FHCE 5200 Test 1
Within three days after receiving your loan application, the lender or mortgage broker must provide what?
A loan estimate of closing costs.
What is a credit score?
A number that summarizes all the individual items in your credit report.
Check which court is hearing the case
Direct all questions and your responsive documents to the correct court--the court that issued the summons. Collectors usually sue in small claims court, designed to decide claims for relatively small amounts of money. In small claims court you should feel comfortable appearing without a lawyer, and often times a lawyer is not permitted.
What are the tree major national credit bureaus?
Experian, Equifax, and TransUnion
Advantages of using new credit card debt to pay off old debt
It typically does not take your home or other property as security. You can avoid default just by making the minimum payment each month. Even if you do default your income, bank accounts, and assets aren't at risk. Furthermore, if needed you can fully eliminate the debt in bankruptcy.
What are the eligibility requirements of the HOME for a HECM reverse mortgage?
MUST BE ONE OF THE FOLLOWING -A single family home -A manufactured home meeting FHA reqs -A HUD-approved condo project -A 2-4 unit home and you occupy one of the units
Prepping for a court hearing
Make sure the collector gives the judge a copy of the credit contract as well as the accounting records showing any missed payments. If the collector isn't the original creditor to whom you owed the money, make sure the collector shows sufficient paperwork that in fact is the current owner of the debt.
What else does a credit report list concerning inquries?
Names o creditors, employers, or insurers who have requested a copy of your credit report during the past one or two years.
What are the eligibility requirements for a HECM reverse mortgage?
-At least 62 y/o -Home is worth significantly more than any outstanding mortgage on the home -The home must be the principal residence where you reside most of the year -You are not delinquent on any federal student loans or other federal debt -You have the financial resources to make payments on property taxes, insurance, homeowner's association fees, and etc. -HUD counseling session
Presenting your response at a court hearing
-Bring all relevant documents. Usually, your only chance to present documents and courts pay a lot of attention to written documents Try to have extra copies because the courts will want to keep copies of the documents that you present -Bring witnesses if there are any. Witness testimony may be important especially if the witnesses aren't friends or relatives. -Do not rely on written statements of your witness because the court will usually not allow them into evidence. -Consider going to court beforehand. - Take a companion to the actual hearing to offer emotional support, to give feedback and other help, keep track of your documents and to offer a second opinion of you must respond on the spot to a settlement offer. -Prepare a written chronological report of events in advance -Assume that the judge has not read any of the documents -Do not be afraid to be forceful, but do not make personal attacks on individuals
Potential drawbacks to a reverse mortgage:
-Closing costs are high -Amount of cash may not meet your needs -Paying interest, insurance and servicing fees on a reverse mortgage loan, so that even if you don't draw a lot of money over time, this loan obligation will grow -Reverse mortgage monthly payment isn't considered income. And if you receive a lump sum it may affect your eligibility for government benefits. -Shady lenders -May make it difficult to pass your home to your heirs after your death.
What are the numerous ways to receive the proceeds from a reverse mortgage loan?
-If you have a pre-existing mortgage on your home, the mortgage loan proceeds will be used to pay off that mortgage. -One large payment in cash--usually doesn't make any sense. Best to delay receiving as much as possible to pay for future emergencies. -A fixed monthly payment plan for a set period of time aka term plan. -Fixed monthly payment that will be paid like an annuity for as long as your survive and live in the home aka a tenure plan. -A line of credit to be drawn at your convenience. Can also be combined with term or tenure plan.
Situations where the collector is unlikely to sue
-If your home or car is collateral on a loan. They are more likely to foreclose or repo. -Rarely sue on debts under $1000 -If you dispute and raise a reasonable defense -When you are making small payments even if they are less than the collector demands -When the collector has no history of filing suit--check with local court records to see if they have a history of doing so
What are the credit cards to avoid?
-Subprime credit cards -Ones that use your home as security -Zero interest, to be cautious -High interest or high fees -Those that automatically include junk purchases, like credit protection, credit monitoring, travel clubs, and other similar offers
Different ways to use home equity to get new loans to pay off old debt:
-Taking out a second mortgage. Then you have to make monthly payments on both loans. -Taking out a HELOC. When you need cash you draw on your line of credit. Must make minimum payments or you risk losing home. -Refinancing mortgage. If it increases your monthly payment it increases risk of foreclosure. -Borrowing through a reverse mortgage.
What is the most a credit union charge you on a loan?
18%, the exception is loans up to 6 months in length for amounts between $200 and $1000. These can be made at 28% plus a $20 application fee
What is required before moving forward with a loan application with any lender participating in the HECM program?
