About a week ago, Bank of America released details of its so-called “Mortgage to Lease” program, which as the name implies, allows homeowners to lease the homes they previously mortgaged.
So let’s take a closer look to see just what Bank of America is doing here.
First things first, this is a very limited pilot program, so don’t assume you can head down to Bank of America, fill out some paperwork, and then ditch your pesky mortgage but not your beloved house.
In fact, fewer than 1,000 customers will be “invited” to participate in the Mortgage to Lease program, meaning your chances of being selected are only slightly better than winning the Mega Millions jackpot.
Additionally, only homeowners in Arizona, Nevada, and New York are part of the pilot, so if that’s not you, you’re out of luck, at least for the moment.
Requirements for the Mortgage to Lease Program:
[checklist]
Mortgage is owned by Bank of America
Mortgage is 60 days + delinquent
All other loan modification solutions have been exhausted or ignored
Face high risk of foreclosure
Have no second mortgages
Still occupy the home
Have enough income to make affordable rent payments
[/checklist]
So while this looks like a lengthy list, it’s probably not all that uncommon. Well, the lack of second mortgages probably is, as most homeowners who are currently in trouble went with 100% financing. And most used second mortgages to get there.
But for those with one loan who still managed to find themselves underwater, or at least behind on mortgage payments, and couldn’t manage a short sale or deed-in-lieu of foreclosure, this program may be a winner.
That is, if you actually want to stay in the home that gave you so much heartache.
How the Mortgage to Lease Program Will Operate
Assuming you do, participants in the program will agree to transfer title of their home to Bank of America, and their outstanding principal will be forgiven. In other words, you won’t owe the bank anything for owing more than the mortgage is worth.
In exchange, you’ll have the opportunity to rent the house you currently reside in for up to three years, with rental payments set at or below the current market rental rate.
The rental payment will be less than the old mortgage payment, and the homeowner will be relieved of normal homeowner costs, such as homeowners insurance and property taxes.
Bank of America will have a property management company oversee the rental properties, and eventually the inventory of homes will be transitioned to investor ownership.
However, if all goes well, the investors can keep the tenants in the homes for as long as they see fit. And possibly even sell them back to the homeowners.
Will it Work?
Bank of America’s Mortgage to Lease program isn’t at all groundbreaking. In fact, Fannie Mae’s very similar Deed for Lease program has been around for more than two years.
Regardless, it seems like Bank of America’s new initiative is very limited in scope, and only targets customers who have made no effort to change their unfortunate situation.
If anything, it seems like a last gasp opportunity to avoid a foreclosure for BofA (and the losses that come with it), while the homeowner in question is probably just seeing how long they can hang on without making a payment (free rent).
My guess is a homeowner that hasn’t shown any interest in a loan mod or any other foreclosure alternative probably won’t be all that interested in this program, given the only upside is staying in a house they can’t afford, or aren’t willing to fight for.
Attorney General Kamala Harris wants to put the brakes on most foreclosure sales in the state of California, according to a letter obtained by Bloomberg.
Apparently Harris sent a letter to Edward DeMarco last week, the acting director of the FHFA (which oversees Fannie Mae and Freddie Mac), asking that foreclosure sales be suspended while the agency determines if principal reductions are in the best interest of homeowners.
Long story short, DeMarco has been against offering principal reductions to distressed homeowners who hold Fannie and Freddie backed mortgages, mainly because of the cost burden to taxpayers, and also over concerns it may lead others to strategically default.
Principal Reductions Only Go to Those Behind on the Mortgage
You see, principal reductions probably wouldn’t be offered to homeowners unless they were behind on mortgage payments, and/or in the process of foreclosure.
This has led many to call the practice unfair, as it rewards the “irresponsible homeowners” and punishes those who keep up with their obligations.
However, the recently agreed upon National Mortgage Settlement includes $10 billion directed toward principal balance reductions (the lion’s share), which calls into question what should be offered to those with Fannie and Freddie backed loans.
That settlement doesn’t cover Fannie and Freddie loans, and is only good for mortgages tied to the nation’s five largest mortgage loan servicers, including Ally/GMAC, Bank of America, Chase, Citi, and Wells Fargo.
Harris pointed out in the letter that California has already secured a minimum of $12 billion in principal reductions from banks, and noted that they are the most meaningful solution for homeowners and most cost effective for investors.
