The standard Settlement Statement, the HUD-1, just got a makeover this December.  The extra page is an extra burden on lenders to get the Good Faith Estimate right the first time.

Last week at the closing for our new house, we got a small bonus courtesy of the new requirements.  The expenses are broken down into three categories based on how closely the actual charges have to agree with those on the Good Faith Estimate:

• Charges that cannot increase at all - the loan origination charge, the cost of points for the chosen interest rate, adjusted origination charges, and transfer taxes
• Charges that cannot increase by more than 10% - government recording charges, appraisal fees, cost of credit reports, cost of tax services, cost of flood certification, and cost of pest inspection
• Charges that are allowed to change – initial escrow deposit, daily interest charges, homeowner’s insurance, title services, lender’s title insurance, owner’s title insurance, and home buyer’s warranty

In our case, the lender underestimated our transfer taxes by $41.85, so we got that as a credit at closing.  What kind of sucked for the lender was that they overestimated the cost of the credit report by $26.67, and overestimated the cost of the appraisal by $50.00, but couldn’t use either of these to offset the underestimate of the transfer taxes.

The new page of the HUD-1 was the result of a November, 2008, rule change to the Real Estate Settlement Procedures Act (RESPA), and went into effect at the beginning of 2010.  Though the little bonus at closing was nice, these extra regulations just slow the whole process down and mean extra costs for everyone in the long run.  The background research to get the better estimates is an additional cost.  Filling out the third page is an additional cost all the way up the chain.  The loan still goes through, I still end up owing lots of money, and the lender still has my first-born in escrow the whole time — in essence, the same kind of lender-borrower relationship that existed before — but it’s not as efficient as it was before.

For the meantime, though, lenders now have to pay for some of their bad guesses.

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I’ve been talking about some things related to the home purchase we’re doing now.  One of the conditions of purchasing our new home was ability to get financing.  Since I couldn’t buy with cash, I needed to apply for a mortgage.  What I couldn’t do was make the purchase contingent on the sale of my current home (the property we were interested in was a foreclosure), so I needed to be able to qualify for the new loan without settling my current mortgage.

This seemed to be a bit harder of a condition to meet since it would mean carrying a higher debt load.  I was a little concerned that I wouldn’t qualify, especially now that lenders weren’t writing loans for anyone who happened to have a pulse anymore.

Back before I knew what I could qualify for, I asked around over at Cash Commons to see what kind of mortgage qualification criteria lenders were using to determine a maximum loan amount.  Reduce Debt Faster gave an insightful answer which included things like:

• Housing expense ratio (ratio of principal, interest, taxes, and insurance to monthly gross income)
• Debt to income ratio (ratio of total debt service to monthly gross income)
• Credit score (now they’re looking for 750-ish for prime rates)
• Income level (the higher, the better)
• Job stability (the more, the better)
• Down payment (the more, the better)
• Loan-to-value ratio (the smaller, the better)

After I applied and got my pre-qualification letter, my jaw dropped at how much they approved me for. Now, I did have a great credit score (even better than FCN’s before it dropped) and the only debt I carried was my current mortgage.  The credit union used the 40% debt to income ratio to determine what they could lend me.  But what got me was that the 40% was based on gross income, not net income.  This would have allowed us to purchase nearly twice the house we were interested in.  If I was worried about qualifying, those worries were blown out of the water.

My take on it is that if you’re the right candidate for a loan then they’ll let you borrow up to your eyeballs — even today.  That doesn’t mean you have to, of course, and you shouldn’t.  Banks are happy to lend you as much as they can if they have excellent assurance that they’ll get paid back.  They’re not nearly as interested in what you have to do in the rest of your budget to make those payments back to them.  You’ll give up a lot of things before you give up your house.

So, it may be tougher to qualify for a mortgage today than it was a few years ago, but it is possible.

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I initiated a wire transfer today from an out-of-state credit union to my home credit union.  Because the amount of money was fairly significant, they called me up to verify a few things before they did the transfer.

After the woman gave her name and who she worked for, she asked for the passcode to my account to continue the transaction.

