Loans, Mortgages and Credits

Predicting and Controlling Credit Scores

2011-12-06T22:17:00.000-08:00

Credit scores tough to predict and tough to control

Q. I check my credit score every six months on Quizzle.com and I have no negative reports, yet my score has been decreasing over the past few years. It went from over 800 six months ago to 790, and now it is 768. I went from "excellent" to "very good." Should I be concerned, especially because I have no explanation why my scores are decreasing? In the past six months, the only changes in my credit/payment history are that I have made additional payments to decrease the amount I owe on a car loan and homeowners line of credit. Shouldn’t that increase my credit score?
– Rob

A. Even if your score is not the highest it’s ever been, it’s still pretty darn good. Credit scores can fluctuate for lots of reasons, and some, unfortunately, are out of your control.

The Brain’s experts agree.

"A credit score of 768 is still very good and will keep you in good standing for almost anything you need to do," said Sally Herigstad, a certified public accountant with CreditCards.com. "Aside from bragging rights at parties, there is little to be gained by trying to get your credit score up to over 800 points."

Herigstad said most mortgage bankers she talks to say their best rates are available to borrowers with scores over 740.

Some fluctuation in scores is normal and means nothing, she said.

"With a drop of 32 points and no negative reports, I suspect your available credit may have gone down," she said. "Banks have been lowering credit limits in the last couple of years, often with little fanfare and not because of anything you have done."

Lower credit limits will impact your credit utilization ratio, which shows how much of your available credit you’re using. For example, if you had $20,000 of available credit and you had balances of $5,000, your credit utilization ratio would be 25 percent. If your lines of credit are then lowered to $10,000 and you still have a $5,000 balance, your ratio shoots up to 50 percent. No real difference in your borrowing but you’re using more of your available credit.

The extra payments you’ve been making on your car loan and your line of credit would not hurt your score, said Adam Levin, co-founder of Credit.com.

To pinpoint why your score might have dropped, you would need to determine what’s changed in your reports over the last six months, Levin said.

While reviewing your latest report, he said you should ask yourself: Have you had any new inquiries in the past six months? Are you carrying higher balances than you were six months ago when your score was over 800? Did you close an account, or did an old, closed account fall off your credit report by chance?

"All scores are returned with a set of ‘reason codes’ or ‘score factors’ that are designed to provide specific details on why your score wasn’t higher," Levin said. "These codes are returned in the order of importance, so the first is where you lost the most points in the score calculation, the second, the second most points and so on."

—Karin Price Mueller

E-mail your questions to askbiz@starledger.com.

Credit Score Consistency Critical to Effective Risk Measurement

2011-12-06T22:06:00.000-08:00

VantageScore Solutions' Recently Patented Score Consistency Index Helps Lenders Limit Their Risk Exposure

STAMFORD, Conn., Dec 06, 2011 (BUSINESS WIRE) -- VantageScore Solutions, LLC, the company behind the VantageScore(R) credit score model, recently received a patent for the methodology behind its "Score Consistency Index," which is a process that affords lenders the ability to measure the consistency of multiple generic credit score models across the three credit reporting companies (CRCs): Equifax, Experian and TransUnion.

Credit score models that provide widely inconsistent scores can increase the risk exposure for a lender. That risk exposure results in less attractive products and pricing, because consumers who receive such scores are potentially not being matched with the right types of credit and at the most appropriate terms. Inconsistent scores occur largely because other credit scoring models use a different algorithm for each CRC, and because of variations in the data reported by creditors and the timing of that reporting.

"It benefits lenders and consumers to have credit scores that are as consistent as possible," said Barrett Burns, president and CEO of VantageScore Solutions. "We developed this measurement methodology so that lenders can understand whether inconsistent scoring is obscuring their true risk profile. It is readily available in the research section of our website for all to download and use."

The VantageScore credit scoring model is used by numerous lenders, making billions of decisions annually, including four of the top five financial institutions, the top five credit card issuers, two of the top five auto lenders, and one of the country's largest mortgage lenders. Recent media reports disclosed that banking giant Chase adopted VantageScore in January of 2011. Secondary market participants including Fitch and S&P also rate securitized loan package issues using the VantageScore model.

