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Compliance, CRM, LOS, Servicing, Workflow, Internal Audit Products; Non-QM and Jumbo News

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Compliance, CRM, LOS, Servicing, Workflow, Internal Audit Products; Non-QM and Jumbo News

By:
Rob Chrisman

Tue, Dec 5 2023, 11:33 AM

My cat Myrtle doesn’t have a lot of rizz, and there are those that will argue that no cat has any charisma whatsoever. But plenty of marketing people do, or can create it, and even if you’re not in marketing, there are some clever marketing people out there. Creative minds as well, and if you’re looking for a Christmas present, here are the “best inventions of 2023” per Time Magazine. There is also cleverness and creativeness in the modular home manufacturing industry, probably far outpacing the ability of state and local government to issue permits. Meanwhile, lenders are facing a winter trying to figure out if they are in the “Survive until ‘25” camp or the “Grow more in ‘24” mindset? The credit industry is reeling as lenders grapple with soft versus hard pulls, renegotiating pricing, and bundled deals. And for some reason LO comp continues to be unsettled: dual comp, MLOs as real estate agents, transferring pipeline data when changing jobs, different fee structures within the same state, and so on. (Today’s podcast can be found here, and this week’s is sponsored by nCino, makers of the nCino Mortgage Suite for the modern mortgage lender. nCino Mortgage Suite’s three core products, nCino Mortgage, nCino Incentive Compensation, and nCino Mortgage Analytics, unite the people, systems, and stages of the mortgage process. Hear an interview with Mayer Brown LLP’s Holly Spencer Bunting on RESPA happenings and how the industry can get to better regulation.)

Lender and Broker Products, and Services

Out with the old; in with the new! One of the things we most look forward to in December (besides the holidays, of course!) is the opportunity to envision and plan for a great future. We’ve curated a killer panel of industry execs who will share best practices and their favorite secrets to help you usher in 2024 at the highest possible note. TrustEngine’s Dave Savage hosts Dustin Owen of Waterstone Mortgage and Brian Covey of Revolution Mortgage in “Chaos to Clarity”, a sure-to-be deliciously juicy webinar that will inspire and energize you to end 2023 with a bang and move powerfully into the new year. Register now to save your seat!

What’s an internal audit anyway and do you need one? An internal audit acts as a third line of defense for your mortgage operation. It provides comprehensive assurance based on the highest level of independence and objectivity to evaluate the effectiveness of management’s internal controls. This function should advise your mortgage operation on plans to achieve the company’s strategic, operational, financial and compliance goals. An effective internal audit should go far beyond just checking a compliance box; it should be an integral part of protecting your company. If you want to ensure you’re adhering to regulatory requirements and demonstrating good faith business practices, a Richey May internal audit is a good fit. If you’re looking to be Fannie Mae approved in the future or want to maintain your approved status, it’s required. If you’re unsure whether you need an internal audit, ask one of Richey May’s experts today or learn more here.

“Is it a challenge getting what was promised out of your current subservicer? New regulations are always moving the compliance goal posts and your customers are craving the newest technology and high-quality customer experience to meet their needs. After all, aren’t those the reasons you contracted with them? Perhaps it’s time for a change. Come meet Servbank at the MBA Servicing Solutions 2023 and let us show you how our cutting-edge, fully transparent and award-winning servicing platform (SIME), combined with our family of caring Customer Care reps, will protect your company from regulatory misses and keep your customers loyal by delivering a superior experience every time. If your current subservicer promised to make life easier for you, but continues to miss the mark, now is the time to partner with Servbank, the nation’s only fintech bank subservicer, who can meet your unique needs. Stop by booth #601, or schedule a meeting with Servbank.”

Right in time for the holidays, Floify has launched Floify Broker Edition, a one-stop lending platform that makes it easy for brokers to manage loans in one place. Wrapped in Floify’s famously sleek interface, Floify Broker Edition is packed with magical features that save precious time and money, such as automated mortgage call reporting, dual AUS functionality, and PPE and wholesaler integrations. Just like Santa’s elves, automated workflows advance loans behind the scenes so brokers can spend more time spreading the joy of homeownership and less time pushing paper. Treat yourself (and your borrowers!) this holiday season with a lending platform that’s a joy to use. Experience the magic of Floify Broker Edition firsthand and book a demo today.

Take advantage of more opportunities by adjusting your business to match the market. Recently, lenders who could quickly scale their home equity products were able to capitalize on the increased demand. Are you maximizing home equity lending in your system of record? Encompass® by ICE Mortgage Technology® is the only solution on the market that can be easily configured without any development efforts to support a user’s unique products and workflows for each of their channels, including retail, consumer direct, HELOC, wholesale and correspondent. This means you can quickly react to market changes and manage your business in your own way. Click here to read our recent blog that shares strategies to maximize your home equity lending business and how Encompass makes it easy.

A borrower’s servicing experience is only as good as the back-office environment that supports it, which is only as good as the technology that powers it. That’s why ICE is actively moving servicing forward through digitizing the consumer experience and streamlining back-office operations. The mortgage technology experts at ICE understand that effective servicing solutions are built from the “outside in”, designing with the customer in mind and working until the same level of convenience is brought to those working behind the scenes. Read the new blog from Sandra Madigan, Chief Digital Officer at ICE Mortgage Technology, to see how ICE is engineering with empathy, and helping people achieve and maintain the dream of homeownership.

