What Happens When You Default on Your Student Loans? – Part 4/4

I ignored (didn’t pay) my student loan for years – many years. This was back in the old days (20 years ago) before the government was so efficient at collecting their (your) money. Nothing much happened.

OK, so one day years later, they found my bank account and froze it. Cost me a few hundred dollars. I’ll survive. And then, they started taking my income tax return money. Damn! That hurt. But Life goes on… Life is good, All is well!

But then one day, years later. Big Brother (your Uncle Sam) Returns!
I had learned not to keep too much money in the bank (didn’t have much anyway).
And I learned not to expect any money back from income taxes. I was OK with that.
But I was totally unprepared for what Big Brother did next. He blind sided me…
One day I go to cash my paycheck, and I noticed “Hey, my check is mighty small this week” What happened?

I look closely at my pay stub. The number of hours are correct… the rate is correct. Hey, what’s this…

Wage Attachment. 10% of the gross. 10% OF THE GROSS, not net.
10% of the freakin’ gross! Damn!

10% of the gross taken off the top. Before you get your check.

10% of the gross gone… Every Week…

No explanation, no one to complain to. No supervisor to override. Your money is gone.

10% GONE. It doesn’t matter that you were barely scrapping by in life every week, living paycheck to check.

Now you live with 10% less. Every week. It sucks!

PLUS, they still take your income tax refund. No wonder they call it a re fund because they are Re Funding their own pockets with your money.

There’s nothing you can do about it. So I learned to live on 10% less for many years.
One day I finally had the good fortune to get a better paying job. Better job, better pay and…
Best of all – the wage attachment stopped. Hurray!

Or so I thought… Life is good. Life goes on. I pay my bills.
Years later, on Friday the 13th, it happened. “Big Brother Returned Again”.
One miserable deja vu day the check was small. I check the pay stub. Number of hours are correct… the rate is correct…

There it was on the pay stub again… Wage attachment. 10% of the gross.
‘Son of a bitch’ found me again. Damn it, damn it, damn it!
You can’t win! You can’t hide!

Big Brother will find you. It might take weeks. It might take months. In my case it took many, many years… Decades!

But Big Brother will hunt you down and find you. You can’t hide forever! And guess what?
Big Brother has Increased the wage attachment withholdings to 15% of the gross.
How much does that hurt?

As an example, let’s say you were grossing $1,000 per week. You would pay about $350 in taxes leaving you with $650.

They will take 15% of the $1,000 which is $150 leaving you with only $500.
HALF of your paycheck is GONE!

You just took a $150 a week pay cut. And if you make less than $1,000 it hurts even more.
AND they still take your income tax return!

Trust me on this. You DON’T want this to happen to YOU! Pay your student loans on time.

A Loan on Half a House?

What if your client only owns half the house? And the other owner can’t sign – can you get them a loan?

Nancy was in just that bind. She inherited 1/2 of her aunt’s house – her brother inherited the other half. She needed to borrow money right away for repairs to the house– the problem was that her brother was in the middle of a nasty divorce, and couldn’t sign anything.

This is where a partial ownership loan, a loan secured by one part owner’s interest only, comes into play. (Partial ownership loans are also referred to as partial interest loans, or “partner loans.”) With a partial ownership loan, the lender makes a loan to one of the owners, secured only by their interest in the property. The other owners don’t sign anything, and the only collateral the lender has is the signing borrower’s partial interest in the property. Nancy was able to borrow against her share of the property, without needing the brother’s signature or being impacted by his problems. (This can also be useful in cases where the other owner simply refuses to sign.)

What if the lender forecloses and acquires the partial interest in the property? Do they become partners with the other property owner? Yes. That’s why it’s an unusual program. Partial interest loans are made on any undivided interest in real property, so it could be a one fourth interest, a one fifth interest, or even a smaller percentage of ownership. (Married persons cannot use this program to borrow against community property without the spouse’s signature.)

How can a lender do this? The underwriting criteria that regulates most capital sources like mortgage bankers, insured depository institutions, and credit unions would restrict them from making partial ownership loans. On a similar note, mortgage brokers who use private investor funds are restricted from placing their investor’s funds into these loans. Privately held portfolio lenders are the source for these. These lenders have and loan their own funds and must originate, service and hold the loans until they’re repaid in full.

