Monday, February 19, 2007

Secrets of Investing Part Deux: The 3 Cs

Last time we discussed the First Secret of Investing: Cash is King. You don't need to read that one to understand this one, but it wouldn't hurt you. Go ahead. I'll wait.

"Tall, and tan, and young and lovely, the girl from Ipanema goes walking..."

All done? Then on we go.

Today we're going to discuss the 3 Cs of mortgage loans: Credit, Capacity, and Collateral.

Actually, I lie. Today we're only going to discuss Credit. It's long enough for a whole book, let alone a blog post.

Credit: essentially, we're talking here about the three credit reporting bureaus, Transunion, Equifax, and Experian. There are other reporting agencies, but they're not used by any of the lenders I work with. These three bureaus exist for the purpose of making your life miserable. Haha. Actually, they exist to make money, like all companies do, and that should be borne clearly in mind when appying for credit, and even more clearly when disputing an incorrect item on your credit. They are in the business of making money. You are not their client; the financial institution - the lender - is. The lender wants every piece of information it can get, especially anything derogatory, and this puts the bureaus at cross-purposes with you, unless your credit is perfect.

But I digress.

Your credit scores will range from 300 to 850 according to the book, but in reality, nobody has an 850 and nobody has a 350. The lowest score I've ever seen is a 418, and the highest is an 832. Nearly everyone has a score between 550 and 720. Roughly, the scores break down like this: 720 and up is perfect, 680-720 is good, 620-680 is average, 580-620 is fair, and below 580 sucks. You'll not get a conforming loan below 620, and not usually below 660. The score that counts is the middle score of the three, or the lower of two if you have only two. If you have only one, you're going FHA, but that's another column.

How does one get a 700 score? The short answer is "don't miss payments". This, however, presupposes that you a) have payments and b) know that "missing" one means to be more than 30 days late making the payment to the lender. If you pay for everything in cash, this will HURT your credit score. It also presupposes that you know what payments not to miss. Cell phone companies, utility companies, cable companies, DISH network, insurance companies, and those sorts of people do not report to credit bureaus until you go to collections (usually after 90 days of not paying them). Paying these people on time is a fine thing to do morally, but it will not make any difference to your credit score. On the other hand, ALL credit card companies, car loan companies (except for the hard-money people), student loan companies, and home lenders report every month (well, okay, student loans report every 90 days). If you have to miss a payment, miss them is this order:

1. cable company
2. utilities (especially in the winter -they really can't cut you off)
3. insurance
4. student loans
5. credit cards
6. car loans
7. home loan

Lenders figure that if you're going to miss a payment on something they could repossess, like a car or a house, then there's nothing that will get you to repay, and your credit will get slammed.

That covers credit defense. Let's talk about credit offense, building your score. There are a number of factors that contribute to your score along with lates, including your balance-to-limit ratio, your credit line depth, and length of time for established lines. You want your balances between 25 and 33% of the line limit. Paid off cards are great, but they'll hurt your score, especially if you haven't used them for a while. You want continuous activity on your lines. Credit depth refers to the number of lines open, and you want at least one of each kind of line - mortgage, installment (car, furniture), and card. Ideally, have a couple of the latter. You will need at least 3 lines, and you're not going to be docked for open lines unless you top 8 or 9.

Length of time established means that you want a couple of trade lines open when you're 18 and never closed. The longer the better. This also means you shouldn't pay your car off early. Refinance it, if you have to (though this is not always wise), but don't pay it early. Also, believe it or not, if you have an old collection account (over 2 years old) you should NOT pay it off until after you have the loan you're applying for. New activity on old derogatory credit will hurt your score.

When in doubt, ask a professional. 801-310-3407. Ask for Chris.

One other thing. I posted recently on the "Free Credit Report" hoopla, to the effect that you shouldn't believe everything you read or see on TV. Your credit score is MY credit score, that is, the score I get when I pull your credit, not the score you get when you do. Don't waste your money. My score's going to be different, and it isn't going to hurt your credit worth mentioning to have me look. You can pull your own credit, then tell me what your score is, at which point I will smile and ask if I can pull your credit as well. Little-known fact - lenders allow me to upload MY credit to their systems, not yours. If it doesn't have my name at the top of it, it's useless to me except as background information. And since I'm going to give you your scores and review the report with you, you might as well wait.

Yes, Diana, that means I can help you and Ben out. Call me.

See why we're not going to deal with the other 2 Cs today? Wasn't that enough?

Friday, February 16, 2007

Upon Reflection, Maybe Not

Ben Bernanke's been practically dislocating his arm patting himself on the back for engineering a soft landing for the economy (defined as "any set of economic circumstances that don't cost me my job"), when today the new housing start information comes out and shows a massive decline. Housing starts were off almost a third from their highs of two years ago, down over 20% from December of last year, and 15% over last January. Ouch.

Most likely, builders are waiting for their massive inventory to clear before starting a bunch more new houses, and this information, like all such economic data, means a whole lot more if you live in Ohio than it does if you live in Utah. The sky is not falling. But it might behoove Atlas to be a little less hawkish on rates and start discussing the possibility that the economy is not as red-hot as previously supposed.

Meanwhile, the information was good for bonds and things are improving fractionally for all those of you buying and refinancing. There's no cloud that has no silver lining.

Thursday, February 15, 2007

About That Free Credit Report...