In Naples, people hurl plates, appliances and even furniture out of their windows on New Year’s Eve to symbolize making room for the new. If your LOS has been causing you strife, take a cue from the Neapolitans and chuck it out the window. Dark Matter Technologies is here to help you usher in a more prosperous 2024 with its Empower LOS. A fully cloud-based system, Empower brings your tech ecosystem together in one place and intelligently orchestrates delightful borrower experiences and efficient loan production. Schedule a demo with the Dark Matter team to learn how Empower can elevate your business in the year ahead.

Two things come to mind when looking for strategies to help LOs today. First, understand home buyers in the context of uncertainty in the market today. Get back to basics of why homeownership still makes sense: pride of ownership, building equity for the future, and a better environment for their family to live and grow. Next, be able to articulate good solid strategies to make home buying more affordable, both down payment strategies and ARMs to lower payments. It’s also important to understand buyer’s bias against ARMs and counter with common sense arguments. Usherpa, the #1 ranked mortgage CRM in customer satisfaction and loyalty, is offering these FREE printable handouts with informational scripts to use when talking with your homebuyers and valuable resources you can easily send them about ARMs.

ActiveComply is thrilled to introduce a brand-new product, WebCompass™, to discover and manage your websites for branding, compliance, and accessibility. The same power as SocialShield™ for Social Media but now for website and brand compliance. With WebCompass™ you can discover and monitor company and employee websites & web pages, protect your brand with website content scans and compliance tracking, uncover rogue or unauthorized websites, and streamline reporting demands during regulatory examinations. Sign up today for a demo and the first 25 customers will receive a discount. ActiveComply cloud-based solutions help highly regulated industries confidently manage their social media and website compliance and virtual inspections.

Non-QM, DSCR, Jumbo Broker and Correspondent Program News

Can we continue our same ad please: Long-term Rental or Vacation Rental? Visio Lending is the nation’s leader in Non-QM Investor DSCR loans for buy and hold SFR rentals with nearly a decade of experience and over $2.5 billion in originations. No-DTI, 30-year terms, rate buy downs, free 45-day rate locks; I/O and Sub-1 DSCR options available. Through our top-notch Broker Program, brokers are able to earn up to 2 points YSP, and 5 points total. Visio Brokers can count on a designated Account Executive and in-house processing.

PRMG offers several Non-QM resources such as product matrices, job aids, trainings, calculators, worksheets, and other information to assist with using Non-QM loan products. Access the TPO Non-QM Resources page for detailed information.

Angel Oak Mortgage Solutions announced the release of its Blended Rate Calculator, providing borrowers with a quick and straightforward tool to estimate potential loan scenarios.

In tandem with its Angel Oak Mortgage Closed End Second Loans program, the Blended rate calculator helps you show borrowers what their 1st and 2nd payments, as well as LTV and blended rates, will be for both mortgages. This tool enables borrowers to easily assess how they can tap into their home’s equity while retaining their first mortgage.

PHH Mortgage announced new products for Non-Agency offering as of November 28th. Go to the company library to view the information.

A Jumbo option designed to empower homebuyers in high-value markets to secure their dream homes. Explore the advantages of Plaza’s new Jumbo Champion loan program, featuring top-notch pricing, loan amounts up to $3 million, and eligibility for FICO scores starting from 720.

LendSure Mortgage Corp., a Non-QM wholesale lender, announced the launch of its new Profit & Loss (P&L) Loan Program offering “a simplified and user-friendly process for business owners seeking capital in a complex financial landscape.” LendSure’s P&L Loan Program is designed to cater to business owners and self-employed investors with fluctuating seasonal income or cash businesses. It eliminates the need for a self-employment questionnaire, simplifying and speeding up the application process and making it more convenient for borrowers to secure financing. “We aim to empower business owners, redefining industry standards and facilitating their path to financial success… The program offers two tiers of loan amounts, giving borrowers the choice to provide only P&L statements for loan amounts up to $1,000,000 or supply two months of bank statements with P&L statements for loan amounts up to $1,500,000. This flexibility enhances the broker-customer relationship by providing a straightforward, efficient solution for business owners. Reach out to LendSure for more information.

First time home buyer/ first time investors now have a chance to buy an investment property with no income. Hometown Equity Mortgage offers a Bridge for First time home buyers; up to 75 percent LTV on a purchase, no ratio DSCR product, NO VOR/VOM, allowed to live rent free. FICO down to 650, Flexible guidelines, 12-24 month I/O with no prepay or EPO.

HighTech Lending Wholesale is now offering Jumbo Reverse Mortgages the Platinum Reverse which comes in three variations: Maximum LTV Fixed Rate, Adjustable Rate with a Line of Credit, and Reduced LTV with a lower Fixed Rate. The minimum age for the Platinum is 55 in most states, but some require the borrower to be 60 or 62.

Capital Markets

First Community Mortgage has named Jeff Pancer to the new position of Executive Vice President, Capital Markets. Congratulations!