A counseling session with a counselor approved by HUD
What is a "debt buyer"?
A debt buyer purchases thousands of debts at a time from a creditor, and the have little information about each account when they sue.
Promptly answer a collector's request for adissions
A popular collector tactic is to send you a document that asks you to admit to many facts about the case, including that you owe all the money it seeks. It is a trick, because if you don't answer within the limit the law says that you have admitted these requests to be true. This way the collector can win the case without any evidence and without eve na hearing--even if you don't owe the money. Respond to all questions in the request for admissions, respond by the time deadline, and deny any facts that are not true or where you think they might not be true. You can also say that you don't have knowledge about a fact, so you can't admit or deny it.
What is a credit report?
A record of how you have borrowed and repaid debts
For households struggling to pay all their bills, where one of the homeowners is at least 62, what is one option to consider?
A reverse mortgage
What do you do if you need more time to find a lawyer or to prepare an answer?
A time extension is usually allowed, either by written agreement with the collector's attorney or by court order. If you reach an agreement for an extension of time with the collector's attorney, confirm the agreement in writing.
How to respond to a collector's lawsuit.
Always pick up your certified mail and accept notices about court actions-- you can't escape the consequences of a lawsuit by hiding from notices about that action. Get professional advice--by fighting back and raising legit defenses and claims against a collector can erase some or all of your debt and a lawyer's involvement many significantly improve your outcome. If you can't get help from a lawyer you may be able to get help from the clerk of the court.
What should you be highly skeptical of concerning reverse mortgages?
Any reverse mortgage offered that is not in the HECM program or that doesn't involve a HUD approved counselor
Sales of the goods or services
Anything unfair, deceptive, or defective in the sale may lead to a counterclaim. Same is true if warranties are honored or goods and services are delivered. Counterclaims may exist even if the car or other goods are sold "as is"
Credit terms
Anything you find to be outrageous, unfair, or deceptive about the credit terms may form the basis of a valid claim.
Attend all court proceedings and respond to all papers you receive
Attend all hearings that are scheduled in your case. If you don't show up a default judgment will be entered against you even if you filed an answer or appearance earlier. If you can't attend send someone else to aks for a delay aka a continuance and explain the reasons why you could not attend the hearing that day.
How to avoid the wrong mortgage loans?
Avoid predatory lenders that hide the true cost of their high cost mortgage loans. Be wary of anyone who initiates contact with you about a mortgage loan, particularly if the solicitation doesn't come from an established financial institution in your comm. Avoid anyone who does door-to-door visits.
A reverse mortgage differs from a traditional mortgage how?
Because the borrower receives a lump sum or a stream of payments, but doesn't make monthly payments on the loan
Ways to use new credit card debt to pay off old debts.
Can be done directly via paying debt collectors using credit cards or using a cash advance. Or you can pay for debts using the card indirectly, by putting your card necessities you usually pay in cash, freeing up cash to pay down your debt.
What is also added to the loan balance of a reverse mortgage?
Closing costs--origination fees, real estate closing costs, and an initial mortgage insurance premium.
The collector has not presented your credit contract in court
Collectors often sue based upon a contract you entered into with the creditor and then ask the court to make you pay not just the amount you awed, but also interest, late charges, and attorney fees. To recover on a contract like this, the collector must produce the contract.
Some help will just get you into more trouble
Companies advertise bogus products to help you defend a collection action or otherwise deal with debt. These products are usually expensive, don't work of all, and prevent you from actually properly defending the collection action. DO NOT PAY FOR NON-ATTORNEY HELP.
Where money is sought after your car was reposessed
Creditor may claim that the sale proceed did not pay off the debt and seek in court additional payment. You can challenge that the repo and sale were not "commercially reasonable". Then the collector must prove that every aspect of its notice to you and the sale was commercially reasonable.
Watch our for unnecessary insurance added on to the mortgage
Example: credit-life and credit-accident and health insurance or similar products called "debt cancellation" or "suspension" contracts. Typically you will be asked to initial a statement that you want this coverage. You should not do so, only a small percentage of these insurance premiums or charges are ever paid out as losses to policyholders.
What is the main scoring system and how does it work?
FICO, which is used by 90% of creditors. A FICO credit score ranges from 350 to 900.
How often does a creditor report status of debt
For credit card debt and other debt payable on a monthly basis, the creditor will report the status of the debt to the credit bureaus every month. Biggest impact on your credit score will be when the debt is reported as 30 or 60 days overdue.
Does non-payment of the new loan get you in more trouble than non-payment of the olde debt?
