Thursday, April 29, 2010

Credit scores: Credit CARD Act changes the rules - MSN Money

Remember those long-standing guidelines like closing old credit card accounts, never maxing out cards and asking for lower interest rates? Well, you can forget them now.

by Aleksandra Todorova for SmartMoney April 8, 2010

The rules that credit card companies have to live by changed dramatically with the enactment of new regulations last month. Now, some of the rules for consumers striving to maintain good credit are changing, too.

For the most part, cardholders would still do well to pay on time, keep their balances low and refrain from applying for too many credit cards at once. But some of the old guidelines may not always hold up, as credit card companies continue to adapt to the new environment and look for ways to run their for-profit businesses.

Estimate your credit scores in minutes

Case in point: Many issuers introduced annual or inactivity fees in the weeks leading to or immediately after the Credit Card Accountability, Responsibility and Disclosure Act went into effect. "Now folks have to decide: Do they want this card badly enough to pay the fee, or do they close it," says Barry Paperno, the consumer-operations manager at Fair Isaac, the company that developed FICO credit scoring.

It's a question of more than just losing a credit line. Closing a credit card can have a big impact on your credit scores. That is, unless you do some groundwork in advance.

With the help of some easy -- if often counterintuitive -- steps, you can improve and retain healthy credit scores even in today's fast-changing credit environment. Here are five:

1. Open more credit cards For years, experts warned that opening new credit cards hurts your credit score -- not to mention enabling you to run up huge debts. That's still true: The length of your credit history and new credit make up 15% and 10% of FICO scores, respectively. But with credit issuers lowering credit limits left and right these days, having too few credit cards puts a much more important credit-score component at risk: credit utilization, or how much of your available credit you're using. Credit utilization makes up 30% of your score.

"More cards mean more available credit and more options if an issuer decides they don't like you," says John Ulzheimer, the president for educational services at Credit.com. Generally, having four or five credit cards is better than having just one or two, he says.

Expanding your credit card portfolio isn't something you should do tomorrow; it's a strategy to be executed over time. If you have just two cards, now is the time to open a third. But wait at least six months to a year before applying for a fourth card.

A great credit score won't cut it for loans

Go to Wall Street Journal

2. Max out (some of) your credit cards A quirk of credit score math makes it advantageous to max out certain cards. How? It's a matter of what the issuer tells the credit bureaus.
Some types of cards don't report credit limits to the credit bureaus. They include all charge cards from American Express and some high-end credit cards that are marketed as having no preset spending limit, such Visa Signature and MasterCard World. (These cards have a credit limit, but cardholders can exceed it and must pay off the excess in full on their next bill.)
When the FICO scoring system comes across such an account, it will either bypass it for the purpose of calculating credit utilization or substitute the credit limit value with that of the highest balance on record for the account. The most current FICO scores from TransUnion and Equifax bypass charge cards, according to Paperno. So as far as those two bureaus are concerned, your charge card spending will not affect your utilization.

But in cases where the FICO formulas substitute the credit limit value with that of the highest balance, consumers who spend roughly the same amount each month could end up with lower scores than they deserve. The solution: Run up a balance that's much higher than usual. Your utilization ratio will improve in the following months, Ulzheimer says, along with your scores. (Just pay off that balance in full the next month to avoid interest charges.)

Boost your credit scoresYour scores will drop during the month for which your card appears maxed out, so don't execute this strategy if you're shopping for a mortgage or another large loan at the time.
To find out if you have cards that don't report a credit limit, check your credit reports. You can order one free report a year from each of the three credit bureaus on AnnualCreditReport.com. Charge cards are typically reported as "open," while other credit card accounts are reported as "revolving," Paperno says.

3. Don't ask for a lower APR In the old days, consumers were encouraged to call their credit card companies and ask for lower interest rates. "There really wasn't a downside to doing that," says Gerri Detweiler, an adviser with Credit.com.

"These days, if you call, you may trigger an account review." Should that happen, and the credit issuer not like what it sees, it may cut your credit limit or actually hike your interest rate. This is where having multiple credit cards may come in handy, Detweiler says. "Don't make that call unless you have a backup card where you could transfer that balance."

4. Closed a card? Don't pay it off Under the old rules, interest-rate hikes applied to both your existing balance and future purchases. Since the Credit CARD Act went to effect, lenders have been limited to applying rate increases only on balances going forward. That said, if you closed an account before the law took effect to opt out of a rate hike, you may not want to rush to pay off every last penny of the balance.

In a little-known quirk, FICO counts the credit limits of closed accounts toward utilization ratios only as long as there's a balance on that account.

"You may have a $100 balance on a card with a $10,000 limit, and it's doing wonderful things for utilization," Paperno says. "Once you pay that down, that utilization no longer counts toward your credit score." That means your credit score could take a dip because you paid off the balance.

5. Mix business and personal expenses Before the passage of the Credit CARD Act, credit experts routinely advised business owners to keep business and personal expenses separate. Use a business credit card for the business and a consumer credit card for other expenses, they advised. Not anymore.

The CARD Act doesn't apply to business credit cards, so using a personal card for your business expenses is safer, says Detweiler.

On the flip side, doing so can easily hurt your credit, especially if your business expenses are high. Even if you pay off your high balances in full each month, they will be listed on your credit report and you could appear overextended. (Of course, there's no guarantee that this isn't happening to you even if you're still keeping things separate. Some issuers now report business credit card accounts to the consumer credit bureaus.) "There's no easy answer here," Detweiler says.

More from MSN Money and SmartMoney

Lifetime cost of bad credit: $201,712
Cashing in on credit card rewards
5 ways to kill your credit scores
How financial reform could affect your credit
6 secret credit card perks
Is it time for you to go paperless?

Credit scores: Credit CARD Act changes the rules - MSN Money

Credit scores: Credit CARD Act changes the rules - MSN Money

Remember those long-standing guidelines like closing old credit card accounts, never maxing out cards and asking for lower interest rates? Well, you can forget them now.

by Aleksandra Todorova for SmartMoney April 8, 2010

The rules that credit card companies have to live by changed dramatically with the enactment of new regulations last month. Now, some of the rules for consumers striving to maintain good credit are changing, too.

For the most part, cardholders would still do well to pay on time, keep their balances low and refrain from applying for too many credit cards at once. But some of the old guidelines may not always hold up, as credit card companies continue to adapt to the new environment and look for ways to run their for-profit businesses.

Estimate your credit scores in minutes

Case in point: Many issuers introduced annual or inactivity fees in the weeks leading to or immediately after the Credit Card Accountability, Responsibility and Disclosure Act went into effect. "Now folks have to decide: Do they want this card badly enough to pay the fee, or do they close it," says Barry Paperno, the consumer-operations manager at Fair Isaac, the company that developed FICO credit scoring.

It's a question of more than just losing a credit line. Closing a credit card can have a big impact on your credit scores. That is, unless you do some groundwork in advance.

With the help of some easy -- if often counterintuitive -- steps, you can improve and retain healthy credit scores even in today's fast-changing credit environment. Here are five:

1. Open more credit cards For years, experts warned that opening new credit cards hurts your credit score -- not to mention enabling you to run up huge debts. That's still true: The length of your credit history and new credit make up 15% and 10% of FICO scores, respectively. But with credit issuers lowering credit limits left and right these days, having too few credit cards puts a much more important credit-score component at risk: credit utilization, or how much of your available credit you're using. Credit utilization makes up 30% of your score.

"More cards mean more available credit and more options if an issuer decides they don't like you," says John Ulzheimer, the president for educational services at Credit.com. Generally, having four or five credit cards is better than having just one or two, he says.