Markets finally paused recent optimism that has been riding on the assumption that the Fed will lower interest rates in 2024. Until yesterday, that optimism had fueled rallies in both stocks and bonds over the past few weeks, with investors continuing to overlook Fed rhetoric and bet on deep interest rate cuts next year. Fed Chair Powell on Friday reiterated that it is too early to consider cutting rates, and that the Federal Open Market Committee plans to keep policy restrictive for some time. Despite his stance, markets are still at odds with the Fed, pricing in the first rate cut as early as March and 125 basis points of rate cuts in total for 2024. Remember, sticky inflation can prevent the Fed from cutting.

The Fed is widely expected to leave rates unchanged for the third consecutive FOMC meeting next week, in what would be no change for the fourth out of the past five meetings. However, the post-meeting statement will likely continue to indicate that additional tightening is possible. The fear is that the Fed declaring victory too early while the economy is growing, and the labor market is tight is a risk if inflation spikes back up. The Fed has entered its blackout period ahead of the meeting, so we won’t get any more chatter from FOMC members until after the meeting. Additionally, there will be no Treasury note or bond auctions this week. This week will be dominated by the jobs report on Friday where expectations are for an improvement from October’s report: an increase of 180,000 jobs in November and no change in unemployment.

Today’s economic calendar has a lot of non-market moving releases: Redbook same store sales for the week ending December 2, final November S&P Global services PMI, expected to decline slightly, ISM non-manufacturing PMI for November, expected to tick up, and JOLTS job opening for October, supposedly sliding to 9.35 million from 9.55 million in September. We begin the day with Agency MBS prices better by .125-.250, the 10-year yielding 4.23 after closing yesterday at 4.29 percent, and the 2-year yield down to 4.52 as investors continue to believe, perhaps mistakenly, that the Fed is not only done raising rates but will come around to cutting them.

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Source: mortgagenewsdaily.com

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Northwestern Mutual Receives Ninth Consecutive Score of 100% on Human Rights Campaign’s Corporate Equality Index Company earns the Equality 100 Award for LGBTQ+ workplace inclusion  MILWAUKEE, Dec. 6, 2023 /PRNewswire/ — Northwestern Mutual announced today that the company earned a 100% for the ninth consecutive year in the Human Rights Campaign Foundation’s (HRC) Corporate Equality … [Read more…]

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The Office of Federal Housing Enterprise Oversight announced today that it will lift the caps currently constraining the growth of the government sponsored entities’ mortgage portfolios.

Fannie Mae and Freddie Mac’s regulator noted that the two have been timely in releasing their financial statements and have met the requirements of their respective Consent Orders.

“Fannie Mae published its timely, audited financial statement for 2007 today and Freddie Mac anticipates publishing its statement tomorrow,” said OFHEO Director James B. Lockhart said in a statement on its website.

“These steps constitute an important milestone in remediation of their respective operational and control weaknesses that led to multi-year periods when neither company released timely, audited financial statements.”

The mortgage financiers had previously been involved in accounting irregularities that led to an investigation by the Justice Dept. and restrictions on the companies’ portfolios.

“Both companies have been operating under regulatory restrictions stemming from these past problems,” Lockhart continued.

“These restrictions include growth limits on their retained mortgage portfolios, Consent Orders prescribing necessary remediation actions, and required 30 percent capital cushions above the statutory minimum capital requirements.”

“In recognition of the progress being made by both companies, as indicated by the timely release of their 2007 audited financial statements, and consistent with the terms of the relevant agreements, OFHEO will remove the portfolio growth caps for both companies on March 1, 2008.”

The OFHEO said it is also considering a reduction to the capital cushion, noting that the GSEs are well capitalized at current levels after announcing their preferred stock offerings.

“As each Enterprise nears the lifting of its Consent Order, OFHEO will discuss with its management the gradual decreasing of the current 30 percent OFHEO-directed capital requirement,” said Lockhart.

“The approach and timing of this decrease will also include consideration of the financial condition of the company, its overall risk profile, and current market conditions. It will also include consideration of the importance of the Enterprises remaining soundly capitalized to fulfill their important public purpose and the recent temporary expansion of their mission.”

The news couldn’t have come at a better time, as Fannie Mae announced a fourth quarter loss of $3.6 billion, or $3.80 a share this morning, leading to a net loss of $2.1 billion for all of 2007.

The loss compares to a profit of $604 million in the same period a year earlier, and fell way below Thomson Financial analysts expected loss of $1.24 a share as it set aside $2 billion for bad loans.

Shares of Fannie were up 71 cents, or 2.63%, to $27.68, while Freddie climbed 32 cents, or 1.27%, to $25.53.

When the news of the portfolio caps being lifted was announced, both stocks saw multi-dollar gains, which eventually subsided.

Fannie and Freddie already own or guarantee roughly 40% of the $10.9 trillion U.S. residential mortgage market.

(photo: preciouskyhatt)

Source: thetruthaboutmortgage.com

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Combined into a series of federal, state and local laws, your specific renter’s rights get dictated by where you live. They’re in place to prevent things like housing discrimination and rent gouging. These basic rights ensure you have a safe, clean place to live as well as detailed courses of action when things are going wrong.

Landlord-tenant law helps you live peacefully in your rental. Do you know your tenant’s rights?