Additionally, she said the FHFA’s data itself revealed that principal reductions would best serve taxpayer interests, who happen to be on the hook for Fannie and Freddie’s losses.
Are Principal Reductions the Answer?
A month or so ago, I actually argued against principal reductions on loan modifications (shocking I know). For the record, it’s not about politics.
I noted that the cost of refinancing high-cost mortgages to today’s ultra low mortgage rates is much cheaper compared to offering principal reductions, and more equitable.
It’s easier to swallow for other homeowners, including the underwater ones that aren’t behind on their mortgages but also need payment relief.
The lower rates alone can serve as a means to lower payments and keep borrowers in their homes. And also increase homeowner optimism.
Principal reductions, on the other hand, may just be a drop in the bucket for many California homeowners.
After all, data from way back in 2009 revealed that the average negative equity on foreclosed properties in the state was a staggering $200,000.
So if the average underwater homeowner receives $20,000 off their mortgage, will it have any meaningful impact? I doubt it.
The smaller principal reductions may work in other lower-cost regions of the nation, but in California, where home prices were/are sky-high, I doubt there will be enough money on hand to justify such a move.
Roughly 60 percent of the mortgages in the state of California are backed by Fannie Mae and Freddie Mac, so any action they take will be significant.
It took a while, but Bank of America announced today that it intends to mail out principal reduction offers to some 200,000 homeowners.
The first letters should be arriving in mailboxes this week, with most mailed by the third quarter of this year.
The principal reduction program is part of the national foreclosure settlement, which was finalized back in February. It called for at least $10 billion to go toward reducing mortgage balances.
The other big banks will need to get on board as well, since that settlement also involved Ally/GMAC, Chase, Citi, and Wells Fargo.
Are You Eligible?
This program isn’t for those with a Fannie Mae, Freddie Mac, FHA, or VA loan. So that eliminates quite a few borrowers right there.
The loan must be owned and serviced by Bank of America, or serviced by an investor that has given BofA the authority to carry out such modifications.
Additionally, you must owe more on your mortgage than the property is currently worth. In other words, you must hold an underwater mortgage.
You also have to be delinquent on your mortgage, but don’t go missing payments just to participate. You must have been 60 days behind as of January 31, 2012.
Finally, your total housing payment must total more than 25 percent of gross household income (debt-to-income ratio).
How It Works
Assuming you qualify, Bank of America will first reduce your principal balance to “as low as” 100% loan-to-value.
After that, they’ll lower the mortgage rate, and possibly forebear additional principal to meet the target payment amount of 25 percent of gross income.
A calculation, known as positive net present value, will be used to ensure the cost of the loan modification does not exceed the cost of foreclosure.
So some borrowers may get huge principal and interest rate reductions, while others who are just barely underwater, and can afford more, will only see minimal reductions.
Still, the ability to refinance to a lower mortgage rate is a huge benefit, even if the principal balance isn’t reduced significantly.
Ironically, borrowers will want to prove they’re making less money to get the most benefit, a stark contrast to the stated income days that led up to the mortgage crisis.
If you can afford your existing mortgage payment, and simply aren’t making it for one reason or another, Bank of America will tell you to go jump in a lake.
Average Savings of 30%
Bank of America expects the average homeowner to save 30 percent on monthly mortgage payments.
They actually piloted the program in March, and have already sent out 5,000 trial modification offers, which have the potential to total more than $700 million in forgiven principal.
Back in 2010, the bank came up with “earned principal forgiveness,” a program that offered interest-free forbearance of principal and rewarded borrowers who stayed current on payments.
But it’s unclear how successful that initiative was. And it’s uncertain how well widespread principal reductions will perform given the high cost.
Unfortunately, there are probably tons of current borrowers out there with interest-only loans poised to reset that don’t have a solution.
And their mortgage payments will surge once they’re making fully amortized payments with a shorter mortgage term.
Assuming many of these types of loans were taken out around 2004-2006, there may be another huge wave of problems in a few years that don’t yet seem to be addressed.
The Mortgage Bankers Association sent a letter yesterday to Fannie Mae, Freddie Mac, and the OFHEO, challenging the proposed changes to the appraisal code currently in the works.
The proposal, which was sparked by a collusion case involving Washington Mutual and its home valuation unit eAppraiseIT, calls for “significant operational restructuring by financial institutions to comply,” and poses safety and soundness issues to the GSEs, said Kieran P. Quinn, MBA chairman.