About VantageScore Solutions

Stamford, Conn.-based VantageScore Solutions, LLC ( www.vantagescore.com ) is an independently managed company that holds the intellectual property rights to VantageScore, a new generic scoring model introduced in March 2006. Created by America's three major credit reporting companies (CRCs) -- Equifax, Experian and TransUnion -- VantageScore's highly predictive model uses an innovative, patented and patent-pending scoring methodology to provide lenders and consumers with more consistent credit scores across all three major credit reporting companies and the ability to score more people.

SOURCE: VantageScore Solutions, LLC

Residential Mortgage Opportunities

2011-12-06T22:04:00.000-08:00

Residential Mortgage Opportunities Are Currently Being Explored by Clopton Capital

Clopton Capital is announcing plans to possibly enter the residential mortgage industry by the year 2013.

Chicago, IL (PRWEB) December 06, 2011

Clopton Capital is a commercial lender, provider of many financial services and is located in Chicago, IL. They primarily focus on commercial mortgages, SBA loans and niche financing mechanisms such as gas station loans and owner operator financing. The founder of Clopton Capital is Jake Clopton and this press release is part of Clopton Capital's consistent effort to remain involved with the public, namely their future clients. Clopton Capital can be contacted at CloptonCapital.com.

Clopton Capital is announcing plans to possibly enter the residential mortgage industry by the year 2013. "Although our roots will always be in commercial lending, certain successful factors of our operation have led me consider the prospect of engaging in reverse mortgages and premium financing", said Jake Clopton, the founder of Clopton Capital. The firm has not definitely decided yet on whether or not it will enter the consumer marketplace, but will know within the coming months if this proposition is feasible. Their primary concern is the liability and licensing that exist within the residential lending market that is currently lax in their belief within the commercial lending sector.

Clopton Capital's future plans involve expanding their reach into fixed annuity investments and in house commercial mortgages regardless of their pending decisions regarding residential lending. "Regardless of future prospects to capitalize on homeowners, we have to maintain our current focus on the commercial marketplace as it is where our foundation exists", said Matt Reed, an associate of Clopton Capital.

If their plans to divert into residential lending come to fruition then Clopton Capital expects to employ a larger workforce and expand their current marketing strategy into a more consumer-based sphere as well. Currently, no specific actions have been taken to accomplish these hypothetical goals.

Clopton Capital can be contacted at their website CloptonCapital.com or at 866.647.1650 during regular business hours central time. Their website contains more specific information about their commercial loans. Their website dedicated entirely to semi truck financing is SemiTruckSource.com. To join CloptonCapital.com's link exchange visit CloptonCapital.com/link.

Short Sales and Its Taxing Consequences

2011-12-06T22:00:00.000-08:00

Taxing Consequences of Short Sales

Tips for homeowners forced to sell at a price below what is owed on the mortgage.

Four years after the residential real estate bubble began to burst, most markets are still depressed.

If you borrowed heavily to buy at the top of the market or overindulged on home equity loans while prices were increasing, you may have mortgage debt in excess of your home's current value.

If you are then forced to sell your property in what is known as a short sale, you could face an income tax hit too--or maybe not. This article covers the basic tax implications of personal residence short sales.

Short Sale with Recourse Mortgage Debt

A sale when the mortgage debt exceeds the net sale price (after subtracting commissions and other selling costs) is called a short sale. The easiest way to explain the tax implications is with some examples.

Example 1: Principal Residence Short Sale for Tax Gain: Say you paid $190,000 for a home you could currently sell for $250,000. However, the first and second recourse mortgages total $280,000. If you sell, you'll have a tax gain of $60,000 because the sale price exceeds the property's tax basis ($250,000 sale price $190,000 basis = $60,000 gain). Will the IRS cut you any slack since you're $30,000 in the red ($280,000 debt versus $250,000 sale price). Nope. The sad truth is you can have a tax gain without any cash to show for it. That's because the amount of recourse mortgage debt doesn't affect the tax gain/loss calculation. The good news: the $60,000 gain is probably federal-income-tax-free, thanks to the principal residence gain exclusion break. An unmarried person can exclude up to $250,000 of gain, and married joint filers can exclude up to $500,000. To qualify, you generally must have owned and used the home as your principal residence for at least two years during the five-year period ending on the sale date. Assuming you qualify for the exclusion, the $60,000 gain won't trigger any federal income tax hit. Depending on your state of residence, there may or may not be a state income tax bill.

Example 2: Vacation Home Short Sale for Tax Gain: Same basic situation as Example 1, except this time assume the property is a vacation home instead of your principal residence. Now you have a $60,000 tax gain that you can't exclude even though you get no cash out of the deal. Tough break.