For example, don't take out a home mortgage to pay for medical bills. Non-payment of the mortgage will lead to foreclosure of your home, whereas unpaid med bills will just lead to a reduced credit score and debt collection (which can be stopped)
You must keep your home well maintained or risk what?
Foreclosure. The lender will tell you at the time you take out the reverse mortgage, which repairs you must make. The lender may even set aside some of your borrowing limit to make sure that the repairs are made. You may later have to keep the home up to standard if it deteriorates over time or is later damaged. Where the needed repairs are caused by an incident, homeowner's insurance should cover it.
What does FICO consider as detracting from your credit score?
History of missed payments (35%) High debt in comparison to your credit limits (30%) Small number of years of credit history (15%) Opening too many accounts (10%) All credit of the same type (10%)
Who usually doesn't report your debt to a credit reporting agencies?
Hospitals, doctors, and other medical providers. It's only if and when a medical debt is turned over to a collection agency that many--but not all--collection agencies will report the overdue debt to a credit bureau. All three major credit bureaus have agreed to not include any report on medical debt if that debt has been outstanding for less than six months.
Undoing a default judgement
If a default has been entered against you, you may be able to still get another chance to be heard by asking the court to "set aside" the default. You have to immediately present reasons why you did not respond to the court case, such as you never knew about the case or that there were unavoidable circumstances that made you unable to answer within the required time. You should mail your request to the collector's lawyer.
What happens during foreclosure?
If it is sold for less, you will owe nothing. If it is sold for more than the existing loan balance, you or your heirs will get the extra cash.
Will the collector actually sue you?
If you are in default on a debt, the credit can sue you to collect.
The lawsuit was brought in the wrong court
If you are not sued in the county where you live or where you signed the contract with the creditor, the action is illegal because it was brought in the wrong court
Special rights if you are active duty military
If you are sued while you are on active duty with the military or within the first ninety days of getting off active duty, you can ask the court for a postponement or stay of the case. The lawsuit won't be dropped, but the case will not move ahead while the stay is in effect. Once the stay end, you have to defend the case.
What shouldn't you expect from mortgage rates with a blemished credit score?
If your credit score is under 670, most lenders will consider you to be a riskier borrower and charge you more. You should shop around even if your credit score is low.
Debt collection tactics
Illegal collection practices often provide excellent counterclaims
Summary judgement
In more formal courts, either side can ask for a judgment even before the trial begins if there are no important facts in dispute. This is usually called a motion for summary judgement. If you receive a motion for this, you must respond or the collector may automatically win the case. Describe all the facts that you may dispute that relate to whether this collector has the right to obtain a court oder against you for the debt. Most courts require that the disputed facts to be stated in affidavits signed under oath by people who have first-hand knowledge about the facts.
What is a counterclaim?
Is a reason why the person suing owes you money. If your counterclaims are large enough, they wipe out everything you owe and even allow you to recover money from the collector. These claims are often available even if your claim relates not to the collector's conduct, but that of the seller or original creditor.
What is a strong predictor of winning?
Is if you are sued by the original creditor or by a "debt buyer". Most people do not respond to debt buyer lawsuits which can be filed by the thousand, so the debt buyer often wins by default. Debt buyers are also paper tigers and they may fold if you raise good defenses and counterclaims, force them to produce evidence that they own the debt, and force them to produce the credit contract and account statements.
How does the reverse mortgage work?
It is a loan secured by your home aka the lender can foreclose if the terms are violated. However, unlike most mortgages, there are no monthly payments on the reverse mortgage loan. Instead, the loan comes due (with interest) upon a triggering event--the borrower dying or permanently moving out of the home.
Does the absence of complaints mean a business is reputable?
No
If your regular banker or credit union cannot help you, will lenders and brokers who advertise a good deal be able to?
No
Should you put debts owed to the IRS on a credit card?
No
Should you ever let a contractor or sales person arrange financing for you?
No because some brokers will find loans for you which involve big commissions for them rather than good loans for you.
Do credit union loans typically have collateral?
No, and therefore they are usually safer than mortgage loans. Still, they shouldn't be used to pay off medical debt or other low priority debt with low interest rates.
Is the ability to obtain a reverse mortgage based on credit score?
No, and you shouldn't be denied a reverse mortgaged because you have a low income or a blemished credit rating. Since there aren't monthly payments, the lender is not concerned about your ability to make payments.
Should you put a friend or relative on an account when you are facing financial problems?
No, because your financial problems may become theirs if you can't afford to pay.
Should you put medical debt on a credit card?
No, especially if you cannot pay off the card right away.
If you cannot pay off your debts today and your situation is unlikely to change in the future, should you take on new debt?