However, Quinn’s main distaste with the so-called Home Valuation Code of Conduct seems to be the banishment of in-house appraisers, which he believes are no more likely to be coerced than their unaffiliated counterparts.
“The Code, as written, requires significant changes to lenders’ business operations respecting appraisals,” he said. “Specifically, Section VI of the Code prohibits lenders from relying on appraisals ordered or performed in house or by an affiliated entity.” (mortgage brokers included)
“This is purportedly to prevent appraiser coercion. Unfortunately, the Code overlooks the fact that coercion is just as likely to be done by the borrower, or a real estate agent acting on behalf of the borrower. Moreover, the Code would hold the lender liable regardless of who performed the coercion.”
Quinn added that mortgage lenders have no incentive to over-inflate the value of a property, as it would go against their own interest if the borrower were to default or face foreclosure.
“When a home is over-appraised, lenders are left with a security interest that may not satisfy the debt in the event of foreclosure, and the over-appraisal may also lead to a claim for recourse,” he said.
“In this respect, lenders’ interests are aligned with borrowers and a lender would be acting against its own interest were it to coerce an appraiser into over-inflating.”
Additionally, the MBA said increased risk as a result of the new appraisal code could force the GSEs to buffer their since-reduced capital levels to offset “mis-valued collateral.”
And costs associated with the changes would of course be passed on to the borrower, according to Quinn.
In conclusion, the MBA called for better clarification, federal and state efforts to enhance the oversight of appraisal providers, and the continued use of in-house appraisers and appraisals provided by correspondent lenders.
The Home Valuation Code of Conduct would apply to all financial institutions engaged in mortgage business with the GSEs beginning January 1, 2009.
The U.S. homeownership rate was 67.8 percent during the first quarter of 2008, down from 68.4 percent a year ago and the lowest rate since 2002, according to a report released today by the Department of Commerce’s Census Bureau.
National vacancy rates in the first quarter 2008 were 10.1 percent for rental housing and 2.9 percent for homeowner housing, which were largely unchanged from the same period a year earlier.
More startling, however, is the record 18.6 million vacant housing units in the U.S., up from 17.6 million a year earlier.
Of the 13.9 million vacant homes that were for year-round use, approximately 4.1 million were for rent, 2.3 million were for sale, and 7.5 million were vacant for a “variety of other reasons,” such as foreclosure.
Regional homeowner vacancy was lowest in the Northeast, at a two percent rate, followed by the Midwest at 2.9 percent, and the West and South each at 3.2 percent.
The homeownership rate was highest in the Midwest during the first quarter, at 72 percent, followed by the South at 69.7 percent, the Northeast at 64.7 percent, and the West at just 62.8 percent.
The homeownership rate by age of householder during the quarter was highest for those aged 55 to 64 (80.4 percent), and lowest for those below the age of 35, just 41.3 percent.
Non-Hispanic white householders reported the highest rate of homeownership at 75 percent, followed by “Other Races” at 58.1 percent and single-race Blacks at 47.1 percent.
There were an estimated 129.4 million housing units in the United States in the first quarter of 2008, of which about 110.8 million housing units were occupied, 75.1 million by owners and 35.7 million by renters.
I (Mark Ferguson) will hold 4 in-person masterminds in Colorado in 2024. I love doing these because it gives people from all over the country a chance to meet, learn about each other’s business, give advice, get advice, and think outside the box. I attended a mastermind like this a few years ago and loved how much it helped my business and helped me to think bigger and consider things I have never thought of. It is easy to get stuck in your business and stuck in your ways if it is only you trying to figure everything out.
Register your Mastermind seat >>
Who is Mark Ferguson?
I will be the first to tell you that I am not for everyone. I hold these events because I feel I can offer value to people well above and beyond the cost. The people who I can help the most are go-getters, are willing to take some risks, want more than the status quo out of life, and are open-minded to new ideas.
I started in real estate in 2002 after college, where I obtained a business finance degree. I started very small painting houses, doing landscaping, and running errands for my dad who was an agent and flipped houses once in a while. Eventually, I got my real estate license, started helping with the flipping business, and still made very little money. My life changed when I took control, started cold calling banks to get foreclosure listings and started my own career. I then bought rental properties, always making sure to get awesome deals. Eventually, I built up the flipping business, bought out my dad, started my own office, and began to buy commercial and multifamily real estate. In the last few years, I started buying businesses that came with the real estate like a liquor store, laundromat, car wash, and more. Through all of this, I documented my journey through social media, YouTube, and my blog Investfourmore.com. At these masterminds I am willing to talk about anything and everything that I have done, do, or plan to do.