Expanding your credit card portfolio isn't something you should do tomorrow; it's a strategy to be executed over time. If you have just two cards, now is the time to open a third. But wait at least six months to a year before applying for a fourth card.

A great credit score won't cut it for loans

Go to Wall Street Journal

2. Max out (some of) your credit cards A quirk of credit score math makes it advantageous to max out certain cards. How? It's a matter of what the issuer tells the credit bureaus.
Some types of cards don't report credit limits to the credit bureaus. They include all charge cards from American Express and some high-end credit cards that are marketed as having no preset spending limit, such Visa Signature and MasterCard World. (These cards have a credit limit, but cardholders can exceed it and must pay off the excess in full on their next bill.)
When the FICO scoring system comes across such an account, it will either bypass it for the purpose of calculating credit utilization or substitute the credit limit value with that of the highest balance on record for the account. The most current FICO scores from TransUnion and Equifax bypass charge cards, according to Paperno. So as far as those two bureaus are concerned, your charge card spending will not affect your utilization.

But in cases where the FICO formulas substitute the credit limit value with that of the highest balance, consumers who spend roughly the same amount each month could end up with lower scores than they deserve. The solution: Run up a balance that's much higher than usual. Your utilization ratio will improve in the following months, Ulzheimer says, along with your scores. (Just pay off that balance in full the next month to avoid interest charges.)

Boost your credit scoresYour scores will drop during the month for which your card appears maxed out, so don't execute this strategy if you're shopping for a mortgage or another large loan at the time.
To find out if you have cards that don't report a credit limit, check your credit reports. You can order one free report a year from each of the three credit bureaus on AnnualCreditReport.com. Charge cards are typically reported as "open," while other credit card accounts are reported as "revolving," Paperno says.

3. Don't ask for a lower APR In the old days, consumers were encouraged to call their credit card companies and ask for lower interest rates. "There really wasn't a downside to doing that," says Gerri Detweiler, an adviser with Credit.com.

"These days, if you call, you may trigger an account review." Should that happen, and the credit issuer not like what it sees, it may cut your credit limit or actually hike your interest rate. This is where having multiple credit cards may come in handy, Detweiler says. "Don't make that call unless you have a backup card where you could transfer that balance."

4. Closed a card? Don't pay it off Under the old rules, interest-rate hikes applied to both your existing balance and future purchases. Since the Credit CARD Act went to effect, lenders have been limited to applying rate increases only on balances going forward. That said, if you closed an account before the law took effect to opt out of a rate hike, you may not want to rush to pay off every last penny of the balance.

In a little-known quirk, FICO counts the credit limits of closed accounts toward utilization ratios only as long as there's a balance on that account.

"You may have a $100 balance on a card with a $10,000 limit, and it's doing wonderful things for utilization," Paperno says. "Once you pay that down, that utilization no longer counts toward your credit score." That means your credit score could take a dip because you paid off the balance.

5. Mix business and personal expenses Before the passage of the Credit CARD Act, credit experts routinely advised business owners to keep business and personal expenses separate. Use a business credit card for the business and a consumer credit card for other expenses, they advised. Not anymore.

The CARD Act doesn't apply to business credit cards, so using a personal card for your business expenses is safer, says Detweiler.

On the flip side, doing so can easily hurt your credit, especially if your business expenses are high. Even if you pay off your high balances in full each month, they will be listed on your credit report and you could appear overextended. (Of course, there's no guarantee that this isn't happening to you even if you're still keeping things separate. Some issuers now report business credit card accounts to the consumer credit bureaus.) "There's no easy answer here," Detweiler says.

More from MSN Money and SmartMoney

Lifetime cost of bad credit: $201,712
Cashing in on credit card rewards
5 ways to kill your credit scores
How financial reform could affect your credit
6 secret credit card perks
Is it time for you to go paperless?

Credit scores: Credit CARD Act changes the rules - MSN Money

Credit scores: Credit CARD Act changes the rules - MSN Money

Remember those long-standing guidelines like closing old credit card accounts, never maxing out cards and asking for lower interest rates? Well, you can forget them now.

by Aleksandra Todorova for SmartMoney April 8, 2010

The rules that credit card companies have to live by changed dramatically with the enactment of new regulations last month. Now, some of the rules for consumers striving to maintain good credit are changing, too.

For the most part, cardholders would still do well to pay on time, keep their balances low and refrain from applying for too many credit cards at once. But some of the old guidelines may not always hold up, as credit card companies continue to adapt to the new environment and look for ways to run their for-profit businesses.

Estimate your credit scores in minutes

Case in point: Many issuers introduced annual or inactivity fees in the weeks leading to or immediately after the Credit Card Accountability, Responsibility and Disclosure Act went into effect. "Now folks have to decide: Do they want this card badly enough to pay the fee, or do they close it," says Barry Paperno, the consumer-operations manager at Fair Isaac, the company that developed FICO credit scoring.

It's a question of more than just losing a credit line. Closing a credit card can have a big impact on your credit scores. That is, unless you do some groundwork in advance.

With the help of some easy -- if often counterintuitive -- steps, you can improve and retain healthy credit scores even in today's fast-changing credit environment. Here are five:

1. Open more credit cards For years, experts warned that opening new credit cards hurts your credit score -- not to mention enabling you to run up huge debts. That's still true: The length of your credit history and new credit make up 15% and 10% of FICO scores, respectively. But with credit issuers lowering credit limits left and right these days, having too few credit cards puts a much more important credit-score component at risk: credit utilization, or how much of your available credit you're using. Credit utilization makes up 30% of your score.

"More cards mean more available credit and more options if an issuer decides they don't like you," says John Ulzheimer, the president for educational services at Credit.com. Generally, having four or five credit cards is better than having just one or two, he says.

Expanding your credit card portfolio isn't something you should do tomorrow; it's a strategy to be executed over time. If you have just two cards, now is the time to open a third. But wait at least six months to a year before applying for a fourth card.

A great credit score won't cut it for loans

Go to Wall Street Journal

2. Max out (some of) your credit cards A quirk of credit score math makes it advantageous to max out certain cards. How? It's a matter of what the issuer tells the credit bureaus.
Some types of cards don't report credit limits to the credit bureaus. They include all charge cards from American Express and some high-end credit cards that are marketed as having no preset spending limit, such Visa Signature and MasterCard World. (These cards have a credit limit, but cardholders can exceed it and must pay off the excess in full on their next bill.)
When the FICO scoring system comes across such an account, it will either bypass it for the purpose of calculating credit utilization or substitute the credit limit value with that of the highest balance on record for the account. The most current FICO scores from TransUnion and Equifax bypass charge cards, according to Paperno. So as far as those two bureaus are concerned, your charge card spending will not affect your utilization.

But in cases where the FICO formulas substitute the credit limit value with that of the highest balance, consumers who spend roughly the same amount each month could end up with lower scores than they deserve. The solution: Run up a balance that's much higher than usual. Your utilization ratio will improve in the following months, Ulzheimer says, along with your scores. (Just pay off that balance in full the next month to avoid interest charges.)

Boost your credit scoresYour scores will drop during the month for which your card appears maxed out, so don't execute this strategy if you're shopping for a mortgage or another large loan at the time.
To find out if you have cards that don't report a credit limit, check your credit reports. You can order one free report a year from each of the three credit bureaus on AnnualCreditReport.com. Charge cards are typically reported as "open," while other credit card accounts are reported as "revolving," Paperno says.

