The House of Representatives has finally passed the Financial Reform Bill that provides the high changes of financial regulation since the Great Depression. It is expected President Obama will sign it into law fairly soon. The Financial Reform Bill will have certain affects on the mortgage market. This bill will bring into affect new lending rules which will protect the consumers. Let’s take a look at some of them.

Lenders to retain interest in the loan: The lenders will retain at least 5% interest in the loan that they originate. There would be a risk for the lender if he originates the loan to a person who cannot afford it. Thus, it would encourage the lenders to offer mortgages only to those who can afford to repay the loan, taxes as well as the insurance costs.

Create a new agency to stop predatory lending: Both the House and the Senate have called for creation of a new Consumer Protection Agency that will stop lenders from indulging into predatory lending that pushed the nation into the financial crisis.

Transparency in credit score: If a lender rejects loan application, he will have to let the borrower know about the credit score information used to make the decision. The borrowers will not only be able to see their credit scores, but also the short descriptions of the negative items which resulted in the low score.

Pre-payment penalty limits: The pre-payment penalties played havoc during the mortgage meltdown. When the borrowers tried to refinance their loans, they had to pay heavy penalties and increased payments. If the new bill turns into law, pre-payment penalties won’t be allowed in case of some loans. Also, the lenders would be required to offer financing alternatives to the homeowners before charging them penalties.

Improving appraisal standards: Under the new Bill, a consumer protection agency will be set up which would have to supervise the appraisals. Thus, the lenders or real estate agents will not be able to influence the appraisals.

If the Financial Reform Bill turns into law, the consumers will be well protected and it is expected that in the long run it might help in preventing another housing market crisis.

Though the rescission has ended, it has been found that the situation in the real estate market has not improved much. It has been noticed that home values have dropped so low that the loan amount is more than the price of the property. Around 11.2 million homes which are underwater and 2.3 million homes are close to slipping underwater. California, Nevada, Arizona and Florida are some of the worst affected states.

Underwater or sunk cost mortgages are more stressful to those who are unemployed. It has to be noted here that unemployment has increased by 10% compared to the last year. No equity and loss of job has disqualified most of the borrowers from receiving refinance or loan modification. Thus, most of the borrowers are on the verge of losing their homes in foreclosure.

However, the Obama administration is coming up with various mortgage assistance programs to help borrowers who are underwater. Let’s take a look at some of the option:

• $112M mortgage assistance to New Jersey: A few days back, the Obama administration had given $112 million to New Jersey as mortgage assistance. The money will be used by the state in order to design a program which will help the unemployed homeowners stay in their homes while searching for work.

• $3 billion assistance for jobless homeowners: Apart from $112M assistance to New Jersey, the Obama administration has also offered $3 billion to those homeowners who are suffering due to unemployment and are unable to pay their mortgage payments. Unemployed people of around 17 states will receive help from this assistance. Homeowners who are at the risk of foreclosure would get interest-free loans save their property.

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There are a number of consumers who believe that they might be eligible for government bailout. However, it is not so. You may see a large number of ads mentioning about some “Obama credit card bailout program” but that’s completely misleading. There are no government-backed consumer bailout programs for your personal credit card debts. You’ll have to manage your credit cards responsibly and pay off the bills on time.

However, if you’re in severe credit card debt, there are some ways you can get relief. Let’s take a look at what they are:

• Negotiate a repayment plan with your creditor: You can contact your credit card company and negotiate with it so that you can get an affordable repayment plan to pay off your debts. You can use the various debt calculators available online in order to find out the amount that you can afford to pay toward your debt. You can let the creditor know about that amount and check if he can accept that as your monthly payment towards the credit card debt.

• Debt management plan: If you’re unable to negotiate with your creditor and cannot get an affordable repayment plan, then you can go for a debt management plan. You can contact non-profit credit counseling agencies that can negotiate with your credit card company to provide you with a reduced interest rate. However, your creditor may coordinate with the credit bureaus and inform them that you’re paying the dues under a debt management plan. But this won’t have much affect on your FICO scores.