When are the mastermind events?
I have had a couple of these masterminds in the past but this year I wanted to go bigger and better by scheduling them well ahead of time and giving people multiple dates to attend. All of these will be held in my office Blue Steel Real Estate in Greeley Colorado. We will also be taking trips to see some of my projects (rentals, files, businesses) so I can show you exactly what I do and why. We may also look at a property for sale to show you what I look for in a deal and why.
Here are the dates:
Winter 2024: January 8th and 9th
Spring 2024: April 22nd and 23rd
Summer 2024: July 22nd and 23rd
Fall 2024: October 21st and 22nd
Register your Mastermind seat >>
How intense are these events?
When I hold a mastermind it is 2 days packed full of information and interaction. You will not just be interacting with me but with other people in the group who are real estate investors or business owners as well. We spend all day talking with each other, visiting properties, visiting my staff, and going over each other’s business so that we can all help each other do better. I also give specific training on finding deals, finding financing, and repairing and maintaining properties.
Are these serious or fun events?
I am very serious about business but I am also very laid back and know that being mad or blaming others won’t fix my problems. I am also a fan of laughing and having fun. We pack a lot of information into these events, but we also have some fun, mostly making fun of myself. These events come with meals, and time to relax as well. You don’t have to worry about offending me or making me mad because that is virtually impossible.
What is the agenda for the mastermind?
The heart of the mastermind is going over each person’s current business and plans. We will dedicate a large chunk of time to brainstorming ideas, sharing experiences, and offering support and ideas to each other. We will also take a field trip to a few of my projects including flips I am working on, businesses I own and run like the laundromats or liquor store (maybe something else if I buy something new), and some rental properties (commercial, multifamily or residential). There will also be scheduled dinners and if anyone wants a house or garage tour that is in the books as well.
Are there any discounts for the mastermind?
If you want to bring a spouse or business partner I do offer a discount for the second person as long as they are sharing the same business plan. If you want to attend multiple events there is also a discount available. Please just email me below.
How do I learn more and sign up?
Learn more and register your Mastermind seat here >>
Donations
For each ticket sold, I will donate $500 to charity. I have picked out my charity and it is Get the Facts Out Organization which helps develop and recruit students to become teachers. I am on the board of this nonprofit and it is making a massive impact on the teaching industry. The world and the US need more teachers, especially STEM teachers and this group is doing a great job tackling this growing problem.
Have questions?
Check out the registration page at investfourmore.com/mastermind.
If you have questions about the discounts mentioned or any of the details, you can also contact me here.
An interesting report was released today by Zillow, which noted that despite recent home price gains, underwater homeowners still collectively owe more than $1.2 trillion more on their mortgages than their homes are worth.
That $1.2 trillion is shared by a staggering 16 million homeowners, which broken down is roughly $75,000 per household, according to the first quarter Zillow® Negative Equity Report.
Of course, the negative equity amount will be much higher in the hard-hit, expensive states, such as California, Arizona, and Florida.
Nearly One Third of Homeowners with Mortgages Underwater
And it has actually gotten worse. About 31.4% of homeowners with mortgages were underwater as of the end of the first quarter, a slight rise from the 31.1% seen a quarter earlier.
However, it is down a bit from the 32.4% seen a year ago. Still, shaving a mere 1% over the course of a year isn’t that impressive.
You also have to wonder if the numbers look even better thanks to underwater homeowners either walking away or being foreclosed on during that time. They’re no longer underwater…they’re just homeless.
But perhaps the scariest figure in the report is that more than a quarter (26.8%) of homeowners with mortgages in the Las Vegas metro area owe double what their homes are currently worth. I guess no one really wins in that city.
Now the Good News About Underwater Borrowers
While that all sounds pretty awful, Zillow Chief Economist Stan Humphries seems to be a little more upbeat.
He noted that despite the large number of underwater borrowers, nine out of 10 are still making their mortgage payments on time.
Additionally, he noted that the negative equity is essentially a “paper loss,” as it hasn’t been realized for most, and maybe never will, assuming they stick around and home prices turnaround.
To veer away from the good news for a moment, the average underwater homeowner in Las Vegas can expect their home equity in 2020 to be a paltry $1,039.