3. Don't ask for a lower APR In the old days, consumers were encouraged to call their credit card companies and ask for lower interest rates. "There really wasn't a downside to doing that," says Gerri Detweiler, an adviser with Credit.com.

"These days, if you call, you may trigger an account review." Should that happen, and the credit issuer not like what it sees, it may cut your credit limit or actually hike your interest rate. This is where having multiple credit cards may come in handy, Detweiler says. "Don't make that call unless you have a backup card where you could transfer that balance."

4. Closed a card? Don't pay it off Under the old rules, interest-rate hikes applied to both your existing balance and future purchases. Since the Credit CARD Act went to effect, lenders have been limited to applying rate increases only on balances going forward. That said, if you closed an account before the law took effect to opt out of a rate hike, you may not want to rush to pay off every last penny of the balance.

In a little-known quirk, FICO counts the credit limits of closed accounts toward utilization ratios only as long as there's a balance on that account.

"You may have a $100 balance on a card with a $10,000 limit, and it's doing wonderful things for utilization," Paperno says. "Once you pay that down, that utilization no longer counts toward your credit score." That means your credit score could take a dip because you paid off the balance.

5. Mix business and personal expenses Before the passage of the Credit CARD Act, credit experts routinely advised business owners to keep business and personal expenses separate. Use a business credit card for the business and a consumer credit card for other expenses, they advised. Not anymore.

The CARD Act doesn't apply to business credit cards, so using a personal card for your business expenses is safer, says Detweiler.

On the flip side, doing so can easily hurt your credit, especially if your business expenses are high. Even if you pay off your high balances in full each month, they will be listed on your credit report and you could appear overextended. (Of course, there's no guarantee that this isn't happening to you even if you're still keeping things separate. Some issuers now report business credit card accounts to the consumer credit bureaus.) "There's no easy answer here," Detweiler says.

More from MSN Money and SmartMoney

Lifetime cost of bad credit: $201,712
Cashing in on credit card rewards
5 ways to kill your credit scores
How financial reform could affect your credit
6 secret credit card perks
Is it time for you to go paperless?

Credit scores: Credit CARD Act changes the rules - MSN Money

Credit scores: Credit CARD Act changes the rules - MSN Money

Remember those long-standing guidelines like closing old credit card accounts, never maxing out cards and asking for lower interest rates? Well, you can forget them now.

by Aleksandra Todorova for SmartMoney April 8, 2010

The rules that credit card companies have to live by changed dramatically with the enactment of new regulations last month. Now, some of the rules for consumers striving to maintain good credit are changing, too.

For the most part, cardholders would still do well to pay on time, keep their balances low and refrain from applying for too many credit cards at once. But some of the old guidelines may not always hold up, as credit card companies continue to adapt to the new environment and look for ways to run their for-profit businesses.

Estimate your credit scores in minutes

Case in point: Many issuers introduced annual or inactivity fees in the weeks leading to or immediately after the Credit Card Accountability, Responsibility and Disclosure Act went into effect. "Now folks have to decide: Do they want this card badly enough to pay the fee, or do they close it," says Barry Paperno, the consumer-operations manager at Fair Isaac, the company that developed FICO credit scoring.

It's a question of more than just losing a credit line. Closing a credit card can have a big impact on your credit scores. That is, unless you do some groundwork in advance.

With the help of some easy -- if often counterintuitive -- steps, you can improve and retain healthy credit scores even in today's fast-changing credit environment. Here are five:

1. Open more credit cards For years, experts warned that opening new credit cards hurts your credit score -- not to mention enabling you to run up huge debts. That's still true: The length of your credit history and new credit make up 15% and 10% of FICO scores, respectively. But with credit issuers lowering credit limits left and right these days, having too few credit cards puts a much more important credit-score component at risk: credit utilization, or how much of your available credit you're using. Credit utilization makes up 30% of your score.

"More cards mean more available credit and more options if an issuer decides they don't like you," says John Ulzheimer, the president for educational services at Credit.com. Generally, having four or five credit cards is better than having just one or two, he says.

Expanding your credit card portfolio isn't something you should do tomorrow; it's a strategy to be executed over time. If you have just two cards, now is the time to open a third. But wait at least six months to a year before applying for a fourth card.

A great credit score won't cut it for loans

Go to Wall Street Journal

2. Max out (some of) your credit cards A quirk of credit score math makes it advantageous to max out certain cards. How? It's a matter of what the issuer tells the credit bureaus.
Some types of cards don't report credit limits to the credit bureaus. They include all charge cards from American Express and some high-end credit cards that are marketed as having no preset spending limit, such Visa Signature and MasterCard World. (These cards have a credit limit, but cardholders can exceed it and must pay off the excess in full on their next bill.)
When the FICO scoring system comes across such an account, it will either bypass it for the purpose of calculating credit utilization or substitute the credit limit value with that of the highest balance on record for the account. The most current FICO scores from TransUnion and Equifax bypass charge cards, according to Paperno. So as far as those two bureaus are concerned, your charge card spending will not affect your utilization.

But in cases where the FICO formulas substitute the credit limit value with that of the highest balance, consumers who spend roughly the same amount each month could end up with lower scores than they deserve. The solution: Run up a balance that's much higher than usual. Your utilization ratio will improve in the following months, Ulzheimer says, along with your scores. (Just pay off that balance in full the next month to avoid interest charges.)

Boost your credit scoresYour scores will drop during the month for which your card appears maxed out, so don't execute this strategy if you're shopping for a mortgage or another large loan at the time.
To find out if you have cards that don't report a credit limit, check your credit reports. You can order one free report a year from each of the three credit bureaus on AnnualCreditReport.com. Charge cards are typically reported as "open," while other credit card accounts are reported as "revolving," Paperno says.

3. Don't ask for a lower APR In the old days, consumers were encouraged to call their credit card companies and ask for lower interest rates. "There really wasn't a downside to doing that," says Gerri Detweiler, an adviser with Credit.com.

"These days, if you call, you may trigger an account review." Should that happen, and the credit issuer not like what it sees, it may cut your credit limit or actually hike your interest rate. This is where having multiple credit cards may come in handy, Detweiler says. "Don't make that call unless you have a backup card where you could transfer that balance."

4. Closed a card? Don't pay it off Under the old rules, interest-rate hikes applied to both your existing balance and future purchases. Since the Credit CARD Act went to effect, lenders have been limited to applying rate increases only on balances going forward. That said, if you closed an account before the law took effect to opt out of a rate hike, you may not want to rush to pay off every last penny of the balance.

In a little-known quirk, FICO counts the credit limits of closed accounts toward utilization ratios only as long as there's a balance on that account.

"You may have a $100 balance on a card with a $10,000 limit, and it's doing wonderful things for utilization," Paperno says. "Once you pay that down, that utilization no longer counts toward your credit score." That means your credit score could take a dip because you paid off the balance.

5. Mix business and personal expenses Before the passage of the Credit CARD Act, credit experts routinely advised business owners to keep business and personal expenses separate. Use a business credit card for the business and a consumer credit card for other expenses, they advised. Not anymore.

The CARD Act doesn't apply to business credit cards, so using a personal card for your business expenses is safer, says Detweiler.

On the flip side, doing so can easily hurt your credit, especially if your business expenses are high. Even if you pay off your high balances in full each month, they will be listed on your credit report and you could appear overextended. (Of course, there's no guarantee that this isn't happening to you even if you're still keeping things separate. Some issuers now report business credit card accounts to the consumer credit bureaus.) "There's no easy answer here," Detweiler says.