Fair housing

Before even taking a tour of a potential apartment, it’s your right to have fair access to housing. This means your rental application will not get rejected based on:

  • Race
  • Color
  • Religion
  • Age
  • Sex
  • National origin
  • Family status
  • Mental or physical disabilities

Your renter’s rights in this case receive protection at the federal level by the Fair Housing Act. State and local laws may reinforce the Fair Housing Act and even add more categories to this list to ensure everyone has equal access to apply for housing.

Not only can your rental application not get refused based on these factors, but, if you have a disability, landlord-tenant law requires they make reasonable accommodations for you to access the apartment. This could mean installing ramps or making a unit on a lower floor available.

Legal documentation

Another piece to your renter’s rights is the lease. It’s the responsibility of the property manager to give you a legal rental contract to sign that abides by all laws.

In addition to specifics about the property, and breakdowns for processes like requesting repairs, using common areas and more, a lease must clearly indicate the leasing period and your monthly rent. It should also have your name, and any roommates, on the document.

The lease should also include a series of general disclosures. The law requires these, although it varies by state which specific ones must get listed. A few common disclosures you may see in your lease if they’re applicable to the rental unit, include:

  • Notice of mold
  • Lead-based paint disclosure
  • Notice of sex offenders, recent deaths and any potential health or safety hazards

Living space

A variety of rules govern your living space when you’re a renter. This ensures you have somewhere to live that’s actually livable. Tenants’ rights, when it comes to your actual apartment get pretty involved, so make sure you know the highlights.

Habitable housing

It’s not enough for a property manager to provide you with an apartment; the apartment must be safe for you to live in it. This means more than a lack of dangerous conditions. Your renter’s rights entitle you to a home with usable utilities, including heat, electricity and water.

This area of your renter’s rights also means you have a home that’s safe and livable in other ways. Specifics within these guidelines require an apartment to have functioning locks on doors and windows, smoke detectors and a dedicated way to escape in case of fire.

Repairs

This area of landlord-tenant law requires action on both sides. To ensure you have a habitable home, it’s up to you to report any maintenance issues using the process that’s outlined in your lease. Find out the best way to report issues like this to your landlord (such as through email or an online portal).

On the management side, their responsibility is to complete repairs in a timely manner. Your lease will define what this means, but different repairs rank higher in priority. For example, failure to repair a heater in winter can quickly lead to an uninhabitable living space for safety reasons, whereas a garbage broken disposal doesn’t create that serious of an impact.

If your property manager fails to make repairs in a timely manner, you have additional rights. Check with state and local laws about what’s within your rights.

Privacy

Although you’re only renting a home, and someone else owns it, your rights as a tenant mean a certain level of privacy. Once your rental agreement is in place, a property manager cannot come into your home without proper notice.

Notice is also required for more than just repairs. If you’re getting ready to move, and the property manager wants to start showing your unit to prospective tenants, for example, they must give you notice each time.

Security deposit refund

Each state usually handles security deposits differently as far as how much you’re required to put down. It’s normal for you to pay a security deposit though since that protects the property manager from having to pay out-of-pocket for any damages you may cause while living in your rental.

As far a payment goes, some states set caps on how much a property manager can ask for. They also can’t impose a higher deposit for your rental, when compared to other units in the building, without a specific reason, like having a pet.

It’s also within your renter’s rights to get the security deposit back, in a timely manner, if it’s not covering any damages. Most state laws set the time frame at 30 days, and you’ll not only receive your security deposit back but any interest that accrued as well.

If any of your deposit is withheld, you can ask for written documentation of the damages it’s paying for, and the property manager must comply.

Eviction

The situations where your property manager has the right to evict needs clear stating within your lease. Make sure to review them before you sign it.

Standard landlord-tenant law states that you can get evicted if you break your lease in specific ways, such as:

  • Failing to pay rent
  • Allowing prohibited animals to live with you
  • Having roommates that aren’t on your lease
  • Committing a crime on the premises

As a renter, your tenant rights enable you to address evictable issues within a specified time frame before an eviction can take place. You will receive notice of a pending eviction from your property manager. If you fail to fix the issue, they can then file an eviction with the courts resulting in legal removal from your rental.

State-specific renter’s rights

Although you’ll find many standard regulations associated with renting if you move between states, expect additional laws everywhere you go. Since renter’s rights get regulated on both the state and local level, if you’re relocating to a different part of the country — familiarize yourself with local tenant laws.

Some unique landlord-tenant laws include:

  • In Hawaii, security deposits with no deductions must get returned within 14 days
  • A property manager must give 48 hours notice before entering your apartment in Delaware
  • West Virginia has no minimum notice required for a rent increase on month-to-month rentals
  • In North Carolina, two month’s rent is the required minimum for a security deposit on a one-year lease
  • A lease can get terminated once rent is only five days late in Arkansas

As you can see, some states have pretty extreme rules. Being aware of them can help you maintain a positive relationship with your property manager while also protecting your own rights as a renter.

Know your renter’s rights

No matter how great, or rocky, your relationship is with a property manager, you should always follow the law as it pertains to your situation. This not only protects you, but it ensures your property manager gets held accountable when anything isn’t up to par.

Familiarize yourself with state and local landlord-tenant laws, read your lease thoroughly before signing and do your research when faced with a potential issue. Protect yourself by knowing your tenant’s rights.