Example 3: Short Sale for Tax Loss: Say you paid $310,000 for your principal residence that you could now sell for only $250,000. The first and second recourse mortgages total $280,000. You'll have a $60,000 tax loss if you execute a short sale ($250,000 sale price $310,000 basis = $60,000 loss). Does the IRS let you to deduct the loss? Nope. You can only claim a tax loss on business or investment property. In most states, the same principle applies for state income tax purposes.

What about the Excess Debt?

The next question is what happens to the $30,000 of excess mortgage debt (the amount in excess of the net sale price) in the preceding examples? Usually, lenders will not grant any relief to short sellers. If that's your fate, you'll have to find a way to pay off the excess $30,000, and you won't get any help from the IRS for doing so. However, if the lender decides to forgive some or all of the excess $30,000, the forgiven amount constitutes cancellation of debt (COD) income for federal income tax purposes.(see Tax Rules for Cancellation of Debt below)

Short Sale with Nonrecourse Mortgage Debt

In some states, some personal residence mortgages can be nonrecourse. With a short sale of a property burdened by one or more nonrecourse mortgages, the lender cannot go after you for any deficiency (negative difference between the sale price and the loan balance). Even so, the lender might agree to a short sale in order to collect what can be collected now before the property's value declines any further.

When property subject to a nonrecourse loan is sold in a short sale, the transaction is treated for federal income tax purposes as a sale for a price equal to the nonrecourse loan balance. The actual sale price is irrelevant. This conclusion is based on a 1983 Supreme Court decision in Commissioner v. Tufts.

There cannot be any COD income because the nonrecourse mortgage obligation is deemed to be fully satisfied in the short sale. Therefore, the short sale can only result in straightforward tax gain or loss without any COD issues.

A tax gain is triggered if the nonrecourse loan balance exceeds the property's basis. However with a principal residence short sale, the entire gain may be federal-income-tax-free thanks to the aforementioned gain exclusion break.

If the basis of a personal residence exceeds the nonrecourse loan balance, a short sale will trigger a nondeductible tax loss.

For More: SmartMoney Real Estate Calculators

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Tax Rules for COD Income from Personal Residence Short Sales

The general rule is that any cancellation of debt (COD) from a forgiven personal residence mortgage balance must be reported as income on the borrower's Form 1040 for the year the forgiveness occurs. However, Section 108 of the Internal Revenue Code provides several exceptions to the general rule. Here are the three most important exceptions in the context of personal residence short sales:

Bankruptcy Exception: If the borrower is in bankruptcy proceedings when the COD occurs, it is federal-income-tax-free.
Insolvency Exception: If the borrower is insolvent (debts in excess of assets), the COD is federal-income-tax-free as long as the borrower is still insolvent after the COD. If the COD causes the borrower to become solvent, part of the COD is taxable (to the extent it causes solvency).
Principal Residence Mortgage Debt Exception: Through 2012, COD from up to $2 million of principal residence acquisition debt is generally federal-income-tax-free.

Commercial Mortgages through Direct Wall Street Conduits

2011-12-06T21:50:00.000-08:00

Commercial Lending Firm Announces Bullish Business Model for 2012

Commercial lending firm, Clopton Capital, announces strong plans for 2012.

In 2012 Clopton Capital intends to find more solutions for credit challenged applicants of semi truck financing. Currently, they are able to approve nearly any applicant with a FICO score above 650, but they want to find more competitive and expedited solutions for those with credit below 600.

The firm is also putting more emphasis on the importance of commercial bridge loans that are issued on interest only terms. They believe these bridge loans can save many commercial property owners and business owners from an impending default. "I can't stress enough how much of a win-win these transactions are. We've saved so many properties and given the owners of those properties two years of time to solve their financial problems by utilizing these very arrangements", said Jake Clopton, the founder of Clopton Capital.

Clopton Capital recently announced that they will be offering commercial mortgages through direct Wall Street conduits and therefore able to issue commercial loans faster and at more competitive terms. They are going to spend more resources recruiting other commercial lenders in 2012 to offer Clopton Capital's services on referral agreements. "The way I see it, those without these direct conduits can not compete with us so they might as well join us", said Matt Reed, an associate of Clopton Capital.

What You Need to Know About Amortization Schedule

2011-12-04T09:07:00.000-08:00

How can Mortgage Amortization Calculators Help You with Amortization Schedules?