More from MSN Money and SmartMoney

Lifetime cost of bad credit: $201,712
Cashing in on credit card rewards
5 ways to kill your credit scores
How financial reform could affect your credit
6 secret credit card perks
Is it time for you to go paperless?

Credit scores: Credit CARD Act changes the rules - MSN Money

Credit scores: Credit CARD Act changes the rules - MSN Money

Remember those long-standing guidelines like closing old credit card accounts, never maxing out cards and asking for lower interest rates? Well, you can forget them now.

by Aleksandra Todorova for SmartMoney April 8, 2010

The rules that credit card companies have to live by changed dramatically with the enactment of new regulations last month. Now, some of the rules for consumers striving to maintain good credit are changing, too.

For the most part, cardholders would still do well to pay on time, keep their balances low and refrain from applying for too many credit cards at once. But some of the old guidelines may not always hold up, as credit card companies continue to adapt to the new environment and look for ways to run their for-profit businesses.

Estimate your credit scores in minutes

Case in point: Many issuers introduced annual or inactivity fees in the weeks leading to or immediately after the Credit Card Accountability, Responsibility and Disclosure Act went into effect. "Now folks have to decide: Do they want this card badly enough to pay the fee, or do they close it," says Barry Paperno, the consumer-operations manager at Fair Isaac, the company that developed FICO credit scoring.

It's a question of more than just losing a credit line. Closing a credit card can have a big impact on your credit scores. That is, unless you do some groundwork in advance.

With the help of some easy -- if often counterintuitive -- steps, you can improve and retain healthy credit scores even in today's fast-changing credit environment. Here are five:

1. Open more credit cards For years, experts warned that opening new credit cards hurts your credit score -- not to mention enabling you to run up huge debts. That's still true: The length of your credit history and new credit make up 15% and 10% of FICO scores, respectively. But with credit issuers lowering credit limits left and right these days, having too few credit cards puts a much more important credit-score component at risk: credit utilization, or how much of your available credit you're using. Credit utilization makes up 30% of your score.

"More cards mean more available credit and more options if an issuer decides they don't like you," says John Ulzheimer, the president for educational services at Credit.com. Generally, having four or five credit cards is better than having just one or two, he says.

Expanding your credit card portfolio isn't something you should do tomorrow; it's a strategy to be executed over time. If you have just two cards, now is the time to open a third. But wait at least six months to a year before applying for a fourth card.

A great credit score won't cut it for loans

Go to Wall Street Journal

2. Max out (some of) your credit cards A quirk of credit score math makes it advantageous to max out certain cards. How? It's a matter of what the issuer tells the credit bureaus.
Some types of cards don't report credit limits to the credit bureaus. They include all charge cards from American Express and some high-end credit cards that are marketed as having no preset spending limit, such Visa Signature and MasterCard World. (These cards have a credit limit, but cardholders can exceed it and must pay off the excess in full on their next bill.)
When the FICO scoring system comes across such an account, it will either bypass it for the purpose of calculating credit utilization or substitute the credit limit value with that of the highest balance on record for the account. The most current FICO scores from TransUnion and Equifax bypass charge cards, according to Paperno. So as far as those two bureaus are concerned, your charge card spending will not affect your utilization.

But in cases where the FICO formulas substitute the credit limit value with that of the highest balance, consumers who spend roughly the same amount each month could end up with lower scores than they deserve. The solution: Run up a balance that's much higher than usual. Your utilization ratio will improve in the following months, Ulzheimer says, along with your scores. (Just pay off that balance in full the next month to avoid interest charges.)

Boost your credit scoresYour scores will drop during the month for which your card appears maxed out, so don't execute this strategy if you're shopping for a mortgage or another large loan at the time.
To find out if you have cards that don't report a credit limit, check your credit reports. You can order one free report a year from each of the three credit bureaus on AnnualCreditReport.com. Charge cards are typically reported as "open," while other credit card accounts are reported as "revolving," Paperno says.

3. Don't ask for a lower APR In the old days, consumers were encouraged to call their credit card companies and ask for lower interest rates. "There really wasn't a downside to doing that," says Gerri Detweiler, an adviser with Credit.com.

"These days, if you call, you may trigger an account review." Should that happen, and the credit issuer not like what it sees, it may cut your credit limit or actually hike your interest rate. This is where having multiple credit cards may come in handy, Detweiler says. "Don't make that call unless you have a backup card where you could transfer that balance."

4. Closed a card? Don't pay it off Under the old rules, interest-rate hikes applied to both your existing balance and future purchases. Since the Credit CARD Act went to effect, lenders have been limited to applying rate increases only on balances going forward. That said, if you closed an account before the law took effect to opt out of a rate hike, you may not want to rush to pay off every last penny of the balance.

In a little-known quirk, FICO counts the credit limits of closed accounts toward utilization ratios only as long as there's a balance on that account.

"You may have a $100 balance on a card with a $10,000 limit, and it's doing wonderful things for utilization," Paperno says. "Once you pay that down, that utilization no longer counts toward your credit score." That means your credit score could take a dip because you paid off the balance.

5. Mix business and personal expenses Before the passage of the Credit CARD Act, credit experts routinely advised business owners to keep business and personal expenses separate. Use a business credit card for the business and a consumer credit card for other expenses, they advised. Not anymore.

The CARD Act doesn't apply to business credit cards, so using a personal card for your business expenses is safer, says Detweiler.

On the flip side, doing so can easily hurt your credit, especially if your business expenses are high. Even if you pay off your high balances in full each month, they will be listed on your credit report and you could appear overextended. (Of course, there's no guarantee that this isn't happening to you even if you're still keeping things separate. Some issuers now report business credit card accounts to the consumer credit bureaus.) "There's no easy answer here," Detweiler says.

More from MSN Money and SmartMoney

Lifetime cost of bad credit: $201,712
Cashing in on credit card rewards
5 ways to kill your credit scores
How financial reform could affect your credit
6 secret credit card perks
Is it time for you to go paperless?

Credit scores: Credit CARD Act changes the rules - MSN Money

Credit scores: Credit CARD Act changes the rules - MSN Money

Remember those long-standing guidelines like closing old credit card accounts, never maxing out cards and asking for lower interest rates? Well, you can forget them now.

by Aleksandra Todorova for SmartMoney April 8, 2010

The rules that credit card companies have to live by changed dramatically with the enactment of new regulations last month. Now, some of the rules for consumers striving to maintain good credit are changing, too.

For the most part, cardholders would still do well to pay on time, keep their balances low and refrain from applying for too many credit cards at once. But some of the old guidelines may not always hold up, as credit card companies continue to adapt to the new environment and look for ways to run their for-profit businesses.

Estimate your credit scores in minutes

Case in point: Many issuers introduced annual or inactivity fees in the weeks leading to or immediately after the Credit Card Accountability, Responsibility and Disclosure Act went into effect. "Now folks have to decide: Do they want this card badly enough to pay the fee, or do they close it," says Barry Paperno, the consumer-operations manager at Fair Isaac, the company that developed FICO credit scoring.

It's a question of more than just losing a credit line. Closing a credit card can have a big impact on your credit scores. That is, unless you do some groundwork in advance.

With the help of some easy -- if often counterintuitive -- steps, you can improve and retain healthy credit scores even in today's fast-changing credit environment. Here are five:

1. Open more credit cards For years, experts warned that opening new credit cards hurts your credit score -- not to mention enabling you to run up huge debts. That's still true: The length of your credit history and new credit make up 15% and 10% of FICO scores, respectively. But with credit issuers lowering credit limits left and right these days, having too few credit cards puts a much more important credit-score component at risk: credit utilization, or how much of your available credit you're using. Credit utilization makes up 30% of your score.