The information contained in this article is for educational purposes only and does not, and is not intended to, constitute legal or financial advice. Readers are encouraged to seek professional legal or financial advice as they may deem it necessary.

Lesly Gregory has over 15 years of marketing experience, ranging from community management to blogging to creating marketing collateral for a variety of industries. A graduate of Boston University, Lesly holds a B.S. in Journalism. She currently lives in Atlanta with her husband, two young children, three cats and assorted fish.

Source: rent.com

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It’s almost that time, when everyone resolves to do better and achieve more in the coming year. And a new survey suggests that some people may be fueling their 2024 resolutions with the financial regrets of 2023.

About two-thirds (67%) of Americans have financial regrets for 2023, according to a NerdWallet survey conducted online by The Harris Poll on Oct. 10-12. And three-fourths (75%) of that group say those regrets will lead to new resolutions in 2024.

Every year we face obstacles to our money goals. We may start out with plans to save more and spend less, but life happens. This year began with expenses taking bigger bites out of paychecks, in the form of high inflation. And as the year progressed, increasingly high interest rates added costs to credit card balances and loans, making it more expensive to borrow. Macroeconomic factors like these can be enough to derail financial goals alone, but if they’re paired with job loss, unexpected expenses or other household circumstances, they can push goals further and further out of reach.

If you have financial regrets, you’re in good company. And if your hope is to turn them into successes in 2024, plenty of other Americans have the same plan. Here’s how some of those regrets may have come about and what to expect in the year ahead.

Money regret No. 1: Not saving more

Nearly one-fourth (23%) of Americans regret not saving enough for their financial goals in 2023, according to the NerdWallet survey. And about one in five (21%) regret not saving for emergencies.

Government relief payments paired with constrained spending during COVID shutdowns to bring the personal saving rate to all-time highs in 2020 and 2021. In 2023, that rate, which measures the percentage of disposable income that can be saved, on average, settled below historic averages, making it more difficult to save for big purchases or unexpected emergencies.

In 2024: The personal saving rate, as a national average, is likely to stay on the low side. However, with inflation continuing to come down, you may find it easier to set aside funds in 2024 than you did in 2023. If you don’t have an emergency fund, start there — having a cushion set aside for unexpected expenses can insulate many of your other financial objectives. Then, set measurable and specific benchmarks — such as setting aside a certain portion of every paycheck — to get you toward your longer-term savings goals.

Money regret No. 2: Overspending

More than one in five (22%) Americans regret overspending on entertainment in 2023; 11% regret overspending on travel and 11% regret overspending on a big event (such as a wedding or party), according to the survey.

Consumer spending in 2023 has been surprisingly resilient in the face of inflation and high interest rates. This consumer resilience has been credited with keeping the economy strong when many expected a recession. But there is also evidence that this spending in the face of adversity has been achieved by busting household budgets.

In 2024: Overspending is a risk every year — it’s hard not to splurge on things like entertainment, travel and parties (we all enjoy a good time). The first step to reining in these urges, however, is setting a clear budget. Whether it’s a weekly entertainment budget or a wedding budget, setting a clear expectation for yourself beforehand can help ensure you’re not left with remorse when the dust settles.

Money regret No. 3: Mismanaging credit card debt

Equal shares of Americans (16%) regret not reducing/or paying off their credit card debt and taking on too much credit card debt in 2023, according to the survey.

Credit card debt levels fell during 2020 and early 2021, as people had excess money thanks to relief payments and student loan forbearance, for example, and were generally spending less due to COVID lockdowns. But since then, debt levels have been surpassing pre-pandemic normal. If you used your cards less in 2021 and even paid off some debt, this return to “normal” can feel especially bad.

In 2024: When your finances are in good shape, using credit cards as a tool — to earn points and cash back, for instance — can help you reach money goals more quickly. However, when you’re in debt or have to turn to a credit card to cover an emergency expense, the interest can pile up quickly and make it difficult to dig yourself out. Interest rates will likely remain high throughout 2024, so getting those balances under control is even more important. Make a concrete debt payoff plan, and if you’re struggling to make payments, consider debt relief options such as consolidation and debt management.

Lest 2023 sound like nothing more than money woes: More than three in five (62%) Americans say they achieved financial goals they set out to reach in 2023. Financial headwinds are always present in one form or another. Preparing for them and learning from mistakes may set you up for a greater chance of success in the near future.

METHODOLOGY

This survey was conducted online within the United States by The Harris Poll on behalf of NerdWallet from Oct. 10-12, 2023, among 2,096 U.S. adults ages 18 and older. The sampling precision of Harris online polls is measured by using a Bayesian credible interval. For this study, the sample data is accurate to within +/- 2.7 percentage points using a 95% confidence level. For complete survey methodology, including weighting variables and subgroup sample sizes, please contact [email protected].

Disclaimer

NerdWallet disclaims, expressly and impliedly, all warranties of any kind, including those of merchantability and fitness for a particular purpose or whether the article’s information is accurate, reliable or free of errors. Use or reliance on this information is at your own risk, and its completeness and accuracy are not guaranteed. The contents in this article should not be relied upon or associated with the future performance of NerdWallet or any of its affiliates or subsidiaries. Statements that are not historical facts are forward-looking statements that involve risks and uncertainties as indicated by words such as “believes,” “expects,” “estimates,” “may,” “will,” “should” or “anticipates” or similar expressions. These forward-looking statements may materially differ from NerdWallet’s presentation of information to analysts and its actual operational and financial results.