It takes considerable attention when you go into the process of acquiring a home or a car. It is a fact that when you purchase those items with the help of a loan or a mortgage, you will find out that you are getting into some daunting deals. When you take a loan for a home or a car, you will definitely need careful financial considerations and preparations before signing anything that will affect you for the term of the loan. One of the most important things that you have to deeply consider is the monthly payments that you are going to make to pay off that loan. With the help of loan amortization calculators, you can easily make mortgage calculations and create a preliminary amortization schedule which can help you plan and determine when you have to prepare your payment drafts to pay off your loan.

Amortization schedules are tabulated details and breakdown of the components that go into the monthly amounts you pay for your loan, as well as the specific dates that these payments are to be made by you being the borrower. It is broken down into the principal and interests where the amounts are basically applied each payment. With this, you will see the profile on how your payments influence and affect the principal of your loan and the cost of that loan which is the interest applied to it. The effects of the payments on the monthly amortization components will vary depending on several things and conditions of the loan such as the total amount of the loan, interest rate, term of the loan, and other fees and charges. The amortization schedule will help you determine the total principal and interest that have been paid out, as well as the remaining principal balance that remains to be paid. In doing all those mortgage calculations, loan amortization calculators will indeed be of great help.

Amortizations have different types. There are annuities, negative amortization or so-called increasing balance, straight line or linear amortization, declining balance and bullet. The amortization schedule can be made after determining the applicable type. Concerning the payments schedule, you can freely choose the terms of your payment in your amortization schedule by your own. Whether you want to do the payments annually, every semester, every quarter, bi-monthly, monthly, weekly or twice weekly will definitely depend on your decision. Also, it will largely depend on your capacity.

Downloadable loan amortization calculators have been created for borrowers to create and review amortization schedules for his planned loans. Simply browse around this site to see how these mortgage calculators work and it will greatly help you in your mortgage decision making. These have been generally programmed to be compatible with your computer when downloaded. With these, all you have to do is to enter numbers pertinent to your loan and it will generate results and tabulated schedules for your review. Some of the common information that you have to provide and enter into the spaces provided in the calculator is the amount of the loan, the term of the loan as well as the interest rate. Just click the calculate button and your amortization schedule will be immediately generated. Explore and make a couple of trials to see comparative results for different amounts and varying rates. From here you can determine the best payment schedule that will suit your budget.

For an online mortgage amortization calculator, visit http://EZMortgageSolutions.net and calculate your next mortgage now!

How to do a Home Mortgage Calculation

2011-12-04T07:23:00.000-08:00

Factors in Mortgage Calculation

You’re interested in buying a home and you know you’ll need a mortgage to complete the transaction, but you don’t really understand how mortgages work and how to do a mortgage calculation.

Fixed Rate Mortgage

The most common type of mortgage is the fixed rate mortgage. Under this plan, the interest rate charged for your home mortgage does not change throughout the duration of the loan term. If, for example, you borrowed two hundred thousand dollars ($200,000) at five percent annual interest for a term of thirty years, your monthly payment for principal and interest would total $1,073.64. This payment would remain “fixed” for the entire term of the loan and at the end of thirty years your loan would be paid in full.

Mortgage Payment

The breakdown of your mortgage payment would change every month. Your mortgage payment is made up of a principal portion (which is the repayment of the amount borrowed) and the interest portion on the balance of the loan that remains outstanding. Because the amount outstanding on your loan would be reduced every month by the principal payment applied to it, the interest you would be paying every month would also be reduced.

In our mortgage calculation example, the breakdown of the first month’s mortgage payment is $833.33 for interest and $240.31 to principal reduction. (Note the total is $1,073.64-our “fixed” amount). The breakdown for the second month’s payment is $832.33 for interest and $241.31 to principal reduction. Each subsequent month the amount applied toward interest will go down, while the amount applied to principal will increase until the loan is completely paid off at the end of thirty years.

Additional expenses to the monthly mortgage payments

In budgeting for your monthly housing expenses you should also be aware that your lender will require that you pay one-twelfth of your real estate taxes and homeowner’s insurance premium every month in addition to the principal and interest that you’re paying on the mortgage. When you receive the bills for these items, you will forward them to your lender who will pay them on your behalf from the funds collected every month.

Visit http://ezmortgagesolutions.net for a home mortgage calculator and simplify your mortgage calculation.