"More cards mean more available credit and more options if an issuer decides they don't like you," says John Ulzheimer, the president for educational services at Credit.com. Generally, having four or five credit cards is better than having just one or two, he says.

Expanding your credit card portfolio isn't something you should do tomorrow; it's a strategy to be executed over time. If you have just two cards, now is the time to open a third. But wait at least six months to a year before applying for a fourth card.

A great credit score won't cut it for loans

Go to Wall Street Journal

2. Max out (some of) your credit cards A quirk of credit score math makes it advantageous to max out certain cards. How? It's a matter of what the issuer tells the credit bureaus.
Some types of cards don't report credit limits to the credit bureaus. They include all charge cards from American Express and some high-end credit cards that are marketed as having no preset spending limit, such Visa Signature and MasterCard World. (These cards have a credit limit, but cardholders can exceed it and must pay off the excess in full on their next bill.)
When the FICO scoring system comes across such an account, it will either bypass it for the purpose of calculating credit utilization or substitute the credit limit value with that of the highest balance on record for the account. The most current FICO scores from TransUnion and Equifax bypass charge cards, according to Paperno. So as far as those two bureaus are concerned, your charge card spending will not affect your utilization.

But in cases where the FICO formulas substitute the credit limit value with that of the highest balance, consumers who spend roughly the same amount each month could end up with lower scores than they deserve. The solution: Run up a balance that's much higher than usual. Your utilization ratio will improve in the following months, Ulzheimer says, along with your scores. (Just pay off that balance in full the next month to avoid interest charges.)

Boost your credit scoresYour scores will drop during the month for which your card appears maxed out, so don't execute this strategy if you're shopping for a mortgage or another large loan at the time.
To find out if you have cards that don't report a credit limit, check your credit reports. You can order one free report a year from each of the three credit bureaus on AnnualCreditReport.com. Charge cards are typically reported as "open," while other credit card accounts are reported as "revolving," Paperno says.

3. Don't ask for a lower APR In the old days, consumers were encouraged to call their credit card companies and ask for lower interest rates. "There really wasn't a downside to doing that," says Gerri Detweiler, an adviser with Credit.com.

"These days, if you call, you may trigger an account review." Should that happen, and the credit issuer not like what it sees, it may cut your credit limit or actually hike your interest rate. This is where having multiple credit cards may come in handy, Detweiler says. "Don't make that call unless you have a backup card where you could transfer that balance."

4. Closed a card? Don't pay it off Under the old rules, interest-rate hikes applied to both your existing balance and future purchases. Since the Credit CARD Act went to effect, lenders have been limited to applying rate increases only on balances going forward. That said, if you closed an account before the law took effect to opt out of a rate hike, you may not want to rush to pay off every last penny of the balance.

In a little-known quirk, FICO counts the credit limits of closed accounts toward utilization ratios only as long as there's a balance on that account.

"You may have a $100 balance on a card with a $10,000 limit, and it's doing wonderful things for utilization," Paperno says. "Once you pay that down, that utilization no longer counts toward your credit score." That means your credit score could take a dip because you paid off the balance.

5. Mix business and personal expenses Before the passage of the Credit CARD Act, credit experts routinely advised business owners to keep business and personal expenses separate. Use a business credit card for the business and a consumer credit card for other expenses, they advised. Not anymore.

The CARD Act doesn't apply to business credit cards, so using a personal card for your business expenses is safer, says Detweiler.

On the flip side, doing so can easily hurt your credit, especially if your business expenses are high. Even if you pay off your high balances in full each month, they will be listed on your credit report and you could appear overextended. (Of course, there's no guarantee that this isn't happening to you even if you're still keeping things separate. Some issuers now report business credit card accounts to the consumer credit bureaus.) "There's no easy answer here," Detweiler says.

More from MSN Money and SmartMoney

Lifetime cost of bad credit: $201,712
Cashing in on credit card rewards
5 ways to kill your credit scores
How financial reform could affect your credit
6 secret credit card perks
Is it time for you to go paperless?

Credit scores: Credit CARD Act changes the rules - MSN Money

Credit scores: Credit CARD Act changes the rules - MSN Money

Remember those long-standing guidelines like closing old credit card accounts, never maxing out cards and asking for lower interest rates? Well, you can forget them now.

by Aleksandra Todorova for SmartMoney April 8, 2010

The rules that credit card companies have to live by changed dramatically with the enactment of new regulations last month. Now, some of the rules for consumers striving to maintain good credit are changing, too.

For the most part, cardholders would still do well to pay on time, keep their balances low and refrain from applying for too many credit cards at once. But some of the old guidelines may not always hold up, as credit card companies continue to adapt to the new environment and look for ways to run their for-profit businesses.

Estimate your credit scores in minutes

Case in point: Many issuers introduced annual or inactivity fees in the weeks leading to or immediately after the Credit Card Accountability, Responsibility and Disclosure Act went into effect. "Now folks have to decide: Do they want this card badly enough to pay the fee, or do they close it," says Barry Paperno, the consumer-operations manager at Fair Isaac, the company that developed FICO credit scoring.

It's a question of more than just losing a credit line. Closing a credit card can have a big impact on your credit scores. That is, unless you do some groundwork in advance.

With the help of some easy -- if often counterintuitive -- steps, you can improve and retain healthy credit scores even in today's fast-changing credit environment. Here are five:

1. Open more credit cards For years, experts warned that opening new credit cards hurts your credit score -- not to mention enabling you to run up huge debts. That's still true: The length of your credit history and new credit make up 15% and 10% of FICO scores, respectively. But with credit issuers lowering credit limits left and right these days, having too few credit cards puts a much more important credit-score component at risk: credit utilization, or how much of your available credit you're using. Credit utilization makes up 30% of your score.

"More cards mean more available credit and more options if an issuer decides they don't like you," says John Ulzheimer, the president for educational services at Credit.com. Generally, having four or five credit cards is better than having just one or two, he says.

Expanding your credit card portfolio isn't something you should do tomorrow; it's a strategy to be executed over time. If you have just two cards, now is the time to open a third. But wait at least six months to a year before applying for a fourth card.

A great credit score won't cut it for loans

Go to Wall Street Journal

2. Max out (some of) your credit cards A quirk of credit score math makes it advantageous to max out certain cards. How? It's a matter of what the issuer tells the credit bureaus.
Some types of cards don't report credit limits to the credit bureaus. They include all charge cards from American Express and some high-end credit cards that are marketed as having no preset spending limit, such Visa Signature and MasterCard World. (These cards have a credit limit, but cardholders can exceed it and must pay off the excess in full on their next bill.)
When the FICO scoring system comes across such an account, it will either bypass it for the purpose of calculating credit utilization or substitute the credit limit value with that of the highest balance on record for the account. The most current FICO scores from TransUnion and Equifax bypass charge cards, according to Paperno. So as far as those two bureaus are concerned, your charge card spending will not affect your utilization.

But in cases where the FICO formulas substitute the credit limit value with that of the highest balance, consumers who spend roughly the same amount each month could end up with lower scores than they deserve. The solution: Run up a balance that's much higher than usual. Your utilization ratio will improve in the following months, Ulzheimer says, along with your scores. (Just pay off that balance in full the next month to avoid interest charges.)

Boost your credit scoresYour scores will drop during the month for which your card appears maxed out, so don't execute this strategy if you're shopping for a mortgage or another large loan at the time.
To find out if you have cards that don't report a credit limit, check your credit reports. You can order one free report a year from each of the three credit bureaus on AnnualCreditReport.com. Charge cards are typically reported as "open," while other credit card accounts are reported as "revolving," Paperno says.

