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Wednesday, July 7th, 2010

New Student Loan Laws Take Effect

For the millions of parents trying desperately to help their child pay for college (even though they may be facing bankruptcy, themselves)—an institution that is becoming increasingly difficult to afford—some hope may be insight. A new law that went into effect last week relegating private lenders to a smaller role in educational loans may make affordable federal loans easier to get, according to a recent article in the Wall Street Journal.

The new student loan legislation, which was signed this spring as an amendment to the health-care overhaul bill, cuts out the private-sector middlemen from offering federal loans as of July 1st, while increasing the federal grant programs.

As a result, borrowers should have a clearer distinction between federal and private loans, especially because many banks previously offered both.

The short term result of this change is more competition among private lenders, which could lead to better terms for borrowers. Wells Fargo demonstrated this when it recently dropped rates on two of its private student loans, including a new loan for parents launched in May.

One long term result may be a much needed break for students. The average debt among college students in 2008 is up to $23,200, nearly $5000 more than students graduating in 2004.

Some key tips to keep in mind if you or your children are planning on applying for students loans in the fall.

Maximize the federal loans first. Federal loans have fixed rates that won’t rise with interest. The fixed rates vary from 4.5% for students with a demonstrated academic need, to 6.8% for those who aren’t need based.

Also, federal loans offer a very flexible repayment plan, which can be important if you or your recent graduate are struggling to find a job that can pay the bills.

There are other kinds of federal student loans that can help save money, when compared with private loans, that you can look into to see if you qualify for.

The other key point to think about is finding the deals on private loans.

Credit unions are increasing their business in the field, with around 150 credit unions joining the Credit Union Student Choice program, a group that helps credit unions offer non-federal student loans with an average rate on existing loans of 6.25% with zero origination fees.

There are also more regulations on the radar for Congress. There is a financial-regulation bill in Congress that calls for the formation of a Consumer Financial Protection Bureau that would have oversight over private student loans and other financial products to give borrowers more protection.

Hopefully these trends continue and allow all the emerging college students to have some freedom and flexibility to merge into careers that they want to, instead of selling their soul to the first job that will pay off their debt and get them out of the house—assuming there are any jobs when they graduate.

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Posted in Bankruptcy News and Events | 1 Comment »

Thursday, May 20th, 2010

Mortgage Application Guidelines Tough for Self-Employed

During the real estate boom that caused the housing bubble that eventually sent the country into a serious recession, it was common practice for borrowers to apply for a mortgage by using "stated income," which meant indicating their income without offering proof.

But mortgage lenders have learned their lesson and now, according to the New York Times, qualifying for a mortgage loan is harder than ever for those working for themselves.

Providing Proof of Income

In order to convince a bank to lend you the money to buy a home, you have to prove that you can afford to repay it. Generally, that entails showing official records of your earnings and current credit situation. People who work for themselves or own a small business, though, may not have regular paychecks to present, which may mean:

  • Higher interest rates: According to the Times, the few banks that still extend stated-income loans charge significantly higher interest rates than they do for standard loans. From an economic perspective, this makes sense: when there’s a greater risk involved, there must be a greater potential gain. But it can mean a much more expensive loan for borrowers.
  • Careful bookkeeping: Some banks will apparently initiate loans with two years' tax receipts, but this might also present a problem for some self-employed borrowers. It seems that, in order to offset losses in the rough economy, many people have been taking liberal tax deductions, thus lowering their overall reported income. This, naturally, could hinder their ability to qualify for a large loan.
  • Solid finances required: One expert quoted suggested that self-employed borrowers with considerable cash reserves and credit scores of at least 700 should be able to get traditional loans, but those who have lost income (or filed bankruptcy) during the recession may have difficulties.

But, according to the piece, self-employed Americans shouldn’t despair. It seems that as many as 30 to 40 percent of those who work for themselves qualify for mortgage loans they apply for. If you aren’t sure how your finances currently look, consider starting the mortgage application process by viewing your credit report (for free) at www.annualcreditreport.com.

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Posted in Home Foreclosure | 1 Comment »

Thursday, January 21st, 2010

Stricter Mortgage Lending Regulations Implemented

As many people now know, the current recession was touched off by the collapse of the real estate market, which ballooned out of control in the mid-2000s.

Now, according to CBS News, mortgage lenders have learned a tough lesson and are changing the way they do business. Here’s a look at some notable changes and why they’re cropping up.

Big-Time Losses

During the subprime lending boom, many lenders (including big players like Fannie Mae and Freddie Mac) offered high- or variable-interest loans, no-down-payment loans, and other types of loans that people were unlikely to pay off easily.

Now, many of those loans have gone bad, meaning that the borrowers were unable to make payments and the houses in question have gone into foreclosure. Lenders are thus writing off (that is, accepting as lost) billions of dollars in bad debts – and they have to do something about it.

  • Credit score requirement: In the era of subprime lending, people with low credit scores were often specifically targeted for high-interest loans. Now, according to sources, Fannie Mae will not issue loans to anyone whose FICO credit score is below 620.
  • Equity requirement: If you’re looking to refinance your current home loan, lenders now require you to have some equity (that is, some amount of the principal paid off) in your original loan.
  • Down payment a must: In the olden days, buying a house without a down payment was unheard of; the subprime lending "innovations," though, introduced loans with no down payment required. Major lenders, it seems, are returning to the traditional wisdom that you must pay a significant amount of money up front.
  • Debt-to-income ratio consideration: Fannie Mae has also reportedly announced that it will not lend to anyone whose debt-to-income ratio rises beyond 45 percent – that is, in order to get a loan, you must not pay more than 45 percent of your monthly income on all debt payments (including car, credit card, student loan, etc.) combined.

So what does this mean for people thinking about buying a home? Basically, it means you need to be at the top of your game financially. You should be checking your credit report regularly and making sure you’re an attractive candidate to home lenders – and if you aren’t right now, it’s time to take steps to become one. Foreclosure can often lead to bankruptcy, leaving two black marks on your credit report for up to 10 years.

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Posted in Home Foreclosure | 2 Comments »