So in about eight years, Sin City residents will be rewarded with a sliver of breathing room. Of course, you still won’t be able to sell without a loss given real estate agent commissions and what not.
In Detroit, it’s even worse. Underwater homeowners there will still be, on average, $7,156 in the red by the next decade.
Okay, back to the good news. The majority of homeowners who are underwater are only just underwater.
That’s right; nearly 40% of underwater borrowers owe anywhere from one to 20 percent more than what their homes are currently worth, which obviously sounds very manageable, assuming they can stick it out.
However, an additional 20% owe between 21-40 percent more than what their homes are worth.
And 2.4 million homeowners still owe double what their homes are worth. It’s hard to imagine many of them getting back on track, even with programs like HARP 2.0 out there.
So as you can see, there’s plenty of good and bad news here, and depending on which way the economy goes, it could get a lot better, or a lot worse, exponentially. It’s also very regional. Some areas of the country will take much longer to recover back to peak home prices than others.
The takeaway from all this is that those buying now have a huge head start versus existing borrowers, most of whom continue to make on-time payments. But with more downside risk ahead, it’s still a little murky. At least you’ll have a low mortgage rate…
Check out the map below to see the underwater carnage from sea to shining sea:
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Debt consolidation allows you to take multiple debts and combine them into one, and you can do this with your credit card debt. Doing this makes managing the debt a little easier, and you may be able to get a lower interest rate.
Keeping track of multiple credit card bills can be difficult and potentially cause you to fall behind on payments or forget them altogether. Since payment history is the most important factor that influences your creditworthiness, not making payments on time can damage your credit score.
If you’re struggling to juggle multiple bills, you may want to consider credit card consolidation. Read on to discover eight ways to consolidate your credit card and evaluate the pros and cons of each method to find the best option for you.
Types of credit card consolidation include credit card consolidation loans, balance transfer credit cards, home equity loans, HELOCs, retirement loans, cash-out auto refinance, family loans, and debt management plans.
The advantages of credit card consolidation include lower payments, faster debt payoff, and fewer bills to keep track of.
Consider your financial situation when weighing the pros and cons of each credit card consolidation method.
Table of Contents:
What Is Credit Card Consolidation?
How to Consolidate Credit Card Debt
Credit Card Consolidation FAQ
What Is Credit Card Consolidation?
Credit card consolidation is a debt management strategy that combines different credit card balances into one.
How Does Credit Card Consolidation Work?
You can go about consolidating credit card debt in a few different ways. Generally speaking, you will take out a loan or credit card with a lower interest rate and pay off all current balances with money from the new account. Once the debt is consolidated into one loan or credit card, you can begin paying off this account.
How to Consolidate Credit Card Debt
The best way to consolidate credit card debt depends on your individual financial situation, as each option has its own advantages and disadvantages. Below are eight ways to consolidate credit card debt that you may want to consider.
Credit Card Consolidation Loans
A credit consolidation loan is a type of unsecured personal loan that comes with a set repayment period and fixed monthly payments. You’ll receive an amount of money that you’ll use to pay off your current debt.
For a credit card consolidation loan to make sense, the interest rate needs to be lower than the interest rate for your credit cards. Most personal loans are fixed rate, so you don’t have to worry about the interest rate increasing. Keep in mind that some lenders charge an up-front, one-time origination fee ranging from 1% to 10% of the total loan amount.
To get a credit card consolidation loan, take the following steps:
Step 1: Research lenders, such as credit unions, banks, or online lenders. Since credit unions are not-for-profit institutions, they typically offer the best rates, especially for individuals with poor credit, although you need to become a member to apply. Banks, on the other hand, generally require a good credit score to qualify. Make sure to consider loan terms, rates and fees.
Step 2: Get prequalified with a couple of lenders. Some lenders can prequalify your application to see what rates you qualify for so you don’t get hit with a hard inquiry that could potentially affect your credit score.
Step 3: Decide on a lender and apply. You’ll likely need to submit personal information like proof of your identity and income. After you apply for the loan, the lender will decide on final approval.
Step 4: Receive the loan and pay off your credit card debt. Once you receive the funds, you’ll use the money to pay off your credit card debt. On the other hand, some lenders will directly pay creditors, which removes the hassle on your end.
Pros
You can get low interest rates if you have good credit.
A fixed interest rate keeps your monthly payments constant.
The lender may pay your creditors directly.
It can help significantly lower your credit utilization.
Cons
You must have a good credit score to qualify for lower interest rates.
