Christina Dunham's Random Real Estate Musings

Summer is just around the corner, and many of us are starting to have visions of backyard barbecues or sunset deck parties. Time to get the house in order!

If you’re thinking about taking out a home improvement loan, there are several options to consider. First and foremost, your mortgage consultant needs to know why you want a home improvement loan. Here are some factors to take into consideration.

· How long have you been in the home?

· Will the improvements increase the property value?

· Are you making improvements to increase energy efficiency?

· Will improvements be made in one fell swoop, or in stages?

· What is the current outstanding balance on your mortgage?

· What is the appraised value of the home?

· How much will the improvements cost?

· What improvements will be tax deductible?

· Do you have other revolving debt that you would like to pay off at the same time?

· Are you making improvements because you plan to sell the property?

The New Tract Home Blues

Buyers of newly-built homes are often tapped out after making the initial down payment and closing costs, including upgrades to amenities and the inevitable need for new furniture. Shortly thereafter, they realize they’d like to make additional improvements to really have the home of their dreams.

If you’re planning on putting down roots (pardon the pun), landscaping may be in order. The developer may have been kind enough to make the front yard a perky green, but if the back yard is a disturbing brown color sparse with weeds, you may be entertaining the vision of an herb garden, lawn or even a deck.

Look into the option of a Line of Credit with your local home improvement center, and if you are the handy type, you can make the improvements yourself.

The Major Overhaul

If you have built up equity in your home and are geared up for some major renovation, the Home Equity Line of Credit (HELOC) is probably your best bet. This adjustable loan allows you to use your equity as a line of credit, so if you have improvements that are phased in over time you can simply write a check when you need to pay a bill.

It’s like a having a credit card with a much lower financing rate. In fact, the HELOC can be used for any reason at all – even paying off that credit card debt. In most cases, this action turns that revolving debt payment into a tax deductible payment with a lower interest rate. The HELOC is generally a 2^nd Trust Deed, unless it is used to pay off and replace the 1^st Trust Deed.

A construction loan is an alternative to the HELOC for borrowers who don’t want to use or don’t have equity, and this type of financing can be used for construction on an existing dwelling. The lender will ask a lot more questions about what the borrower wants to do with the money, and the home owner will need architectural designs, permits and a licensed general contractor on board.

Construction loans are short-term loans that usually require interest-only payments until completion of construction, but the balance is due when construction is done. Most often, that is managed up front by setting up construction-to-perm financing. In this scenario, the loan is automatically rolled over into permanent financing at a fixed rate when construction is complete, and a rate-lock agreement can be purchased to carry the borrower through that period of construction.

Another option – depending on the value of your home and local loan amount limitations – is the FHA 203(k) Program. This financing is designed for the purchase or refinance and rehabilitation of properties that meet FHA guidelines. This is worth looking into if you need to bring a property up to compliance standards, finance eligible energy efficient improvements, or turn a single-family owner occupied dwelling into a duplex to accommodate Mom or Dad!

Just a Facelift, Please!

If you want to sell your home and you simply want to improve the curb appeal, it makes sense to go with a HELOC. Make sure you are aware of the current market value of homes in your area to make sure you’re not going over the limit on the fair market value of your home. You’ll want to get a return on your investment!

If you’ve had your home on the market too long and have not been able to sell, you might want to make some changes to give it a fresh new look and bring back the passion you once had for your home. Your mortgage consultant will help you weigh out your options for financing based on your outstanding mortgage balance, income and credit score.

Regardless of your reason for home improvement, make sure you share your goals with your mortgage consultant. He or she can walk you through the various loan options and confer with your tax advisor to make sure you’re getting the best deal possible.

Until next week, Happy Home Loan Shopping!

To date, the sub-prime crisis has cost banks and insurers $150 billion, due in large part to mortgage fraud. In 2007, the FBI estimates that mortgage fraud increased 31 percent from the year before, although the full extent is unknown since these figures only include crimes reported through Suspicious Activity Reports (SARs). SARs are reports filed with the IRS by financial institutions that suspect money laundering and other financial crimes.