No, if you can't make ends meet now, things will get even worse in the future when you have to pay off the amount on the new loan, but also additional interest and fees. If it is because of extraordinary expenses or a temporary drop in income, you may be able to repay a new loan that gets you through a tough time.
Should you take on new debt just to get a debt collector off your back?
No, there are easier ways to stop debt harassment.
Should you trust a lender that is unwilling to let you get outside help before you sign the loan documents?
No. You can contact a HUD certified counselor for help on loan terms.
How to answer the summons
Pay special attention to any deadline for a written response in the summons. If the summons has both a deadline for a written response and a date to appear in court, you must file your written response by the deadline or you may risk losing by default. If the summons requests you to appear at the hearing, it will usually specify a date, time, and place for the hearing. Often tells you to file a written answer to the summons within a certain number of days, usually less than 30. Although the summons may say "appear and defend," this may not mean that you must physically appear on the date mentioned, but rather that only a written document must be filed with the court by that date. In more formal courts, there are usually no prepared answer forms and the answer should usually be written by a lawyer and include reasons why you deny that you owe the money.
Consider if the new loan is a good deal or a rip off?
Predatory lenders target those who are in financial distress and offer credit at much worse terms terms than you could find if you shop around.
Failure to pay what will result in foreclosure and loss of a home on a reverse mortgage?
Property charges. Many people have gotten into trouble on their reverse mortgage loan because they aren't used to paying property taxes or insurance once and year because on their traditional mortgage it was collected via an escrow account.
What can a reverse mortgage do for a homeowner?
Provide cash, eliminate payments on a pre-existing mortgage, and allow the homeowner to remain tin the home (as long as they can pay for property taxes, insurance, and necessary repairs)
What should you always do with a closing disclosure and final terms?
Read it carefully to see if it is consistent with what the lender promised you. Walk away if the lender tries to change the loan terms or cost from what you had originally discussed. Be wary of a lender who refused to put in writing any oral promises upon which you are relying.
What basic personal information does a credit report contain?
SSN, birth date, current and former addresses, and employes.
How to request a stay
Send a letter to the court explaining how your military duties prevent you from appearing in court, when you will be able to appear, and include a statement from your CO that your current military duties prevent you from appearing in court and that military leave is not authorized for you.
The debt is too old to be collected
Some debts are too old to be collected in courts. If you don't raise this in court, the collector will win, even if the debt is too old. Time period varies by state. Risky to make a partial payment on an old debt, because it may start the time period on the statute of limitations all over again.
What does borrowing from friends and relatives avoid?
Some of the high interest rates or hidden charges of having to put up your home or car as collateral are eliminated.
What is using a credit card better than?
Taking out a payday, auto title, or another high-interest loan.
What do most courts require that you do with your answer?
That you send a copy of the answer and any other document you file with the court to the collector or the collector's lawyers.
What happens over time on a reverse mortgage?
The balance due grows as the monthly interest and other fees are added to the loan balance.
What happens when your account is referred to a collection agency?
The collection agency reports the debt to a credit bureau and your credit score will take another big hit. By the time you are being contacted by a debt collector, it is too late to do much about your credit score.
What happens when you pay off a debt that was already reported by a collector?
The collection item will show as paid, but your credit report will still show that the debt was in collection. If you want that info removed, you must get the collector's written agreement to delete it.
The collector has not proved it owns the debt
The collector has the burden to prove not only that you owe the money, but that you owe the money to this collector. If it cannot do so, you should win the case. Many collections are brought about by debt buyers and they do not usually have proof that your debt has been properly transferred to it.
Carefully read all court documents that you receive
The collector must file a document with the court to start a lawsuit aka a petition or a complaint. The collector must also usually prepare another document to be submitted to you aka a summons or original notice. The summons typically tells you what the collector wants and the actions you must take to respond the lawsuit. In some states a sheriff or constable must personally deliver the summons to your or an adult member of your household, in other states mailing may be considered sufficient. Dropping the summons on your doorstep is not considered sufficient.
Be wary of deals you may be asked to make in the court's hallway
The collector's attorney will not want to try the case and often will collar you in the courtroom hallway and try to work out a deal. The collector's attorney is only looking out for the collector's interests. In return for giving up your right to go to court and force the collector to try the case, expect a substantial reduction in the amount you owe. The more defenses you have the greater the reduction. Also think about other settlement terms. If you reach an informal agreement with the collector, still go to court to file an appearance and answer.
What does a credit report list about your debts?
The date you opened the account, the type of account, whether the account is currently open or has been closed, the monthly payment, the max credit limit, the latest activity, the current balance, and any amounts that are past due.
Why are reverse mortgages not for most homeowners?