However, there is one thing you need to consider…

Paid charge off or settlement notation - Negotiating a debt reduction may lead to paid charge off or settlement notation on credit report. This will have a negative impact on your credit. You may also have tax consequences as forgiven debt will be considered as your income by the IRS.

However, it should be noted that a blemished credit report isn’t the end of the world. Once you pay off your debts after negotiation with the creditor or through a debt management plan, you should take steps to improve credit score. Once you start taking the right steps, you’ll find your scores improving with time.

Earlier, it was quite easy to become a mortgage officer. However with the introduction of the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act), things are changing. The SAFE Act will help in increasing consumer protection and reducing fraud. The last date for the states to have the licensing and registration system in place was July 31, 2010.

Here are some of the major highlights of SAFE Act:

• Registration and minimum standards: There would be registration of mortgage-loan originators and minimum standards for state licensing which would include education requirements, criminal background checks, etc. for those who originate mortgages.

• National registry of mortgage-loan originators: The consumers will get access to a national registry of mortgage-loan originators. Borrowers will be able to check out the employment history as well as view disciplinary and enforcement actions against lenders with whom they are planning to do business.

• Reduce regulatory burden: This act is aimed at streamlining the licensing process and will also help in reducing the regulatory burden.

• Consumer protection: The main aim of this act is to enhance consumer protection. This act also supports anti-fraud measures.

• Consumer complaints: This act also aims at collection as well as disbursement of consumer complaints on behalf of state mortgage regulators.

• Amendment to the Truth in Lending Act (TILA): An amendment to the TILA now requires creditors to give good-faith estimates within 3 business days once they receive the consumer’s mortgage application. Once this is done, the creditors must wait for 7 business days before closing the loan.

Concerns regarding the SAFE Act:
It will take months to hire, educate and license loan officers. Thus, when demand for mortgages increase, people won’t be able to get the home loans quickly.

Misconceptions or myths regarding credit reports are quite common in the market and most consumers tend to get affected by them. Thus, they do certain things which can negatively affect their credit report. Let’s take a look at 5 credit report myths that one should be aware of:

1. There’s no need to check my credit report, if I pay bills on time: This is major mistake which most of the consumers make. Though you pay your bills on time, yet you should make it a point to check your credit report on a time to time basis. You may find conflicting information listed on your credit report. You will have to negotiate with your creditors/credit bureaus and get it corrected or else your score will take a hit.

2. FICO scores are locked in for six months: Many believe that credit scores are locked for 6 months. However, the fact remains that FICO scores are dynamic and change as soon as your lender/creditor reports anything to the credit bureaus regarding your loan/credit accounts.

3. Paying my debts will improve my credit report immediately: Though it is good to pay off as much debt as possible, yet it won’t improve your credit report instantly. Your credit report will take into account, the past debt payments as well. If you’ve defaulted on your payments, it will remain on your credit report for 7 years.

4. Closing credit cards will help me improve my score: Most people tend to believe that open accounts actually mean potential debt. Thus, lenders may take it in a negative sense. So, it’s better to close them. But, most lenders will want to see at least 2-3 active credit accounts.  Lenders will actually look into the fact whether or not you’re able to manage your credit cards well by paying the dues on time.

5. My credit score will drop if I check my credit report: Credit inquiries are of two types – soft inquires and hard inquires. Inquires by the consumers to check credit score or own credit report (also known as soft inquires) won’t affect credit scores in a negative way. It won’t have an impact on the credit report. However, if a lender or a creditor checks your credit report for giving you a mortgage, auto loan, credit card, etc., it’s known as a hard inquiry and may reduce your credit score by few points. However, multiple inquires for a same purpose within a given span of time would be grouped as one and won’t have much affect on your credit score/report.

Due to the present economic crisis, it’s quite difficult to plan for a budget and save money. The worst affected people in this situation are the single mothers. Being the sole earning member of the family, they need to look after the family expenses as well as the kids and their needs.