The other challenge in this type of lending is title insurance. It’s often difficult or impossible to obtain traditional title insurance for these loans, so lenders sometimes have to “self insure,” meaning they handle title problems on their own.

While you won’t run across the need for this program every day, when you do, it can be a real lifesaver for your client. -Partial ownership loans often lead to another loan when matters relating to the other property owner(s) are settled. Sometimes loans are made to one part owner, only to have the other part owner contact the same broker to obtain their own loan against their interest in the property.

How else can partial ownership loans be used? How about investment or business partners who may own a share of a property and need to borrow when the other partners don’t? Another situation occurs when one of several heirs lives in the property and the other non-occupying heirs don’t want to encumber their share of the property to make improvements or upgrades. With a partial ownership loan, the occupying owner can borrow against their own share to obtain funds. There are other possible uses for this program – primarily, it’s a shift in thinking. Now, anytime you have a borrower who can’t get the other owners to sign, you have a new alternative to offer.

What should you watch out for in brokering partial ownership loans? First, be careful about placing clients into a partial interest loan with a balloon payment. Be sure they understand that when the balloon payment becomes due and payable, they may not be able to get another loan to cover the payoff.

Next- use your mortgage planning skills. Help your borrowers look at the big picture. For example, what are their long term plans for the property and how does the loan they’re considering impact those plans? Sometimes, just asking the right questions can guide the borrower to the best decision.

Partial ownership loans – yet another way to help your borrowers and provide solutions. Be sure you’re prepared to discuss these with your clients. There’s no question you’ll run into situations where they’ll be useful.

Joffrey Long provides mortgage lending and real estate advice and insight for home buyers, real estate investors and investors in mortgage loans. He’s a mortgage lender and real estate investor himself, and has been in the industry for 34 years. He’s also called upon to testify as an expert witness in mortgage related litigation matters.

Improving Your Auto Loan Interest Rate

The auto-lending business is no different than any other form of lending. It is, and always has been about risk. Therefore the loan rate you earn for a major purchase, such as an automobile, is a moving target. The rate you earn partly aligns with your credit score, and partly aligns to other factors, such as income, percentage of other debt, money down, etc. The more you know about how loan-rates are assigned, the better you will be able to equip yourself to earn the best rate when you are ready to purchase a vehicle.

Here’s how you go about getting the best interest rate possible: Put the lender in a position of low risk and you will get a low APR.

Here’s a tale of two brothers who go to a local dealership, each looking to buy a used car. Tom, with a high 715 Beacon score has his eye on a five year-old sedan that will allow him to park the Hemi pickup that never met a gas station it didn’t like. Tom has never missed a payment in his life and has paid off most loans early. Brother Mark, armed with a 640 score crosses his fingers and hopes he doesn’t get his head knocked off with a high interest rate as he tries to buy a one year-old sedan. Mark had some slow pays back in the day, and a couple of medical charges that were paid off just before being turned to collection. Other than that he had a history of paying his current truck off with minor hitches. Tom, the 715, is looking to finance his third vehicle. Both he and his wife have new vehicles-Tom being on both loans. Brother Mark, the 640 score, will be trading in his ten year-old truck (paid for). They both have a similar home mortgages, but 640 Mark has no current auto loans and makes $2000 more per month than Brother 715′s modest salary. Finally, 715 Tom buys the five year-old sedan with a 120% carry (indicating that the loaned amount is 20% past the “book” value of the vehicle), while Brother 640 Mark puts $2500 cash down along with the $3500 trade-in value of his truck, giving him a total of $6000 down-which places his loan, 40% under book value.

Let’s compare: Tom has a high 715 Beacon score, but is asking for his 3rd auto loan. He brings nothing to the table in the way of cash down and needs to borrow 20% beyond the loan value of the vehicle. Finally, he is buying a 5 year old vehicle, which sends a red flag to lenders that there is a good chance he will be spending money on repairs. Brother Mark has a 640 score, but lays out $6000 on a one year-old, low mileage vehicle. His down payment places the loan request at 40 under what the banks deem his vehicle is worth at an auction. Who gets the better interest rate? Brother Mark…take it to the bank.