You’ll need to pay origination fees.
0% APR Balance Transfer Credit Card
This debt consolidation option involves transferring your debt to a credit card that offers a 0% APR introductory period, typically lasting between 12 and 21 months. During this time frame, you won’t be accruing credit card interest on your debt, allowing you to pay down your balance quicker and save money. With balance transfer credit cards, the goal is to pay down your entire balance within the introductory period.
While many balance transfer credit cards don’t charge an annual fee, there is typically a one-time balance transfer fee that ranges from 3% to 5% of the total amount you transfer. For example, if the company charges a 3% balance transfer fee and you transfer $600, you’ll be charged $18 in fees. To ensure this option makes sense for you, calculate how much interest you’ll save over time to verify it cancels out the cost of the fees.
It’s also important to consider the card’s interest rate following the introductory period in case you don’t pay your balance off within the 0% APR time frame.
Pros
It provides you the opportunity to pay off debt without accruing interest.
It gives you a year or more to pay down your balance.
Cons
It requires good credit for eligibility.
You’ll need to pay balance transfer fees.
The APR increases after the introductory period.
Home Equity Loans
If you’re a homeowner, you can take out a home equity loan, which involves borrowing money against the equity in your house. With this method, you’re essentially taking out a secured loan and using your home as collateral.
The main benefit of a home equity loan is that it typically offers lower interest rates than personal loans. However, since the loan is secured with your home, your property could get foreclosed on if you fall behind on payments. Additionally, you may have to pay closing costs when taking out a home equity loan, typically 2% to 5% of the loan amount.
Pros
They come with lower interest rates than other loan types.
They offer a long repayment period.
Cons
You must be a homeowner to qualify.
Your home could be foreclosed on if you fail to repay the loan.
You’ll need to pay a second mortgage that will likely have a higher interest rate.
You’ll need to pay closing costs.
Home Equity Lines of Credit (HELOCs)
Similarly to a home equity loan, a HELOC uses your home as collateral to secure a loan. While home equity loans provide a lump sum, HELOCs work like a revolving line of credit with variable interest rates. This means that the payment amount could vary from month to month. With a HELOC, you have continuous access to money for a period of time, and you can take out as little or as much as you need.
Pros
They have lower interest rates than other types of loans.
You have the ability to choose how much of your credit line to use.
Cons
Variable interest rates may make budgeting more difficult.
There is a possibility of home foreclosure if you fall behind on payments.
Cash-Out Auto Refinance
A cash-out auto refinance works similarly to a regular auto loan while allowing you to borrow additional money. For debt consolidation purposes, you can use this money to pay off your credit cards. Keep in mind that you could lose your vehicle if you fail to repay the loan.
Pros
You have the opportunity to receive a lower interest rate on your car loan.
Cons
You may lose your vehicle if you don’t make payments.
You’ll need to pay title, lender, and closing fees.
Retirement Account Loans
If you’ve been contributing to an employee-sponsored retirement plan such as a 401(k), 403(b), or 457(b), you can borrow against your savings and use the money to pay off your credit card debt. Since retirement account loans typically have lower rates than credit cards, this route could significantly lower the amount of interest you pay to creditors.
Before taking out a retirement loan, it’s important to understand how it will impact your savings. Even though you’ll pay the money back within five years, you’ll lose out on tax-free earnings.
If you leave your current job, you’ll likely have to pay back the loan immediately or within a short period.
Pros
They have lower interest rates than credit cards.
There is no credit score requirement.
The interest you pay goes into your retirement account.
Cons
The loan is tied to your current job.
It can set back your retirement savings.
You’ll pay taxes and penalties if you don’t repay the loan within five years.
Family Loans
Family loans can provide a more affordable way to pay off credit card debt. However, if you go this route, it’s important to create a written agreement that outlines the amount you’re borrowing, repayment terms, and the interest rate.
Pros
You’ll likely receive a lower interest rate than what banks, credit unions, and online lenders offer.
It doesn’t require a formal application process or credit score requirement for approval.
Cons
You could strain your relationship with your family member if you fall behind on payments.
There may be tax implications for your family member if they loan you over $17,000.
Debt Management Plans
A debt management plan is a program that nonprofit credit counseling agencies offer to help you pay off credit card debt. It involves grouping credit card balances into one payment and lowering your interest rate so you can pay off the debt within three to five years. Once enrolled in the program, a credit counselor will work with you to create a budget and a repayment plan tailored to your financial needs.