Here are 5 helpful tips from my end which can help single mothers plan their budget and save money in a better way:

1. Plan and set priority: You’ll only be able to save money if you’ve planned for it properly. You should analyze your income sources, daily expenditures, debts, etc. and then chalk out a plan and prepare a budget. Once you’ve prepared a budget, you need to set your priorities – you should decide which things should come first before others.
2. Use envelopes to manage your finance: Using the envelop method to manage finances is a smart option and quite a large number of people go for it. Once you get your paycheck, divide it into credit card bills, mortgage payments, utility bills, grocery, shopping, etc. and put the required amount into respective envelopes and then keep it in a safe place.
3. Pay bills as soon as they come in: You’ve used the envelop method to set aside money for your bills. Thus, once the bills are delivered at your door step, pay them off immediately. If you postpone paying the bills, you may incur late fees which will be an additional burden for you.
4. Save money for emergency: You should set aside a stipulated amount as your savings each month. If you face an emergency, this savings will come handy. You won’t have to take the help of your friends or relatives or take out any personal loan if you’ve a savings of your own.
5. Avoid spending on unnecessary things: It is better not to spend too much money on unnecessary things. For example you can buy cheaper yet trendy clothes over the expensive ones. Your kids may ask for various unnecessary things. In that case, let them know about your financial situation. They are intelligent and will definitely understand your situation and won’t demand expensive or unnecessary items.

I hope these simple budgeting tips will help single mothers to save money and lead a stress-free life.

You love your kids more than anything else in the whole world, isn’t it? It won’t be pleasant for you to find your kids going through a financial crisis. Thus, start teaching your kids about money management from the early age. Your advice to the kids and teens regarding money management will help them become responsible individuals and they’ll avoid major financial mistakes later in their lives.

Here are 4 steps which you may take in order to help your kids develop better money management habits:

1. Inform kids about your source of income: It’s important for you to let your kids know where the family income comes from. You should inform the kids about the earning members of the family, the amount of your monthly/weekly income, etc. Also, inform the kids about your monthly family expenses. You can even explore the various ways of earning money in front of them and inform them about taxes and tax deductions.

2. Plan your budget in front of the kids: When you are planning your budget, involve your kids in it. While you allocate money for different items on the budget, teach your kids how they should allot their pocket money for various expenses that they incur throughout the month. Make sure that they understand the fact that when your income is limited your expense should also be limited.

3. Teach kids to save money: Your kids should know how important it is to save money. Explain them what kind of emergency situations may arise and how one can cope up with it if he or she has saved money. Once they understand this basic concept, it will encourage them to save money for the future which will in turn help them when they are facing a future financial catastrophe.

4. Give rewards if they can save money: If your kids are able to save money, reward them for their achievement. You can give them an additional amount if they are able to save a stipulated amount from their pocket money. This will encourage them to save more.

You should take the initiative in order to help your kids develop successful money management habits. In the long run, they will become responsible individuals and will thank you for your financial teachings.

With the introduction of the Credit Card Accountability Responsibility and Disclosure (CARD) Act, many experts have opined that it would affect the eligibility of the borrowers to qualify for a mortgage.

How would the CARD Act affect the homeowners?
There was a time gap between the announcement and enactment of the CARD Act. Most of the credit card issuers raised the interest rates of the card owners suddenly within this time gap. In some cases, the interest rates were raised from 8% to 16%. Due to this, the card holders will now have to pay a comparatively higher minimum monthly payments on their credit cards.

As the minimum monthly payments have increased, the card owners will have to put maximum amount of their wages towards paying off the credit card debts. This may lead to the non-payment of the mortgage dues which will affect their chances of refinancing a home loan. Also, if they default on the mortgage payments, the lenders can start off with foreclosure procedures to recover their dues. This will increase the foreclosure rates in the country and in turn affect the recovery of the housing market.

How can borrowers increase their chances of getting a loan?
When a person is trying to purchase a property, he or she will have to try and make himself or herself as “attractive” as possible in front of the lender.  Though it’s difficult, it’s not impossible.