Source: nerdwallet.com

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When you look at your investment portfolio, does Rube Goldberg come to mind? Goldberg was a Pulitzer Price winning cartoonist famous for drawing complicated contraptions designed to perform simple tasks. In fact, Webster’s New World Dictionary defines a “Rube Goldberg” as a “comically involved, complicated invention, laboriously contrived to perform a simple operation.”

Investing should be simple. It’s not necessary to have a dozen or more mutual funds covering a wide range of asset classes. Such “diversity” complicates the management of your investments and isn’t likely to increase your returns or lower your risk.

Rube Goldberg came to mind when I recently read an email from a reader named Jason:

This is a great email on an important topic. Are we going to invest to mimic the overall market, or are we going to collect a dozen or more holdings? What’s the right approach?

I addressed Jason’s question about “value” funds in the podcast. In short, an index is designed to determine value versus growth based on math. They use ratios such as the p/e (price to earnings), p/b (price to book), and other objective measures of value.

But let’s get back to Jason’s main question – how complicated should investing be? The starting point is the 3-Fund Portfolio.

1. Three-Fund Portfolio

There’s a group loosely referred to as the Bogleheads (named after Vanguard founder, John Bogle)who advocate the Three-Fund Portfolio. The three-funds cover the three main asset classes (I’ve included Vanguard ETFs one could use to build a 3-fund portfolio, but mutual funds and investments from other companies could be used, too):

  • Total Market US Equities (Example: VTI)
  • Total Market Intl EquitiesExample: VGTXS)
  • Total Bond Market (Example: VBMFX)

With those three ETFs, you’d have the investment markets covered, but only three funds to manage, allocate and rebalance. This is the direction I’m heading as I simplify my investing. Note that you could simplify this even further with a target-date retirement fund. Vanguard’s target-date funds, for example, use the above three investment types along with an international bond fund.

2. Slice and Dice

Many investors aren’t satisfied with the above 3-Fund portfolio. They look to further diversify their investments into sub-asset classes. Frankly, I’ve taken the slice and dice approach for more than two decades.

While there is no one way that one can construct a portfolio that goes beyond the core asset classes, here are five common sub-asset classes that many investors want more exposure:

  • Small-Cap – Smaller companies historically have produced higher returns, but also come with more volatility.
  • Value Funds – These funds seek to invest in undervalued companies, and historically have outperformed growth companies (although there is some debate on the relative performance between value and growth).
  • Emerging Markets: As with small caps, emerging markets historically have generated higher returns in exchange for greater volatility.
  • REITs – real estate investment trusts offer stock-like returns with some measure of diversity.
  • Commodities – While the returns aren’t as rich, many believe commodities offer valuable diversity to a portfolio.

I have positions in all of these sectors, although as I mentioned I’m working to simplify my portfolio.

3. Diversity Has Nothing to Do With the Number of Mutual Funds in a Portfolio

It’s critical to understand that even a 3-Fund Portfolio has exposure to each of these asset classes. As an example, a total U.S. equity fund has exposure to small caps, value, REITs, and even commodities. Simply by owning multi-national companies gives exposure to many asset classes.

In the case of VTI, one gets exposure to the following according to Morningstar:

  • Micro-cap: 2.62%
  • Small-cap: 6.47%
  • Mid-cap: 29.02%
  • Real Estate: 3.72%

Further, VTI gives equal weighting to value and growth stocks.

Similarly, a totally international market will have exposure to emerging markets. VGTXS, for example, has 14.52% in emerging markets. The point: Most investors will get little if any benefit from seeking additional exposure to these sub-asset classes beyond what a total market fund provides.

4. Why slice and dice

Having said all of that, there are times when exposure to sub-asset classes is justified. The first is that an investor’s personality is drawn to this type of investing. While this may surprise some, the behavioral side of investing should never be ignored. Those that like to dabble in more complex asset allocation plans won’t hurt themselves, so long as they keep costs low and stick to their plan.

Second, a good argument can be made for additional exposure to real estate. REITs enjoy stock-like returns and add diversity to a portfolio.

5. Problems with slice and dice

There are some realities to a complicated portfolio that should be considered:

  • There’s absolutely no guarantee that it will improve your returns or lower your risk compared to a basic three-fund portfolio. Just because small caps outperformed the general market in the past doesn’t mean they will in the future. In his book Don’t Count on It!: Reflections on Investment Illusions, Capitalism, “Mutual” Funds, Indexing, Entrepreneurship, Idealism, and Heroes, John Bogle says that small caps have outperformed the general market mainly because there were a couple of years where they did very well compared to the overall market. There’s no guarantee such performance will repeat itself.
  • Each additional investment added to a portfolio increases the portfolio’s complexity. Additional funds add to the burden of monitoring investments and rebalancing them. It often requires one to allocate across multiple account types, which further complicates the whole affair. (See the Rube Goldberg image above for more details.)

My own feeling is both the three-fund portfolio and the slice and dice portfolio will work, but complication is the real difference. And for what it’s worth, robo advisors like Betterment use somewhat complicated portfolios. The difference is that they handle all of the rebalancing for you.