They are expensive, have high closing costs and interest rates higher than standard prime mortgages. Once the equity has been drawn, it may not be possible to draw against the home again to pay for necessary expenses, like home health care. Finally, some reverse mortgages are scams.
HUD rules concerning spouses who are not co-borrowers.
They are protected and can remain in the home after the borrow leaves the house or passes on. The spouse has to be living with you continuously from when you took out the loan until when you pass or leave the home. Also you have to have been married before you took out the loan. They still cannot receive loan proceeds after the borrower dies.
What do collectors do when they file lawsuits on consumer debt?
They usually complete sloppy paperwork, often times pointing out these errors can throw the lawsuit out
Utilities and credit reporting
Usually won't report your delinquencies to a credit bureau until they say the bill is uncollectible. Until then there may be no adverse impact on your credit score to be late in paying gas, electric, landline telephone or water bills.
You already paid, settled, or discharged the debt in bankruptcy
Virtually all debts are eliminated by a bankruptcy and this a defense to the lawsuit, as it that you have already paid the debt, paid more than the collector claims, or if you already settled the debt with the collector or the original creditor.
When refinancing, are you saving money or throwing it away?
When taking all costs into consideration--are you paying more on the new loan than you were paying on the old ones? If you could not make payments on your old debts, how can you avoid foreclosure by consistently paying on a refinanced loan that is more expensive than what you were paying before? It isn't simply comparing old mortgage and other debt with the cost of a new mortgage that refinances the old debt. Compare the stated interest rates you are paying under the old and new loans. And then it gets more complicated--new loan will likely have closing costs, title insurance, points, fees, and other charges that must be considered. These might have been included under your old loan as well, but you have already paid for those. Must also consider any prepayment penalties for paying off the old loan early, these penalties are an added cost of the new loan.
Problems with borrowing from friends and relatives?
When your financial difficulties are more long term, when they face financial difficulties, and they either request the money back or refuse to loan you anything more when you have counted on their assistance. Can also cause tension.
What will a counselor help you with?
Will help you weigh your other financial options, the costs and benefits of a reverse mortgage, its impact on your eligibility for federal and state benefits, and how the reverse mortgage affects others in the household and your heirs.
Is the borrower on a reverse mortgage still the owner of the home?
Yes, although, the lender will be permitted to foreclose if the loan is not paid off within a period of time after the borrower's death.
Are most reverse mortgages insured
Yes, by the Federal Housing Administration (FHA) under its Home Equity Conversion Mortgage (HECM).
Is there a limit on how much you can borrow on your home with a reverse mortgage?
Yes, called the "principal limit". The principal limit will be higher the older you are, the higher the value of your home (after subtracting current mortgage balances), and the lower current interest rates are. If you are married or own the home with someone else, the principal limit is based on the younger of the two of you.
Should you add your spouse or partner as a co-borrower on the reverse mortgage?
Yes. As co-borrower, your spouse or partner will be able to live in the home even if you no longer live there, such as if you have to move to a nursing facility. If you pass away, the co-borrower will be able to draw funds from an available line of credit (if the reverse mortgage is structured that way) as long as they remain in the house
Someone else incurred the debt or you are only an authorized user
You are only liable for your debts and not someone else's unless you are a co-signer. This means you aren't liable if someone forged your name or used your credit card without your authority. You aren't liable if you are only an authorized user on someone's credit card. You aren't liable for the debts of a family member that has passed away.
What happens when you change your mind about taking out a new mortgage loan?
You can always back out of mortgage before the papers are signed. Except for the original mortgage to purchase your home, federal law gives you the right to cancel your mortgage loan for any reason for three business days from the date you sign the papers.
What should you do if you reach an informal agreement to settle the whole case with the collector?
You should still file an appearance and answer. Collectors have been known to proceed with a case and take a default judgement despite having reached an agreement with you. An agreement should be in writing and include a statement that the collector will drop its lawsuit
How does continued non-payment affect your credit score?
You shouldn't respond to debt collector pressures by paying overdue low priority debts ahead of high priority ones just because of these concerns
What will happen if you don't respond to the lawsuit properly?
You will lose. If you do respond properly within time deadlines and raise reasonable defenses, you have a good change of winning or of the creditor dropping the lawsuit.
What happens when you are absent for your home for the majority of the year?
Your loan comes due and the lender may foreclose. If it is health related, you have a full year to be absent before foreclosure can begin.
Your appeal rights
if you lose the case, the court will issue a judgement against you, and this judgment may allow the collector to seize your money and other property. If you lose a lawsuit at the first court level, you can appeal to a higher level. Usually an appeals court will review the case only on the facts presented in the court below it.