Pros
It allows you to pay off credit card debt within three to five years.
It may help you improve your credit.
Cons
It limits your access to credit cards.
It prohibits you from taking out new loans.
Credit Card Consolidation FAQ
Below are a few common questions about credit card consolidation.
What Is the Difference Between Credit Card Refinancing and Debt Consolidation?
Credit card refinancing refers to negotiating a better rate for an existing debt, while debt consolidation involves combining multiple debts.
What Are the Advantages of Consolidation?
Advantages of credit card consolidation include lower payments, quicker debt payoff, fewer bills, and the potential to improve your credit.
What Are the Disadvantages of Consolidation?
Disadvantages of credit consolidation include fees and the possibility that you won’t qualify for favorable terms.
How Does Consolidating Your Credit Cards Affect Your Credit?
While consolidating your credit cards can initially hurt your credit, the drop is only temporary. Over time, your credit score should increase as long as you make payments on time.
Is It Smart to Consolidate Credit Card Debt?
It’s smart to consolidate credit card debt if you qualify for lower interest rates and better terms than your current credit cards. Credit consolidation can help you reach your goal of paying off debt. To qualify for the best terms and rates, start by taking steps to improve your credit. Check your free credit score today to see where you stand.
The New York State Assembly today passed a rather robust legislative package aimed at addressing the “national sub-prime lending crisis.”
The four-bill bundle contains legislation that, if enacted, would offer assistance to homeowners in default or facing foreclosure, establish requirements on all home loans, provide consumer info to all residential mortgage applicants, and most notably, create a one-year foreclosure moratorium for New York residents.
Assembly Speaker Sheldon Silver slammed the Feds for bailing out mortgage lender and investment bank Bear Stearns while leaving everyday homeowners at risk of losing their homes.
He insisted that the slew of bills was not a bailout, but rather an assistance program to help homeowners keep the American dream alive.
The first bit of the legislation would provide assistance payments up to an amount equal to three months of mortgage payments and provide legal services and counseling to help select homeowners in default or facing foreclosure.
The second part of the package would establish the duties of mortgage brokers and remedies for violations, ensure that lenders verify borrower income and the ability to repay loans, and prohibit practices such as balloon mortgage payments, negative amortization and prepayment penalties.
The third bill would permit the courts to delay foreclosure up to one year for subprime borrowers who meet specific conditions, allowing at-risk homeowners to work with their respective lenders to avoid losing their homes.
The final piece of the legislative package would create a “Mortgage Applicant’s Bill of Rights,” which requires mortgage lenders and brokers to provide consumers with a pamphlet that must be read and signed by the borrower prior to applying for a mortgage.
Freddie Mac today reported a first quarter loss of $151 million, or 66 cents per share, a huge improvement from the company’s fourth quarter loss of $2.5 billion, or nearly $4 per share.
Analysts surveyed by Thomson Financial had pegged the company to lose 92 cents during the quarter.
The mortgage financier said it benefited from lower mark-to-market losses, credited to the adoption of its new Fair Value accounting method.
CEO Richard Syron expressed that market conditions remained difficult during the first quarter, resulting in $528 million in credit losses, up from $236 million in the fourth quarter and $1.4 billion in credit loss provisions, up from $912 million.
He said the deterioration of 2006 and 2007 loan vintages were largely to blame as delinquencies jumped and many loans fell into foreclosure, but noted that the company was still able to increase market share, guarantee revenue, and achieve better margins.
Freddie said the unpaid principal balance of its retained mortgage portfolio increased to approximately $738 billion at an annualized rate of roughly seven percent through April 30.
Last month, the company said its estimated retained portfolio mortgage purchase and sales agreements totaled roughly $43 billion, providing much needed liquidity to the secondary market.
As of March 31, the government-sponsored entity estimated that its single-family serious delinquency rate (90+ days behind on mortgage payments) for all loans was approximately 0.77 percent.
Capital Boost
Freddie Mac also plans to raises $5.5 billion to bolster its capital position via common stock and preferred security sales, which in turn will allow the OFHEO to lower its capital surplus requirement to 15 percent from 20 percent.
The company estimated that regulatory core capital stood at $38.3 billion at March 31, $6 billion in excess of the 20 percent mandatory target capital surplus designated by the OFHEO.
Shares of Freddie Mac were up $2.14, or 8.57%, to $27.10 in early afternoon trading on Wall Street.