6. My Own 401(k) plan

Portfolio allocations can be more complicated with 401(k) plans. Unlike an IRA, we have limited investment options, many of which are expensive. Nevertheless, I’ve worked hard to simplify my own 401(k) portfolio by investing in just three funds. In the process, I’ve tried to create a standalone portfolio that doesn’t require additional allocations from non-retirement assets or other retirement plans. The plan will be fully diversified on its own.

Here are the three funds I use in my plan:

  • Dodge and Cox International Stock Fund (DODFX) – 40%
  • Fidelity S&P Index Fund (FXSIX) – 40%
  • Vanguard Total Bond Fund (VBTLX) – 20%

The Dodge and Cox fund is an actively managed fund with an expense ratio of – .64%. It’s a great fund in my opinion, and the fee is actually not high for actively managed funds. My total cost for keeping all three funds is .29%, even with the Dodge and Cox fund. With just three funds, rebalancing is easy. I don’t feel that slicing and dicing into a variety of funds will have a material effect on the long-term performance of my 401(k).

I’m not entirely closed to the idea of adding some additional asset classes to my plan, particularly REITs. Whatever you choose, however, work hard to keep it simple.

  • Rob Berger is the founder of Dough Roller and the Dough Roller Money Podcast. A former securities law attorney and Forbes deputy editor, Rob is the author of the book Retire Before Mom and Dad. He educates independent investors on his YouTube channel and at RobBerger.com.

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Source: doughroller.net

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A penalty annual percentage rate (APR) is a heightened interest rate that can be issued if a person doesn’t use their credit card according to the card agreement. Card issuers explain the exact criteria that can lead to a penalty APR in multiple ways, like the terms and conditions section of a credit card application and in cardholder agreement documents. 

A CD rate refers to the interest someone can earn on a certificate of deposit over time.

Key Takeaways: 

  • Banks provide the criteria for issuing penalty APRs in their cardholder agreement documents.
  • APRs only apply to a card’s balance at the end of a statement period.
  • Most penalty APRs last for a minimum of six months.

How Penalty APR Works

Bad credit card habits, such as routinely neglecting a minimum payment, can result in a penalty interest rate. Penalty APR usually maxes out at 29.99 percent, which can still be manageable with the proper know-how.

Let’s say you have a 29.99% penalty APR and a statement balance of $500 on your card. To figure out how much interest you’d have to pay, divide 29.99 by 12 (representing each month of the year). You would get 2.499, which you can then divide by 100 to get 0.02499. Multiply your $500 balance by 0.02499, and you would owe $12.49 in interest for the month. 

Some issuers base things on a daily periodic rate, so you’d divide the APR by 365 instead of 12, then follow the remaining steps.

How to Avoid Paying the Penalty Rate

Remember that you only have to pay interest on a card if you have an outstanding balance by the end of the statement period. If you manage to completely pay off your balance, your 29.99% penalty APR won’t generate any interest. 

How Long Will a Penalty Rate Last?

According to the Consumer Financial Protection Bureau, credit card issuers must reconsider a cardholder’s penalty interest rates after six months. So, as long as you make the minimum payment amount six consecutive times, your interest rate will likely return to normal on existing balances.

These rules apply to consumer credit cards, not those issued to small businesses. With a small business card, several infractions can lead to a penalty interest rate. These can include missing a single payment, spending over the credit limit, or having payment returned for insufficient funds. 

Business credit cards are largely exempted from the CARD Act, so each issuer may have different rules about how and when cardholders may have their penalty interest rates cleared. Small business credit cardholders facing penalty interest rates should contact their card issuer for more information.

Steps to Take If You’re Paying Penalty APR

While it may be disheartening to receive a penalty APR, it’s entirely possible to manage this change. Here are several actionable steps you can take when you’re dealing with a penalty APR:

  • Make your minimum payments: Consistently making your minimum payments will keep your credit score from dropping and display financial responsibility to your card lender.
  • Limit your credit card usage: Only use your credit card for essentials when managing a penalty APR. If your penalized card is linked to any subscriptions, consider canceling them for now. 
  • Use autopay: Use autopay to ensure that you don’t accidentally miss your minimum payments. 
  • Meet with a financial advisor: Financial advisors can offer tailor-made personal finance advice to help you with your unique circumstances.

Do All Credit Cards Have a Penalty APR?

While there’s no such thing as a good credit penalty APR, some cards have much more manageable interest rates than others. Moreover, some cards never impose higher rates on delinquent cardholders.

Examples of cards without a penalty interest rate include the PenFed Promise, the Discover it®, and the Citi Simplicity®. There are no annual fees for these cards. On the other hand, the PenFed Promise and Citi Simplicity® have no . However, Discover it® does have a competitive cashback program.

Does Penalty APR Affect Credit Score?

A penalty APR won’t affect your credit score in and of itself. However, payment history makes up the largest portion of your credit scores, so the fact that you’ve missed multiple payment dates could significantly decrease your credit standing. 

Exceeding your credit limit can incur a penalty APR and increase your credit utilization ratio—which compares your current account balances with your total credit limit. Professionals urge cardholders to stay below a 30% utilization rate, which would be $300 out of a $1,000 credit limit. 