I recently became aware of a cute little money-making venture being conducted by credit reporting agencies. For those just joining us, there are three major bureaus: Transunion, Experian, and Equifax. They have each got their own rules for reporting and for scoring, but in general, your score is between 300 and 850. Over 580 is okay, over 620 is decent, over 660 is good, over 700 is excellent, over 750 is perfect. Loosely speaking.

Point #1: don't get fooled by the cheerful and expansive fellow on TV telling you about freecreditreport.com. Don't buy it. You have to subscribe to their "credit monitoring service" in order to get your report and your score. It's not free. It's not priceless. It's worthless.

Point #2: everyone got all excited about federal regulations that require that everyone be entitled to a free credit report every year. That's not necessarily a bad thing; I think everyone ought to get a credit report fairly regularly and check it closely. You can get one that really IS free at www.annualcreditreport.com. What you can't get is your score, unless you pay for it. DO NOT DO THIS. Your credit score obtained from these sources - from ANY of these sources - will not tell you one useful thing about your credit score. Each type of lender has a set of filters that apply to credit reporting, and those filters change your score. Your credit card company, your auto lender, and your mortgage broker will each get different scores when they pull your credit. Ours tend to be the lowest. But the fact is, no matter what your credit pull tells you your score is, I can't use that credit report and I can't rely on that score. It has no value whatever. None. Do not waste your money.

Point #3: this one is all about my side of the deal. When I pull a credit, I send a fair amount of information to the credit bureaus. What they do with that information is interesting. Mostly, they just use it to give me back a credit score. But they also have been using the information to sell to interested parties - mortgage telemarketers - because mortgage lenders pulling credit means person needing financing, and those "leads" are being converted to telemarketing phone calls. At the Chris Jones Group, we've learned to dodge this on behalf of our clients. We just send the wrong telephone number. But be warned, if you apply for credit, you might be exposed to a telemarketing list. That is, if you apply for credit somewhere else.

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Harry Rodas Exposes

For those more interested in lighter, not-necessarily-mortgage blogging, I direct you to my post on the Chris Jones Group Blog about the four recent holidays we've passed through.

But here, I'm going to talk about title issues.

Harry Rodas, Realtor extraordinaire, recently blogged about a title insurance issue that I think needs more emphasis. There are certainly a large number of documents to sign with regard to any closing of a transaction. Reading all these documents is time-consuming and incredibly boring. Nevertheless, if you are buying or selling any piece of real estate either you need to read all the documents or you need a professional who has read them. I recommend reading them yourself, but good mortgage and real-estate professionals - and good title people - will be happy to walk you through them.

For me, I rely on Harry to know everything there is to know about how real-estate transactions work, and what the laws and protections are for my clients. It's one of the reasons I love to work with Harry. I perform the same service with my clients about how mortgages work. Get help. You won't regret it.

Wednesday, February 07, 2007

We Now Return You to Our Regularly-Scheduled Program, Already in Progress

It’s been two weeks since I blogged, my longest hiatus in some time. I would like to tell the things that have happened to make that pause necessary, but somehow this isn’t the time. Perhaps it will dribble out over the next while.

I’m sitting at my kitchen table feeding Life cereal to my 10-month-old, Nathaniel, and it’s 6:30am. He’s been up for an hour, torturing his mother, who has gotten sick from lack of sleep and a massive onslaught of kid germs, so she’s back in bed and it’s my turn. This suits me, as I’ve been awake for half an hour thinking about the potential ramifications of a 67-point drop in the credit score of one of our clients. Maybe the deal will still work. Maybe not. Should I care that much?

Nevertheless, I do.

We’ll be making some changes here at the Group over the next few weeks. There will be new faces, old faces in new places; the Group is growing and changing, going after new markets and altering our approach to old ones. We’ve never done any advertising, and that might change this year. We’ve decided to double our business in 2007, which is going to require new methods and systems, a new image, and especially new ways of thinking and acting on the part of Chris Jones.

I’m not a good businessman. I never have been. My father before me was not, neither was his father. Businessmen have to care more about the success of the business than they do about the feelings of the people that work there, including themselves. That’s a hurdle I haven’t successfully jumped. I try to collaborate where I should be leading. I put off execution where I know feathers will get ruffled. I have come to realize this to be profoundly selfish – it does my employees, my partners and my friends no good to allow bad decisions to stand just because changing them will cause short-term headaches. The wound has to be washed out and bandaged. Hurts like crazy. Still has to be done, or the long-term effects will be greatly worse.

I have killed businesses that way, through inaction.

Not this one.

We’ve built something here, and I do mean WE have built something, everyone who has participated in the journey so far. The Group has become more than a mortgage operation, more than a place to find money for a house. We’ve become moderately successful. It’s time to drop the “moderately”.

We’ll be expanding our line of seminars to include credit and investment. We’ll be purchasing a building in Lehi to serve as our permanent base of operations. We’ll start showing up at trade shows and other events of that nature. Heck, we might even have a logo or something, although that seems pretty radical to me.

The Chris Jones Group has always been about having conversations with our clients, doing for them whatever it takes to help them reach their dreams. I was interviewing someone the other day and he asked me what I get out of this business, as in, why this instead of selling widgets or whatever? I hadn’t thought about it, at least not for some while. But my answer was this – I am a gardener by nature. I love to help things grow. I love to take bare soil, add water and sunshine and seeds and see living things come up. A gardener is a creator, and like all gardeners, I love to create beautiful things. With this business, through the creation of beautiful things for our clients, we also can create something beautiful and lasting for ourselves.

We’ve done pretty well. We will do better.

Watch this space, as they say, for more.