Dennis' Mortgage Blog

Question of the week:  Why are you counting that payment that is not my account against me?

Answer:  Because it is on your credit report.

When we pull a credit report for your mortgage application is includes the three major credit bureaus, Equifax, Experian and Trans Union.  Any account showing on your report that is open, has to be counted as a debt to you for qualifying unless we can either get it removed from your account or prove you are not making payments.

The two most common reasons that an account you do not consider your own appears on your credit report are that you co-signed for someone and they are making the payments so you do not consider it your account, or someone has added you to their account as an authorized user. 

In the case of co-signing an account you have agreed to be responsible for the debt and its repayment.  Whether it was your intention to make the payments or not, when you sign for a family member or friend on a mortgage, auto loan, credit card or student loan you are as obligated as that individual to ensure the payments are made on time and until the debt is paid in full.

If you have not made any of the monthly payments then often we can eliminate the payment from your mortgage qualifying.  For this to happen you need to provide copies (front and back) of cancelled checks for the past twelve months showing some other party has made every one of those payments and the payments.   If you have made even one payment in the past twelve months most underwriters will count the debt against you for qualifying.  If the debt is less than twelve months old and the other party has made each of the payments then depending on how long the account has been open and other circumstances it may be underwriter discretion as to whether to count the payment against you or not; I usually assume they will count the payment.

Often getting copies of the cancelled checks can be quite difficult, most often the case if the account that is in question was co-signed with an ex-spouse or partner.  Unfortunately in cases such as this unless you can prove irrevocably with cancelled checks the debt must count against you.  This is one reason why I frequently council those who are separating and going through a divorce to obtain a credit report to see what debt obligations exist and how they are listed. Using the credit reports accounts can be separated and creditors contacted to remove one or the other spouse from the account, or agreements placed into the divorce decree stipulating not only who is obligated to make the payment but also that the party who will pay the account will make payments on time and if requested provide the other party with cancelled checks to show future creditors who is paying the debt.

Please note that just because a divorce agreement states that your ex-spouse has agreed to pay the debt and a judge has ruled on the agreement does not mean that you are no longer obligated on the note you signed with the creditor.  Until the lender releases you from the note in writing or the debt is paid in full you are still responsible for the repayment of the debt.

Regarding an account showing on your account as an authorized user, this credit reporting more than any other makes my blood boil.  This situation most commonly occurs with younger individuals who were given a credit card to use in college or in cases of emergency by their parents.  Even though you are not obligated on the account, never signed a note or other instrument agreeing to make payments on the account, more and more creditors (most notably American Express and Citi) list the accounts on the authorized user’s credit report.  In some instances if your parents, or whomever gave you access to the account, are active with the account and charge large balances the impact on your account can be fairly negative. 

The same option as the one detailed above for getting cancelled checks applies, or you can contact the creditor and have yourself removed from the account.  To remove yourself from the account you may need whoever is the primary account holder to contact the credit company.  If they do agree to remove you request confirmation in writing and get the name and extension of the person you spoke to so that we can update the credit report and show the account removed.

When it comes to credit reporting and having changes made the prevailing sentiment is you are guilty until you prove yourself innocent—something that is very difficult to do which is why our legal system is that you are innocent until proven guilty.

Have a question?  Ask me!

Change your payroll tax deductions if you were claiming a mortgage insurance deduction in 2011.  The tax benefit expired effective January 1, 2012 that allowed qualified households with mortgage insurance to deduct the expense from their income similar to the deduction for mortgage interest and property taxes.  So if  you have been claiming this deduction and had adjusted your IRS Form W-4 to increase your take home pay to benefit every payroll from the deduction you will want to contact your human resource or payroll manager and complete a new form for 2012 and lower your allowances.

This should bring clarity to the size of our national debt and annual deficits our federal government has been running.  Twice in the past several months we have seen major debates in Congress over reducing the deficit, no eliminating it but reducing it.  Last week President Obama requested additional spending from Congress that would increase the deficit $1.3 trillion in 2012.  How much is that and what impact would the “cuts” in spending being fiercely in Congress have on that amount?  Here is a simple analogy courtesy of my Dad:

* U.S. Tax revenue: $2,170,000,000,000
* Fed budget: $3,820,000,000,000
* New debt: $ 1,650,000,000,000
* National debt: $14,271,000,000,000
* Recent budget cuts: $ 38,500,000,000

Let's now remove 8 zeros and pretend it's a household budget:

* Annual family income: $21,700
* Money the family spent: $38,200
* New debt on the credit card: $16,500
* Outstanding balance on the credit card: $142,710
* Total budget cuts: $385

The lesson? When trying to digest the Federal budget and deficit remove eight zeros and put it in your terms/household.  For a real time look at the deficit and debt click in on the U.S. Debt Clock.  And remember, you are a co-signer on that credit card.

Rates ended their slide this week.  With investors buying off on the European debt scenarios and buying German and French debt, some positive economic news, and bond prices being high enough to entice selling and taking profits Mortgage Backed Securities have lost ground each day this week.

Heading the domestic news was the release of price data from the Commerce Department for the Producer Price Index (PPI) and the Consumer Price Index (CPI) for December.  Both numbers came in pretty low showing absence of any inflation for the month.  Primarily due to low energy costs for the month the small increase in prices for both producers and consumers should help boost consumer spending.  Generally no inflation is positive for mortgage rates, but this week the news helped boost stocks.  Between European bond auctions and U.S. stocks investors left the flight to quality of U.S. bonds and rates have inched up as a result.

Existing home sales reported an increase for December as well, though after the tremendous adjustments made to the reports for the prior five years I have some skepticism.  Median prices in California dropped despite higher sales as the sales were concentrated in the lower price ranges and there was a large increase in investors and second home buyers in the market.

Rates for Friday January 20, 2012: The increase in Agency fees for the two month payroll tax reduction extension has now been priced in by lenders and it is about 40-50 basis points for most and up to 80 basis points for a few. 

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS

30 year conforming                               3.75%               Flat

30 year high-balance conforming           4.00%               Up 0.125%

30 year FHA*                                                   3.75%               Flat

30 year FHA high-balance*                   3.75%               Flat

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked.  Rates are based on 20% down (3.5% for FHA)  with 740 FICO score for purchase mortgages.

* Current rates include credit towards closing costs, call for quote on rate and credit.

It appears we may actually have a bit of Southern California winter this weekend with rain coming in from the storm that has been hammering the Northwest.  Whenever it rains in Southern California it is a great time to look at houses if you are in the market for a new home.  Because of the infrequent rain we get looking when it is raining allows you to see potential problems that may not appear for many months.

We are having a fun weekend with our niece’s birthday party on Saturday and going to see the Clippers play on Sunday afternoon.  I’ll have the Blackberry on as always but should you call anticipate a slow reply.

Have a great week,

Dennis