Mortgage fraud is defined as “the intentional misstatement, misrepresentation, or omission by an applicant or other interested parties, relied on by a lender or underwriter to provide funding for, to purchase, or to insure a mortgage loan.” It is divided into two categories:

Fraud for Property/Housing - Entails misrepresentation of income/assets or concealment of debt by the applicant for the purpose of obtaining a single loan in order to purchase a property as primary residence.

Fraud for Profit – Often involves multiple loans and elaborate schemes to gain illicit proceeds from property sales, including misrepresentations of appraisals and loan documents. Properties involved in mortgage fraud are often sold at artificially inflated prices.

Besides the FBI, the Department of Housing and Urban Development-Office of Inspector General (HUD-OIG), Internal Revenue Service, Postal Inspection Service, along with state and local agencies, investigate this type of financial crime.

The Top 10 Mortgage fraud hotspots in 2007 were identified as:

1. Florida
2. Georgia
3. Michigan
4. California
5. Illinois
6. Ohio
7. Texas
8. New York
9. Colorado
10. Minnesota

Other states significantly affected by mortgage fraud include Arizona, Nevada and Maryland. These same states are currently experiencing record foreclosures and bank repossessions.

BasePoint Analytics, a fraud analysis and consulting service, evaluated more than 3 million loans and discovered that between 30 to 70 percent of early payment defaults (EPDs) were linked to significant misrepresentations in the original loan applications, including social security numbers, credit, income, assets and occupancy.

Chris Swecker, former FBI Assistant Director, says “The potential impact of mortgage fraud on financial institutions and the stock market is clear. If fraudulent practices become systemic within the mortgage industry and mortgage fraud is allowed to become unrestrained, it will ultimately place financial institutions at risk and have adverse effects on the stock market.”

Just recently, the FBI has ordered more than two dozen of its field offices to shift their focus from financial crimes such as price fixing, mass marketing, and wire fraud to mortgage fraud in order to address the subprime crisis. Bill Carter, an FBI spokesman in Washington, cited that mortgage fraud is currently a top priority in the bureau’s criminal investigative division.

Mortgage professionals beware. Reports from various brokerage firms indicate that they have been visited by walk-in clients (whom they suspect to be undercover FBI agents) inquiring about “no income or no asset” loans, claiming that they were currently unemployed and could not produce a paystub or that they were expecting an insurance settlement check in the near future to cover the cash reserve requirement.

The FBI also warns that the downward trend in the housing market in conjunction with tighter lending guidelines increases the risk for identity theft and mortgage fraud schemes for individuals with good credit. Now would be a good time to check your credit report for suspicious activity and guard against identity theft by properly disposing of sensitive documents.

Until next week, Happy home loan shopping!

Christina Dunham is a Mortgage Advisor with the Dunham Group at Sierra Pacific Mortgage, a nationwide mortgage banker funding over $8 billion in loans annually since 1986. For questions on your current mortgage loan or for a complimentary credit consultation, she may be reached via email at contact@christinadunham.com.

Bankruptcy is an uncomfortable subject for a variety of reasons. The most obvious is the potential havoc it can wreak on your finances. Running a close second is the negative stigma which is often attached to the process. This negativity is important to mention because strong emotions can sometimes lead to unsound financial decisions with devastating results.

According to the Administrative Office of the U.S. Courts, bankruptcy filings in the federal courts started a slow trend upwards from 1980 to 2005, when over 2 million bankruptcies were filed. Then between December 2005 to December 2006, bankruptcy filings steeply declined by 70%. By the end of 2007, bankruptcy filings rose again by 38%, with 850,912 total filings. Of this, a huge chunk (97%) were personal bankruptcies.

Bankruptcy becomes a viable option for someone who is “upside down” in terms of cash flow. In other words, when a person has more money going out each month than coming in, bankruptcy should be considered if no reversal of this negative cash flow is within sight. The longer someone waits to explore the various options available, the more serious his or her situation may become.