3. Don't ask for a lower APR In the old days, consumers were encouraged to call their credit card companies and ask for lower interest rates. "There really wasn't a downside to doing that," says Gerri Detweiler, an adviser with Credit.com.

"These days, if you call, you may trigger an account review." Should that happen, and the credit issuer not like what it sees, it may cut your credit limit or actually hike your interest rate. This is where having multiple credit cards may come in handy, Detweiler says. "Don't make that call unless you have a backup card where you could transfer that balance."

4. Closed a card? Don't pay it off Under the old rules, interest-rate hikes applied to both your existing balance and future purchases. Since the Credit CARD Act went to effect, lenders have been limited to applying rate increases only on balances going forward. That said, if you closed an account before the law took effect to opt out of a rate hike, you may not want to rush to pay off every last penny of the balance.

In a little-known quirk, FICO counts the credit limits of closed accounts toward utilization ratios only as long as there's a balance on that account.

"You may have a $100 balance on a card with a $10,000 limit, and it's doing wonderful things for utilization," Paperno says. "Once you pay that down, that utilization no longer counts toward your credit score." That means your credit score could take a dip because you paid off the balance.

5. Mix business and personal expenses Before the passage of the Credit CARD Act, credit experts routinely advised business owners to keep business and personal expenses separate. Use a business credit card for the business and a consumer credit card for other expenses, they advised. Not anymore.

The CARD Act doesn't apply to business credit cards, so using a personal card for your business expenses is safer, says Detweiler.

On the flip side, doing so can easily hurt your credit, especially if your business expenses are high. Even if you pay off your high balances in full each month, they will be listed on your credit report and you could appear overextended. (Of course, there's no guarantee that this isn't happening to you even if you're still keeping things separate. Some issuers now report business credit card accounts to the consumer credit bureaus.) "There's no easy answer here," Detweiler says.

More from MSN Money and SmartMoney

Lifetime cost of bad credit: $201,712
Cashing in on credit card rewards
5 ways to kill your credit scores
How financial reform could affect your credit
6 secret credit card perks
Is it time for you to go paperless?

Credit scores: Credit CARD Act changes the rules - MSN Money

Credit scores: Credit CARD Act changes the rules - MSN Money

Remember those long-standing guidelines like closing old credit card accounts, never maxing out cards and asking for lower interest rates? Well, you can forget them now.

by Aleksandra Todorova for SmartMoney April 8, 2010

The rules that credit card companies have to live by changed dramatically with the enactment of new regulations last month. Now, some of the rules for consumers striving to maintain good credit are changing, too.

For the most part, cardholders would still do well to pay on time, keep their balances low and refrain from applying for too many credit cards at once. But some of the old guidelines may not always hold up, as credit card companies continue to adapt to the new environment and look for ways to run their for-profit businesses.

Estimate your credit scores in minutes

Case in point: Many issuers introduced annual or inactivity fees in the weeks leading to or immediately after the Credit Card Accountability, Responsibility and Disclosure Act went into effect. "Now folks have to decide: Do they want this card badly enough to pay the fee, or do they close it," says Barry Paperno, the consumer-operations manager at Fair Isaac, the company that developed FICO credit scoring.

It's a question of more than just losing a credit line. Closing a credit card can have a big impact on your credit scores. That is, unless you do some groundwork in advance.

With the help of some easy -- if often counterintuitive -- steps, you can improve and retain healthy credit scores even in today's fast-changing credit environment. Here are five:

1. Open more credit cards For years, experts warned that opening new credit cards hurts your credit score -- not to mention enabling you to run up huge debts. That's still true: The length of your credit history and new credit make up 15% and 10% of FICO scores, respectively. But with credit issuers lowering credit limits left and right these days, having too few credit cards puts a much more important credit-score component at risk: credit utilization, or how much of your available credit you're using. Credit utilization makes up 30% of your score.

"More cards mean more available credit and more options if an issuer decides they don't like you," says John Ulzheimer, the president for educational services at Credit.com. Generally, having four or five credit cards is better than having just one or two, he says.

Expanding your credit card portfolio isn't something you should do tomorrow; it's a strategy to be executed over time. If you have just two cards, now is the time to open a third. But wait at least six months to a year before applying for a fourth card.

A great credit score won't cut it for loans

Go to Wall Street Journal

2. Max out (some of) your credit cards A quirk of credit score math makes it advantageous to max out certain cards. How? It's a matter of what the issuer tells the credit bureaus.
Some types of cards don't report credit limits to the credit bureaus. They include all charge cards from American Express and some high-end credit cards that are marketed as having no preset spending limit, such Visa Signature and MasterCard World. (These cards have a credit limit, but cardholders can exceed it and must pay off the excess in full on their next bill.)
When the FICO scoring system comes across such an account, it will either bypass it for the purpose of calculating credit utilization or substitute the credit limit value with that of the highest balance on record for the account. The most current FICO scores from TransUnion and Equifax bypass charge cards, according to Paperno. So as far as those two bureaus are concerned, your charge card spending will not affect your utilization.

But in cases where the FICO formulas substitute the credit limit value with that of the highest balance, consumers who spend roughly the same amount each month could end up with lower scores than they deserve. The solution: Run up a balance that's much higher than usual. Your utilization ratio will improve in the following months, Ulzheimer says, along with your scores. (Just pay off that balance in full the next month to avoid interest charges.)

Boost your credit scoresYour scores will drop during the month for which your card appears maxed out, so don't execute this strategy if you're shopping for a mortgage or another large loan at the time.
To find out if you have cards that don't report a credit limit, check your credit reports. You can order one free report a year from each of the three credit bureaus on AnnualCreditReport.com. Charge cards are typically reported as "open," while other credit card accounts are reported as "revolving," Paperno says.

3. Don't ask for a lower APR In the old days, consumers were encouraged to call their credit card companies and ask for lower interest rates. "There really wasn't a downside to doing that," says Gerri Detweiler, an adviser with Credit.com.

"These days, if you call, you may trigger an account review." Should that happen, and the credit issuer not like what it sees, it may cut your credit limit or actually hike your interest rate. This is where having multiple credit cards may come in handy, Detweiler says. "Don't make that call unless you have a backup card where you could transfer that balance."

4. Closed a card? Don't pay it off Under the old rules, interest-rate hikes applied to both your existing balance and future purchases. Since the Credit CARD Act went to effect, lenders have been limited to applying rate increases only on balances going forward. That said, if you closed an account before the law took effect to opt out of a rate hike, you may not want to rush to pay off every last penny of the balance.

In a little-known quirk, FICO counts the credit limits of closed accounts toward utilization ratios only as long as there's a balance on that account.

"You may have a $100 balance on a card with a $10,000 limit, and it's doing wonderful things for utilization," Paperno says. "Once you pay that down, that utilization no longer counts toward your credit score." That means your credit score could take a dip because you paid off the balance.

5. Mix business and personal expenses Before the passage of the Credit CARD Act, credit experts routinely advised business owners to keep business and personal expenses separate. Use a business credit card for the business and a consumer credit card for other expenses, they advised. Not anymore.

The CARD Act doesn't apply to business credit cards, so using a personal card for your business expenses is safer, says Detweiler.

On the flip side, doing so can easily hurt your credit, especially if your business expenses are high. Even if you pay off your high balances in full each month, they will be listed on your credit report and you could appear overextended. (Of course, there's no guarantee that this isn't happening to you even if you're still keeping things separate. Some issuers now report business credit card accounts to the consumer credit bureaus.) "There's no easy answer here," Detweiler says.

