The latest on how bad credit will affect your ability to land an apartment, a job and more
Firms that oversee large, upscale apartment complexes used to be able to set the bar high when reviewing potential tenants' credit histories. Many would turn away applicants with accounts in collections, foreclosures or outstanding medical debts.
But landlords are finding they can't be as picky as in the past because more so many potential tenants are showing up with problems, especially unpaid medical bills.
Raed Zidan, whose company owns 4,000 apartments, told the Indianapolis Business Journal that 70% of the credit histories he sees show doctor or hospital bills in collection.
"We just ignore them," Zidan said, because illness or injuries not covered by insurance can and do happen to people in all walks of life.
First impressions may get a job applicant noticed, but a bad credit report could doom your chances of getting a legitimate job offer.
Nearly all prospective employees filling out an application today expect prospective bosses to ask them to take a drug test and dig for criminal history and past job reviews.
But employers nationwide are increasingly using credit checks as a cost-effective tool to search for workers who are trustworthy and responsible.
The number of homeowners behind in their mortgage payments, and in the process of foreclosure, reached their highest levels in more than three years in the final months of 2006.
The Mortgage Bankers Association's fourth-quarter survey of 43.5 million loans found:
- The percentage of loans with payments more than 30 days past due rose to a seasonally adjusted 4.95%, up from 4.67% percent in the third quarter and 4.70% in the final three months of 2005.
- The delinquency rate for subprime adjustable rate mortgages was the highest, jumping to 14.44% from 13.22% in July, August and September. In comparison, delinquencies for prime ARMs rose to 3.39% from 3.06%.
- The percentage of loans in the foreclosure process rose to 1.19% of all loans. That is just a little higher than the traditional average of one out of every 100 loans in foreclosure. But it represents a substantial increase from last spring and summer when an historically low one in every 200 loans were in foreclosure.
- Mississippi(10.64%), Louisiana (9.10%) and Michigan (7.87%) had the highest delinquency rates.
- Ohio (3.38%), Indiana (2.97%) and Michigan (2.39%) had the highest foreclosure rates.
The number of lenders making home loans to buyers with bad credit -- especially buyers with bad credit and little or no money for a down payment -- continues to shrink.
New Century Financial Corp. has just acknowledged that its main sources of money are closing down its lines of credit and that it's received default notices from major lenders such as Bank of America Corp., Citigroup Inc. and Goldman Sachs Group.
New Century was the second-largest subprime mortgage lender until last week when a growing number of bad loans forced it to stop taking applications. There is now little reason to suspect it will resume making loans.
WMC Mortgage, another big subprime lender that's owned by General Electric Co., is laying off 20% of its employees and will no longer loan money to buyers with no down payment.
It's getting more and more difficult for borrowers with low credit scores to get a mortgage.
Several dozen subprime lenders have stopped making subprime loans and those still accepting applications are demanding higher minimum credit scores for many different types of mortgages regardless of the interest rate.
New Century Financial, the nation's second-largest subprime lender, was the latest and largest to drop out of the market because the companies it obtains money from are understandably nervous about the number of subprime loans falling into default.
"The last couple of weeks have been almost catastrophic," Armand Cosenza, a Cleveland mortgage broker told the Wall Street Journal.
Cosenza said he turned down eight applications on Wednesday because he couldn't find a lender willing to make the loans. At least five of them would have qualified six months ago, Cosenza told the Journal.
Citibank unexpectedly said it's eliminating two of the credit card industryâs most consumer-unfriendly practices, "universal default" and "any time, any reason" rate increases.
From now on, Citibank card holders will not be thrown into universal default, and have their interest rate raised to 25% or more, if they're late paying utility bills, rents, mortgages or even other credit cards.
Citibank is also abandoning the clause in virtually every credit card agreement that allows it to boost rates whenever, and by however much, it wishes. Citi will only change rates every two or three years when your card expires and you're issued a new one.
That's all good, but be aware there are still two big reasons your interest rate might abruptly change before you need a new card:
- You make a late payment to Citibank, exceed your credit limit or pay Citibank with a bad check.
- Your have an adjustable rate card. The interest rate will still be adjusted if the prime rate goes up (or down).
Homeowners with troubled credit histories are finding it harder to get mortgages or refinance homes because a growing number of defaults is making lenders less likely to make riskier loans.
A growing number of subprime lenders -- those who primarily make high-interest loans to consumers with poor credit histories -- are now in financial trouble, with several closing their doors and filing for bankruptcy.
That's prompting investors to demand higher standards for loan approvals. Loans for 100% of a property's value required a minimum credit score of 580 last year, but now require at least a 600 score, says David Zionts, owner of Connecticut Mortgage Lenders LLC.
Some mortgage debt may be forgiven but it won't be forgotten, at least by the IRS.
A growing number of homeowners hit with rising mortgage payments they can't afford are negotiating short sales with their lenders. That's where the bank allows them to sell their houses for less than they owe on their loans with the bank writing off the difference.
When the bank does that it reports the loss to the IRS. And in the government's eyes the lender's loss is your gain. The cancellation or forgiveness of a debt is the same as if the lender handed the homeowner cash and shook hands.
The borrower gets a 1099-C reflecting that "income," which they must report on their income taxes.
States across the country are cracking down on payday loan stores. Just this week:
- The Oregon House approved a 36% annual interest rate cap on short-term car title loans and payday loans made over the Internet to Oregon borrowers. Now it's on to the state senate.
- New Mexico lawmakers promoting rival payday loans bills reached a compromise. They will cap fees at $15.50 per $100 borrowed and no one would be allowed to borrow more than 25% of their monthly income.
- Virginia's legislature has already rejected a rate cap. But a House committee approved new regulations requiring payday lenders to limit borrowers to no more than three, $500 loans.
We don't know if this will work, but at least someone is trying to stop college students from plunging into credit card debt.
State Sen. John Nutting has introduced a bill in the Maine legislature that would require anyone younger than 21 to get permission from a parent or guardian to get a credit card.
He says marketing campaigns on college campuses persuade too many students to sign up for credit cards without their parents' knowledge. Unschooled in financial matters, the students can quickly rack up sizable balances.
Needless to say, the Maine Bankers Association thinks this is a terrible idea.
Nearly half of working families with children are living paycheck to paycheck. Based on a survey conducted by Harris Interactive, 45% of adult households did not have enough readily-available savings to cover at least three months of living expenses in case of an emergency.
The Center for Responsible Lending says banks should be required to warn customers that they're overdrawing their accounts before giving them cash at an ATM -- and charging them big fees.
In the past, customers using their bank's ATMs were unable to overdraw their account. The transaction was simply denied.
But the center says an increasing number of banks are allowing customers to withdraw more money than is in their account so that they can charge them for going into the red.
Industry experts say overdraft fees have become the biggest single source of fee income in retail banking. U.S. consumers pay $10.3 billion annually in overdraft charges, about $7.3 billion of which comes from "chronic borrowers living on the margins," according to the report.
This won't surprise hundreds of thousands of homeowners struggling with subprime mortgages -- the high-cost loans made to consumers with tainted credit histories, too little income or too much debt to qualify for conventional loans.
But Washington, Wall Street and the banking industry were shocked this week when one of the biggest subprime lenders acknowledged it had significantly overestimated the ability of subprime borrowers to keep up with their loans.
That was especially true, HSBC Holdings said, for borrowers with adjustable interest loans that were seeing their payments go up by hundreds of dollars a month.
New Century Financial Corp., HSBC's largest competitor for sub-prime mortgages, contributed to the gloom by saying it would lose more money than expected because of a jump in defaults.