility and freedom to reserve a hotel room, travel without carrying cash, and purchase just about anything at anytime.
As such, your credit cards can have a major impact on your financial wellbeing and even your credit score. But did you know that your credit score can also impact your credit cards…specifically your interest rates? Although some companies have abandoned the practice, many won't hesitate to raise your interest rate if your credit score declines—even if you are paying them on time! By following these tips, you can help avoid inflated interest rates on your credit cards:
Understand the terms. The best way to protect yourself from high interest rates and hikes is to read and understand your credit cards policy terms. Pay particular attention to the interest rate, how long that rate is in effect, and what actions can lead to a hike—such as a late payment on your card, a declining credit score, or even a late payment on a completely unrelated bill.
Don't be late. Making a late payment can lead to increased interest rates on all your cards. In addition, they can lower your credit score, causing you even more problems down the road. So make a schedule and always pay on time.
Watch the mail. We all get junk mail, but some of it may not be junk after all. Whenever you receive any information in the mail from your credit card, read it carefully in case any policies or interest rates are changing.
Make a call. If your rate does change, call the company. If you've made your payments on time consistently, you may be able to get your original rate restored. If the company seems hesitant, you may want to threaten to transfer your balances to another card—customers in good standing may find they have more bargaining power than they realize. And don't just threaten to make a change…actually do it if it makes sense. You may find the grass actually is greener on the other side.
Be careful what you close. Closing a card that has a current balance will likely send your interest rate soaring. In addition, closing your oldest credit cards can have a negative impact on your overall credit score. So make sure you check and double check which cards are best to close.
June 5, 2008
With home values decreasing and foreclosure and losses on the rise, Fannie Mae has released a new set of guidelines for their Automatic Underwriting System (AUS) on June 1. The new Fannie Mae Version 7.0 Desktop Underwriting has stricter guidelines. Fannie Mae is really tightening up on the higher Loan-to-Value loans and lower credit score clients. If you have a client that may have been pre-approved a while back, it may be worthwhile to get an updated pre-approval if they fall in these categories. Below is a list of some of the changes:
Loan to values greater than 85%.
Private mortgage insurance is no longer considered a “mitigating” factor for higher loan to values. The more equity in the property, the more Fannie Mae smiles upon you (this is a not a change, the pmi factor is). Higher LTV loans will have a higher risk and will more than likely be approved as an expanded approval loan. Expanded Approval is being pumped up. Fannie Mae is anticipating more EA approvals. An EA approval means that the borrower’s scenario is “less than perfect” or some prefer to say “A Minus”. There are different levels of EA approvals (such as EA-1, EA-2, etc.). Expanded approval also come with higher rates than a typical conventional mortgage as it’s risk based pricing.
“Authorized Users” on credit cards will no longer be considered.
It was not uncommon for parents to add their child to their credit accounts as an “authorized user”. This may have been done so that the child could have credit available in the event of an emergency (picture a college student away from home). Once people figured out that the timely payments made by the parent (or credit payer) was benefiting the “authorized user”, it didn’t take long for some people to actually sell their credit history on that account by allowing strangers to become “authorized users”.
Debt to income ratios tighter.
“In general, the updates to the maximum allowable total expense ration in DU (Desktop Underwriter aka Fannie Mae) Version 7.0 will be more conservative…”
Loan Type/Level of Risk.
With Version 7.0, Fannie Mae is associating levels of risk with various products (from lowest to highest):
Fully amortized fixed rate mortgages
Fully amortized 5, 7 and 10 year ARMs
6 month, 1 and 3 year ARMs and Fixed Rate Interest Only Mortgages
Interest Only ARMs and balloon mortgages
Version 5.7 viewed fully amortized fixed rate, fixed period (3-10 year) ARMs as having the least amount of risk with balloon and interest only mortgages having moderate additional risk. Negative amortized mortgages were considered the riskiest…now they’re off the charts.
Condos are now considered a higher risk than single family detached.
Version 7.0 views one-unit properties that are not “attached condominiums” as less risk than attached condominiums and two-unit properties. Three- and four-unit properties have a higher level of risk associated than condo and duplex properties. Higher risk may mean a higher rate and tougher guidelines.
Bankruptcy, mortgage delinquencies and foreclosures.
A bankruptcy needs to be fully discharged and 24 months since the date filed.
If a borrowers credit report shows a mortgage that was reported 60 or more days delinquent in the last 6 months, they will receive a “refer”.
If the borrower has had a foreclosure reported within the last 5 years, they will also receive a “refer”. If the date of the foreclosure cannot be determined, if the foreclosure was filed within the last five years and has not been satisfied, the loan will be declined.
Self-employed borrowers will no longer be considered “an additional layer of risk”!
This is a positive change and will make it easier to self employed borrowers to obtain financing
If you have any questions or concerns about these recent changes please feel free to contact me and I would be more than happy to go into detail with you regarding the changes. It’s a tougher market out there with tougher guidelines, but I hope to keep you all well informed as guidelines changes so that you may be more educated with the new changes taking effect.