More from MSN Money and SmartMoney

Lifetime cost of bad credit: $201,712
Cashing in on credit card rewards
5 ways to kill your credit scores
How financial reform could affect your credit
6 secret credit card perks
Is it time for you to go paperless?

Credit scores: Credit CARD Act changes the rules - MSN Money

Tuesday, April 27, 2010

How Will Mortgage Bankers Survive in 2010?; HUD Online Training; Mortgage Rate and Yield Spread Primer

What are mortgage bankers grappling with as we proceed through 2010?

Buybacks continue on, from both the agencies and large investors. Firms will continue to deal with this (and reserving for repurchase requests) for years to come. A possible requirement to hold up to 5% in capital of any loan securitization has been mentioned, but seriously, not even Bank of America or Wells Fargo could handle this one, much less a small mortgage bank trying to hedge. Depending on geographic area, some mortgage banks are anxiously awaiting the return of an adequately priced and risk-weighted jumbo market, and there have been some steps in that direction lately.

Of major concern, however, is the overall size of the mortgage market in 2010 and 2011. No analyst or investor is predicting increased production in either year versus that of 2009. Many are predicting 2010 to be about half that of 2009, volume-wise. And will margins be twice as much to compensate for it? I doubt it - if anything mortgage companies have shown a tendency to cut margins to the bone in an effort to maintain volumes and keep their staff employed. But the first quarter of 2010 was not all that bad, and the second quarter, although slower, is "ok". So where does that leave the 3rd and 4th quarter? Things could become ugly. Some originators continue to talk about adding production staff, but throwing bodies at diminishing volumes may not be the perfect answer. Some mortgage banks, and smarter minds than mine, are installing metrics to measure both loan agent and branch profitability while they are selectively adding production staff. So that if and when the time comes to smartly reduce staff, they'll be ready.

Kate Berry with American Banker wrote a very good article on 4/14 about pull through. Tightened underwriting guidelines have increased the risk that a loan will not make it all the way through the pipeline. So not only are more hours being spent on processing and underwriting loans that don't qualify, but lenders' hedge costs are impacted by seeing pipelines that many not materialize. The author reports that the MBAA reports that retail loan officers had an average pull-through rate of 64% in the first half of 2009. This means, on the flip side, that 36% fell out, often after having been extended with more hedge costs. Obviously a shorter lock period is better for hedging purposes: it gives the borrower less time to drop out. Also, other companies are pre-underwriting the loan, and running it through QC and compliance, before it can be locked. And on the investor side, whether wholesale or correspondent, lenders are carefully watching their client's pull through rates and base pricing on it.

The Census Bureau actually does something more than hire people. It issues reports! One of its latest updates shows that homeownership rate here in the US fell to an average of 67.2% of qualifying Americans who own homes in Q110, dropping 1bp from 67.3% in Q409. It was the lowest rate since the 67.1% mark in the first quarter of 2000. The rate reached its height in 2005. Is this really a bad thing? I don't think so, although I am not sure what they mean by "qualifying" which is critical. Many argue that "unqualified" borrowers helped put us into this mess. The national vacancy rate for homeowner housing remained almost unchanged from a year ago. Homeowner vacancies reached 2.8% in the South, the highest of any region, and the West followed with a 2.7% vacancy rate. The Midwest was third with a 2.6%, and the Northeast had the smallest rate at 1.8%.READ MORE. SEE CHARTS

Investor changes continue, although there is more focus on documentation rather than changing LTV's and DTI's. GMAC has posted an update to its guidelines which applies to its Conforming, Jumbo, FHA product lines, and has suspended its Conforming IO Flex ARM product. Citi has posted an update to its guidelines which applies to its FHA product line, and has suspended its Agency Community IO product.

Who can't use some additional training?

HUD's Mortgagee Letter 2009-45 announced its "Eclass System" to provide a web-based training to HUD-Approved Lenders, HUD-Approved Housing Counseling Agencies, Non-Profit Housing Counseling Agencies, and HUD staff. Eclass is required to be completed prior attending HUD Loss Mitigation Training. Modules include "Early Delinquency Servicing Activities", "HUD's Loss Mitigation Program Overview", "Special Forbearance Option", "Loan Modification Option", "Partial Claim Option", "FHA's Home Affordable Modification Option (FHA-HAMP)", "Pre-foreclosure Sale Program", "Deed-in-Lieu of Foreclosure", "Extension of Time Requests and Variances", "Single Family Default Monitoring System", "HUD's Tier Ranking System", and "Property Condition and Re-Conveyance Appeal Process". Check out address: https://elcass.hud-nsctraining.com FHA Mortgagee letters can be found online at: http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/

Gone is real estate investment trust American Mortgage Acceptance Company, which filed for Chapter 11 bankruptcy protection. The REIT, which invested in multifamily and commercial property mortgage loans, said in court documents it had assets of about $6.4 million and liabilities of about $120 million versus assets worth $666 million in 2007.

For the most parts folks in the business know that mortgage rates are not pegged to the 10-year Treasury note, but Secondary Marketing staffs are occasionally asked, "How are mortgage rates set?" Agency mortgage rates are based off of Mortgage-Backed Security (MBS) pricing, which, although they are usually traded as a spread off of Treasury securities, are influenced by many different factors. Interest rate expectations, supply and demand, inflation expectations, tax rates, and prepayment & delinquency expectations all are factored in. After all, MBS's are not, in theory, backed by the US government but instead are backed by borrowers. Unless the United States heads down the path of Greece, rates on Treasury securities will always be less than rates on mortgages. Unfortunately, our government is spending about $1.50 for every $1.00 it brings in, and our debt is almost 60% of GDP - neither of which are conducive to lower yields in general. MORTGAGE RATES PRIMER and YIELD SPREAD PRIMER

Not much happened in the markets yesterday. The $11 billion 5-yr TIPS auction went "ok" or was "sloppy" depending on who you ask. News from Greece and the Euro continues to push the markets, as it very well may for months to come. Concern over sovereign credit risk also dragged down the euro and Greek bank stocks and pushed the cost of insuring Portugal's debt to new highs, underlining concerns that it could be the next euro zone state to suffer a debt crisis. The backing of Germany is vital for any aid package. And no one knows what is going to come out of the financial reform measures that are being debated in Congress. Of interest to folks who follow the news of mortgage investors, the US Treasury plans to start selling off its 27% stake (7.7 billion shares) in Citigroup, and Morgan Stanley has the authority to sell up to 1.5 billion common shares. As you'd expect, this pushed Citi's share price down.

There might not be much happening today either, although we do have this auction to get through: $44 billion 2-yr's today ($44 billion 5-yr tomorrow, and $32 billion in 7-yr's Thursday). Traders are continuing to report that "Non-agency spreads grind tighter in the absence of meaningful supply" meaning that non-Fannie, Freddie, and FHA loan production is slow, and the demand for it may be picking up a little. But who is going to trust a rating agency evaluation of any new securities? Don't look for much from the FOMC meeting tomorrow, as overnight rates will remain unchanged. Currently the 10-yr is at 3.75% and mortgage prices are better by between .125 and .250.


A husband in his back yard is trying to fly a kite. He throws the kite up in the air, the wind catches it for a few seconds, and then it comes crashing back down to earth.

He tries this a few more times with no success.

All the while, his wife is watching from the kitchen window, muttering to herself how men need to be told how to do everything.

She opens the window and yells to her husband, "You need a piece of tail."