The lowest credit score I have personally seen, in all my car-selling years, was a deal we not only “got done”, it was a deal in which the buyer received a low interest rate. The main reason was that he purchased his used pickup with a very large down payment, so that the amount the lender loaned was considerably under book value. (He also made a decent wage and had a stable time of residence. If you’re a lender, where’s the risk? The buyer, in this case, could have skipped the next twenty payments while the repo guys chased him all over the country and the vehicle-when they found it-would still be worth more than what was owed.

Here’s some tips on keeping your interest rate low:

High Credit Scores: You think you are safe? Well, let’s suppose your grandpa to four of the sweetest college age kids you could imagine. You’re retired, so your income is fixed, and each kid, one-by-one comes to the well called Grandpa to get a co-signer for their auto loan. Grandpa never missed a payment in 40 years, but as the auto loans pile up, the rates get higher and higher because the exposure to the car loans, when compared to Grandpa’s income, make the loans more and more risky to the lender.

If your score is high, keep a balance to your loans versus income. If you co-sign too many times it may impact your ability to get a good loan.

Middle Credit Scores:

(1) Beware of the dreaded “negative equity” (the vehicle you are trading in is worth less than what you owe)…especially if you are putting no money down.
(2) Consider a loan that is fewer months than you might otherwise have taken. (The average auto loan is around 60 months. Lower that, to say 48 months-assuming the loan is manageable-and the loan becomes more attractive to the lender because the risk just went down.
(3) Consider paying more for a newer vehicle. As mentioned in the Tom and Mark story, most lenders raise interest rates as vehicles get older-due to the likelihood of car payment money being siphoned off to car repair bills.

Low Credit Scores:

(1) Have a large down payment.
(2) If you are on the brink of moving or changing jobs, consider buying your vehicle first, while your loan application shows longer job and residence time. Length of job and residence show stability to a lender, which lowers their risk-and your interest rate.
(3) If you were considering paying cash for a vehicle, consider using that money for a large down payment. Then
(4) pay the vehicle off earlier than the contracted length of the loan. This will place you in a position to lower your interest rate down the road.
(5) Consider paying a reputable company to “clean up” your credit report. Taking off bogus bad marks, and settling minor (negative) hits, could place you in a position to either get a loan that you otherwise might not have earned, or could place you in a bracket that lowers the interest rate you might otherwise have earned.
(6) Consider a co-signer (with good credit). (This won’t always lower your interest rate-especially if your credit is torched, but it may be the difference between getting a loan and not getting one.

The Best Car Insurance Rates

If your car insurance is due for renewal and you are considering buying another policy then this article will provide you with important facts that you should know about. Car insurance policies are getting increasingly expensive and you should do all that you can to reduce your costs. How much you have to pay for your car insurance is dictated by a variety of factors as they apply to you and your vehicle.

In this article we will examine coverage limits, your age, gender and marital status, your location and insuring other household members. All of these factors will have a great influence on how much you will have to pay for your policy.

Coverage limits are generally dictated by the price that you are willing to pay for your insurance. A higher level of coverage will generally result in higher premiums. The best way to find a good value policy is to comparison shop. Nowadays it is generally accepted that the best way to do this is by using a car insurance comparison website.

Your age, gender and marital status will have a great effect on the auto insurance rates that you are offered. Insurers rate drivers using a variety of criteria, if you are a young single male driver you will usually have to pay higher rates. If you are a middle-aged female married driver then your rates will be lower. Insurers calculate the best car insurance rates for you by comparing levels of risk. Those groups which are statistically more likely to be involved in an accident have to pay correspondingly higher rates.

Location plays an important part in deciding how much your premiums will cost. Drivers who live in an urban environment will usually pay more than those from a rural area. This is because drivers who live in cities and heavily populated areas are more likely to be involved in an accident, or to have their car stolen or vandalized. Insurers generally offer better rates if you’re able to demonstrate that you keep your vehicle in a garage at night. You may also be able to improve the security arrangements of your automobile by fitting an alarm, immobilizer and steering wheel lock.

Insuring other household members will have an influence on the cost of your policy and the best car insurance rates that you offered. If you have teenage family members living with you and they are added to your policy, then your costs will increase. This may still work out cheaper than if your teenage driver were to have a separate policy in their own name.

In conclusion, there are a variety of different factors which can affect your ability to be offered the best insurance rates. Some of these are coverage limits, how old you are, whether you are male or female and whether you are married or single. Your rates will also be affected by the area where you live and whether other household members are included in your policy.