Learn More About Personal Finance at Credit.com

Penalty APRs are just one aspect of credit card usage and personal finance management that consumers should know about. Visit Credit.com today to learn more about other financial topics that may be relevant to you, now or in the future.

Source: credit.com

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As couples prepare holiday marriage proposals, Northwestern Mutual study finds 1 in 3 Americans believe serious discussions about financial dreams – and debt – should happen in the early stages of dating Almost half of Gen Z say financial compatibility is more important than physical compatibility MILWAUKEE, Dec. 5, 2023 /PRNewswire/ — December is, by … [Read more…]

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VantageScore Credit Score Ranges

Americans With Credit Scores in This Range

Very poor (300 – 499)

5%

Poor (500 – 600)

21%

Fair (601 – 660)

13%

Good (661 – 780)

38%

Excellent (781 – 850)

23%

While FICO and VantageScore take some of the same factors into account, VantageScore determines your credit score based on six different factors. Let’s look at how VantageScore weighs each factor: 

  • Payment history (41%): Your past ability to pay bills on time.
  • Depth of credit (20%): The ages and types of credit accounts you have.
  • Credit utilization (20%): How much of your credit limit you’re using. 
  • Recent credit (11%): The number of hard inquiries on your credit report. 
  • Balances (6%): The total balances on your credit accounts. 
  • Available credit (2%): The amount of credit you have available to you. 

What Kind of Loan Can I Get With a 720 Credit Score? 

As mentioned above, a good credit score can help you qualify for better rates and terms for loans. However, it’s important to keep in mind that your credit score isn’t the only factor that lenders look at when reviewing your loan application. Your income, employment, credit history, and debt-to-income ratio are also taken into consideration during the approval process. 

With that in mind, here’s a look into the loans you can generally expect to qualify for with a 720 credit score. Assuming you also qualify for income thresholds as well.

Mortgages 

Generally, mortgage lenders require a minimum credit score of 620, so you should have no problem qualifying for a mortgage with a 720 credit score. You’ll also likely qualify for low interest rates, although you might not get the best rate available. Borrowers who qualify for the lowest interest rates typically have a 760 credit score or higher. 

Additionally, how much of a down payment you put down may influence your interest rates. A larger down payment provides less risk to the lender because you have additional stake in the house. 

Auto Loans 

A 720 credit score will allow you to qualify for an auto loan. When looking at the average car loan interest rates, borrowers with credit scores between 661 and 780 qualify for an average used car APR of 7.83% and an average new car APR of 5.82%. However, if you bring your score to 781 or above, you can expect a 1.84% lower interest rate for used cars and a 1.07% lower interest rate for new cars, on average. 

Personal Loans 

With a 720 credit score, you’ll have many options for personal loans, so you should shop around for the best rates. Personal loan interest rates can range from 6% to 36%, although a good credit score should allow you to qualify for rates on the lower end of that spectrum. According to recent personal loan statistics, the average interest rate is 11.2%. 

Student Loans

While federal student loans don’t have credit score requirements, private student loan lenders typically require a good credit score. With a 720 score, you’ll likely get approved by most lenders and may even qualify for the best interest rates.  

Credit Cards

Most credit card issuers will approve borrowers with a 720 credit score and potentially offer the lowest interest rates. You can likely even get approved for a 0% APR card. Keep in mind that certain prestigious credit cards that provide luxurious perks require excellent credit to qualify plus additional requirements. Therefore, you may need to improve your credit score before applying for an exclusive credit card. 

How to Further Improve Your 720 Credit Score

If you have a good credit score but want to reach the very good or excellent range, here are some tips for how to make your good credit score even better: 

  • Pay your bills on time: Since 720 is a high credit score, a single late payment can cause a significant drop in points. Make sure to continue paying your bills on time to further improve your credit. 
  • Make payments more frequently: Making multiple payments on your credit card bill each month can help keep your credit utilization low.
  • Request a credit limit increase: Another way to lower your credit utilization is to increase your credit limit. 
  • Leave credit accounts open: Avoid closing old credit accounts to maintain the length of your credit history. 
  • Space out new credit applications: Wait six months between credit card applications to limit the number of hard inquiries on your credit report. 
  • Get credit for rent and utility payments: If you regularly pay your bills on time, a rent and utility reporting service can report your payments to the credit bureaus, which may help improve your credit. 
  • Dispute any errors: Check your credit report at least once a year and challenge any inaccurate information you find.  

While a 720 credit score is considered good, there’s still room for you to stay on top of your credit—that’s where ExtraCredit® comes in. ExtraCredit is a credit management product that helps you check your FICO® scores, view your credit reports from all three credit bureaus, report rent and utilities, and more. Start your free trial* today.

*Your 7-day trial will begin after agreeing to these terms and submitting your ExtraCredit® sign-up. After your trial period, your subscription will automatically continue on the same day every month as the day you started your trial membership. The free trial is available for new ExtraCredit customers only. The credit card you provided will be charged $24.99 (plus any applicable tax) on the next business day and monthly; after your trial period unless you cancel. You may cancel at any time by downgrading your service level in your settings or by contacting us at [email protected]. Dishonored payments will result in an automatic downgrade to the free credit.com product.

Source: credit.com