The man turns with a confused look on his face and says, "Make up your mind. Last night, you told me to go fly a kite."

How Will Mortgage Bankers Survive in 2010?; HUD Online Training; Mortgage Rate and Yield Spread Primer

How Will Mortgage Bankers Survive in 2010?; HUD Online Training; Mortgage Rate and Yield Spread Primer

What are mortgage bankers grappling with as we proceed through 2010?

Buybacks continue on, from both the agencies and large investors. Firms will continue to deal with this (and reserving for repurchase requests) for years to come. A possible requirement to hold up to 5% in capital of any loan securitization has been mentioned, but seriously, not even Bank of America or Wells Fargo could handle this one, much less a small mortgage bank trying to hedge. Depending on geographic area, some mortgage banks are anxiously awaiting the return of an adequately priced and risk-weighted jumbo market, and there have been some steps in that direction lately.

Of major concern, however, is the overall size of the mortgage market in 2010 and 2011. No analyst or investor is predicting increased production in either year versus that of 2009. Many are predicting 2010 to be about half that of 2009, volume-wise. And will margins be twice as much to compensate for it? I doubt it - if anything mortgage companies have shown a tendency to cut margins to the bone in an effort to maintain volumes and keep their staff employed. But the first quarter of 2010 was not all that bad, and the second quarter, although slower, is "ok". So where does that leave the 3rd and 4th quarter? Things could become ugly. Some originators continue to talk about adding production staff, but throwing bodies at diminishing volumes may not be the perfect answer. Some mortgage banks, and smarter minds than mine, are installing metrics to measure both loan agent and branch profitability while they are selectively adding production staff. So that if and when the time comes to smartly reduce staff, they'll be ready.

Kate Berry with American Banker wrote a very good article on 4/14 about pull through. Tightened underwriting guidelines have increased the risk that a loan will not make it all the way through the pipeline. So not only are more hours being spent on processing and underwriting loans that don't qualify, but lenders' hedge costs are impacted by seeing pipelines that many not materialize. The author reports that the MBAA reports that retail loan officers had an average pull-through rate of 64% in the first half of 2009. This means, on the flip side, that 36% fell out, often after having been extended with more hedge costs. Obviously a shorter lock period is better for hedging purposes: it gives the borrower less time to drop out. Also, other companies are pre-underwriting the loan, and running it through QC and compliance, before it can be locked. And on the investor side, whether wholesale or correspondent, lenders are carefully watching their client's pull through rates and base pricing on it.

The Census Bureau actually does something more than hire people. It issues reports! One of its latest updates shows that homeownership rate here in the US fell to an average of 67.2% of qualifying Americans who own homes in Q110, dropping 1bp from 67.3% in Q409. It was the lowest rate since the 67.1% mark in the first quarter of 2000. The rate reached its height in 2005. Is this really a bad thing? I don't think so, although I am not sure what they mean by "qualifying" which is critical. Many argue that "unqualified" borrowers helped put us into this mess. The national vacancy rate for homeowner housing remained almost unchanged from a year ago. Homeowner vacancies reached 2.8% in the South, the highest of any region, and the West followed with a 2.7% vacancy rate. The Midwest was third with a 2.6%, and the Northeast had the smallest rate at 1.8%.READ MORE. SEE CHARTS

Investor changes continue, although there is more focus on documentation rather than changing LTV's and DTI's. GMAC has posted an update to its guidelines which applies to its Conforming, Jumbo, FHA product lines, and has suspended its Conforming IO Flex ARM product. Citi has posted an update to its guidelines which applies to its FHA product line, and has suspended its Agency Community IO product.

Who can't use some additional training?

HUD's Mortgagee Letter 2009-45 announced its "Eclass System" to provide a web-based training to HUD-Approved Lenders, HUD-Approved Housing Counseling Agencies, Non-Profit Housing Counseling Agencies, and HUD staff. Eclass is required to be completed prior attending HUD Loss Mitigation Training. Modules include "Early Delinquency Servicing Activities", "HUD's Loss Mitigation Program Overview", "Special Forbearance Option", "Loan Modification Option", "Partial Claim Option", "FHA's Home Affordable Modification Option (FHA-HAMP)", "Pre-foreclosure Sale Program", "Deed-in-Lieu of Foreclosure", "Extension of Time Requests and Variances", "Single Family Default Monitoring System", "HUD's Tier Ranking System", and "Property Condition and Re-Conveyance Appeal Process". Check out address: https://elcass.hud-nsctraining.com FHA Mortgagee letters can be found online at: http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/

Gone is real estate investment trust American Mortgage Acceptance Company, which filed for Chapter 11 bankruptcy protection. The REIT, which invested in multifamily and commercial property mortgage loans, said in court documents it had assets of about $6.4 million and liabilities of about $120 million versus assets worth $666 million in 2007.

For the most parts folks in the business know that mortgage rates are not pegged to the 10-year Treasury note, but Secondary Marketing staffs are occasionally asked, "How are mortgage rates set?" Agency mortgage rates are based off of Mortgage-Backed Security (MBS) pricing, which, although they are usually traded as a spread off of Treasury securities, are influenced by many different factors. Interest rate expectations, supply and demand, inflation expectations, tax rates, and prepayment & delinquency expectations all are factored in. After all, MBS's are not, in theory, backed by the US government but instead are backed by borrowers. Unless the United States heads down the path of Greece, rates on Treasury securities will always be less than rates on mortgages. Unfortunately, our government is spending about $1.50 for every $1.00 it brings in, and our debt is almost 60% of GDP - neither of which are conducive to lower yields in general. MORTGAGE RATES PRIMER and YIELD SPREAD PRIMER

Not much happened in the markets yesterday. The $11 billion 5-yr TIPS auction went "ok" or was "sloppy" depending on who you ask. News from Greece and the Euro continues to push the markets, as it very well may for months to come. Concern over sovereign credit risk also dragged down the euro and Greek bank stocks and pushed the cost of insuring Portugal's debt to new highs, underlining concerns that it could be the next euro zone state to suffer a debt crisis. The backing of Germany is vital for any aid package. And no one knows what is going to come out of the financial reform measures that are being debated in Congress. Of interest to folks who follow the news of mortgage investors, the US Treasury plans to start selling off its 27% stake (7.7 billion shares) in Citigroup, and Morgan Stanley has the authority to sell up to 1.5 billion common shares. As you'd expect, this pushed Citi's share price down.

There might not be much happening today either, although we do have this auction to get through: $44 billion 2-yr's today ($44 billion 5-yr tomorrow, and $32 billion in 7-yr's Thursday). Traders are continuing to report that "Non-agency spreads grind tighter in the absence of meaningful supply" meaning that non-Fannie, Freddie, and FHA loan production is slow, and the demand for it may be picking up a little. But who is going to trust a rating agency evaluation of any new securities? Don't look for much from the FOMC meeting tomorrow, as overnight rates will remain unchanged. Currently the 10-yr is at 3.75% and mortgage prices are better by between .125 and .250.


A husband in his back yard is trying to fly a kite. He throws the kite up in the air, the wind catches it for a few seconds, and then it comes crashing back down to earth.

He tries this a few more times with no success.

All the while, his wife is watching from the kitchen window, muttering to herself how men need to be told how to do everything.

She opens the window and yells to her husband, "You need a piece of tail."

The man turns with a confused look on his face and says, "Make up your mind. Last night, you told me to go fly a kite."

How Will Mortgage Bankers Survive in 2010?; HUD Online Training; Mortgage Rate and Yield Spread Primer

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