The leading cause of bankruptcy filing is job loss (about 67%) and 44% of those who file are couples. The average age of a filer is 38 years old. There are three types of bankruptcy proceedings:

• Chapter 7 – Involves liquidation of assets. This is the most familiar type of bankruptcy, in which many or all of the individual’s debts are wiped out completely in exchange for proceeds from the sale of non-exempt property (includes valuable clothing, electronic equipment, expensive car that’s been paid off and most of the equity in your house). The sale is called a liquidation proceeding and is handled by a trustee. The process takes anywhere from three to six months and commonly requires only one trip to the courthouse.
• Chapter 11 – Involves business reorganization. When a troubled business is no longer able to pay its creditors, it can “reorganize” in an attempt to stay in business. A bankruptcy court supervises the “reorganization” of the company’s contractual and debt obligations. The court can grant full or partial relief from most of these debts and contracts, so the company can start fresh. Often, if the company’s debts exceed its assets, the creditors end up with ownership of the newly organized business.
• Chapter 13 – Involves a reorganization of debt and a repayment plan. In this type of bankruptcy, debtors establish a payment plan to creditors from their future earnings for the next three to five years, giving them time to catch up and keep their property. Under this type of bankruptcy, certain debts may be discharged that would not otherwise be discharged under a Chapter 7. Only individuals with a regular source of income and owes less than $307,675 in unsecured debt and $922,975 in secured debt may file for Chapter 13 bankruptcy.

In the case of both Chapter 11 and Chapter 13 bankruptcies, the borrower needs to demonstrate a good faith effort to repay the debts. The lender needs to know if the cause of the bankruptcy was an isolated case due to illness, divorce or job loss or an indication of chronically poor financial management.

It is important to note that lenders make a distinction between the two causes – extenuating circumstances and poor financial management. Extenuating circumstances are non-recurring, isolated situations beyond the borrower’s control that resulted in a sudden and significant financial hardship. Poor financial management is simply that – an inability to maintain on-time payments due to irresponsibility, indifference, or habitual over-spending.

If bankruptcy is the only option, seek out a reputable bankruptcy attorney and credit counselor. A qualified mortgage specialist can provide references for you as well, as he or she works with these professionals on a regular basis. Reliable references are essential in this case because experienced professionals greatly increase the odds of a successful bankruptcy experience. It’s that simple.

When filing for bankruptcy, be completely honest and accurate regarding every aspect of your financial situation. This includes any changes to your income which may occur throughout the process. Bankruptcy is a federal procedure, adjudicated by real judges, and scrutinized by representatives who coordinate with the Department of Justice, the FBI, and the IRS.

Here are some additional steps you can take to make the bankruptcy process as painless as possible:

• Save all paperwork regarding your bankruptcy, and keep it organized. This will prove beneficial after your bankruptcy as you now have all of the pertinent information in one place. Also, be sure to write down your discharge date. It’s surprising how many people forget to do this.
• Establish a household budget. This can be accomplished in many ways, but there are several inexpensive computer programs available which do an excellent job.
• Throughout the bankruptcy, do your best to not only live below your means, but to save as much cash as possible. You never know what you may need it for once the process is completed.
• Be prepared for a barrage of junk mail. There will be sharks on the loose who are hoping to capitalize on your need for credit.

Tips for Rebuilding Credit:

• If you must buy a car, focus on transportation as opposed to style. Buy an inexpensive, used car, and try to get a loan for it. It’s a good idea to figure out what your budget allows in terms of a dollar amount first. This means obtaining financing prior to looking for a car.
• Get a secured credit card. Secured credit cards allow for the cardholder to deposit a said amount of money into an account, thus establishing the spending limit of the card. Missed payments result in deductions from the account. Some of these cards will reward responsible borrowers by upping the limit without an additional deposit. Some will even convert the account into a traditional credit card. (Be wary of offers of “easy credit” or any card which asks you to call a 900 number. You will be charged for the call.)
• Meet with a credit repair specialist. Not only can they help you clean up the damage to your credit report, they can advise you on specific ways to rebuild the credit you lost as well.

While it does take time, there is definitely life (and credit) after bankruptcy. Some mortgage lenders will even lend to you within a year or so after a bankruptcy. If you’re in serious financial trouble, the trick is to get the help and advice you need from professionals you trust.

For more tips on dealing with bankruptcies, visit click here. If you need a referral to a bankruptcy lawyer or credit counselor, please drop me an email

Until next week, happy home loan shopping!