If a card owner’s rates have just been raised and the credit limit lowered, then he or she should negotiate with the bank or credit union to either lower the interest rate or increase the credit line to where it stood previously.

In order to achieve this, the customers can stick to a single bank. If they have all their accounts with a single bank, then they may be able to get annual fees waived off or get their interest rates lowered. The customers can even apply for mortgage with the same bank. It will be easier for the lender to judge a person’s credit and thus it will be an added advantage while securing a loan.

However, this is an early stage to tell whether or not the CARD Act will really affect the mortgage market drastically. The concerns can be somewhat hypothetical at this point.

The British Petroleum (BP) oil spill has severely affected the economy of the Gulf of Mexico region. The nine-week-old oil disaster has badly affected the coasts of Louisiana, Mississippi, Alabama and Florida. It has been estimated that around 12,000 jobs could be lost in the Louisiana region alone. Apart from this, due to a ban in oil drilling, a large number of people living in Alaska and Virginia will also lose jobs.

Government sponsored mortgage purchasers, Fannie Mae and Freddie Mac along with Citigroup have come up with mortgage relief for the homeowners residing in the affected regions. Let’s take a look at what type of mortgage relief homeowners would receive:

• Forbearance: Both Fannie Mae and Freddie Mac have instructed the mortgage servicers to reduce or suspend the payments of the borrowers for 90 days.

• Extension of forbearance: In certain cases, the servicers may reduce or suspend the payments of the borrowers for 12 months even.

• Cancellation of late fees: If the borrowers stick to the forbearance agreement given to them by the servicers, then they won’t have to pay any late fees. In such cases, the servicers have been instructed not to collect the late fees from the affected borrowers.

• Suspension of foreclosures: Citigroup has announced that it is suspending loan foreclosures throughout the affected region till September 17, 2010. Thus, those borrowers, whose first mortgage is owned by CitiMortgage, will not be subject to foreclosure sales if they are occupying homes situated within 25 miles of the affected coastal region.

I feel this is an excellent gesture on the part of Freddie Mac, Fannie Mae and Citigroup to help homeowners who are in the midst of an unprecedented disaster. The steps taken by them will not only help the homeowners to weather this disaster but will also allow them to save their properties from foreclosures and help them get back on their feet.

Getting a mortgage, credit card or an auto loan with a mediocre credit history has become a thing of past. If you want to get best rates on your credit cards, home loan or car loans, then you should have excellent credit score. The FICO scores help the lenders/banks to judge your creditworthiness. So, you should always take steps to enhance your credit score and avoid doing things which may destroy it.

Let’s take a look at 5 things to avoid and save your credit from taking a hit:

1. Applying for credit: Your lender/creditor will check your credit report once you apply for new credit. This credit inquiry will be mentioned in your credit report. It should be noted that 2 or more inquiries within two months will negatively affect your credit score. Thus, applying for too much of credit can be harmful for your credit score.

2. Late payments: Any late payment will be mentioned in your credit report for the next 7 years as a negative item and will reduce your credit score by 80-110 points. Try to pay off the credit card bills, mortgage payments, car loans, etc., on time or within the grace period. If you don’t do so, you are at a risk of damaging your credit scores.

3. Inadequate credit: While calculating your credit score, the credit bureaus take into account as to how long and how much credit you had. If you have 2-3 credit cards, 1 mortgage and a car loan and have paid them faithfully, then your credit score would be much higher than that of a person who has a single credit card and 1 auto loan.

4. Opening a new credit line: As you apply for a new account, you actually lose some points off your credit score. When you open a new account, the bank or the credit card company will check out your credit report and such inquires are generally hard inquiries (inquiries which take place when a person is applying for a car loan, mortgage or a credit card). Such inquiries will lower your score by around 5 points. Apart from this, opening a new account will lower your score by 5-15 points. However, this is a temporary ding and may last for around 6 months.

5. Maxed out on credit cards: If you’ve reached the maximum limits on all your revolving credit accounts, then your credit score will get negatively affected. You should try and pay off your credit cards completely every month.