I almost told her, but stopped.  Since she called me, I asked, “Uhhh, can I call you back please?  I want to verify who I’m speaking with.”  She agreed without any problem, and gave me her name again, her phone number, and her extension.  I hung up, looked up the number on the credit union’s website, saw that it matched what she gave me, called her back, and finished the transaction.

Initially it surprised me that the credit union could conduct business over the phone in a way that wouldn’t even be remotely acceptable through e-mail.  (If you know when they can do this, let me know!) She started off by talking about my wire transfer, but aside from knowing her personally — I didn’t — how was I to know otherwise that she worked for who she said she worked for?  People who can spot a phishing e-mail a mile away might get taken in by a plausible-sounding phone call.

Here are a few steps to take if this kind of thing should happen to you:

• Don’t give your account information over the phone if you didn’t place the call. Again, you can’t verify the identity of someone who calls you the same way that they can verify who you are.
• Ask to call them back. They shouldn’t argue with you.  If they do, that’s a red flag.
• Ask to get some of their information. Like phone number, extension, name, etc.  They should understand.  If they don’t, that may be a red flag.
• Verify the information they give you. Don’t just call back the number they give you.  A scammer will just have you call him/her back.  If it’s a place you normally do business with, they should have a website with their phone number on it.
• When you call back, make sure everything matches up. For example, I got the direct extension from the person who called me, and it was indeed correct.  It should be.

Forewarned is forearmed!  Banks and credit unions verify their customers thoroughly before conducting business.  Don’t be shy about verifying them.

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This Huffington Post article puts a big spotlight on all of the money that credit card companies and banks are making by being the broker of donations to charities that support rescue and aid over in Haiti:

About 97 percent of these donations will actually make it to the designated organizations — but the other 3 percent will be skimmed off by banks and credit card companies to cover their “transaction costs.”  Thanks to this hidden fee, American banks and credit card companies are making huge profits — somewhere in the neighborhood of $250 million a year — off of people’s charitable donations, according to a Huffington Post analysis.

Oh, please.  Spare me.

First of all, $250 million per year isn’t that much.  This is only about one-half of one percent of the total processing fees collected from credit card transactions (if the number on TrueCostOfCredit.com is to be believed).  This does not include all of the other fees that can be collected from the consumer side, like late fees and interest fees.  So, calling $250 million “huge profits” is stretching it.

Next, these fees aren’t “hidden.”  They’re well-known to every merchant (and most charities) that accept payments by credit card.  If consumers don’t know about these fees, then it’s probably because it doesn’t affect them directly.  In fact, merchant account agreements typically forbid merchants from refusing credit card transactions or tacking on “service fees” for the transaction, as it is a cost to be borne by the merchant, not the consumer.  The consumer need not care about it.

Next, the only reason that people can put their donations to a particular charity on a credit card is because the charity agreed to accept donations by credit card.  Furthermore, the charities are very wise to do so: according to the article, Oxfam and Operation USA pull in over 85% of their donations by credit cards.  Some of those donations could have been paid by check, but some of them just wouldn’t have been made at all.  Additionally, just as people are likely to buy more if they have a credit card as opposed to cash or check, people are likely to donate more if they donate with a credit card.

Charities aren’t profit-seeking like businesses are, of course, but there is competition among charities for a finite pool of money from donors.  Anything that makes it easier for people to donate makes it easier to tap into that scarce resource, and if there are costs associated with doing that, well, that’s the way things work.

Why should credit card companies and banks be compelled to do all of this for free? If I make a donation of $100 and put it on my credit card, it carries exactly the same risk to the credit card company as if I had bought $100 worth of groceries.  The issuing bank paid my donation to the charity almost immediately, and now they’re left with collecting it from me, which I could choose to not pay (granted, at my own peril).  Yet, that’s exactly what was done:  the credit card companies have bowed to pressure and will waive transaction fees for donations to selected charities for a few months.

If businesses want to contribute to rescue, repair, and aid efforts, that’s great.  You rock!  But if not, hey, you’ve counted the cost, and it’s your business.  I don’t fault airlines for profiting from transporting aid workers to and from Haiti.  I don’t fault oil refiners for profiting from selling jet fuel to the airlines.  I don’t fault companies selling first-aid kits, blankets, water, whatever, to charities to distribute to those affected.  And I don’t fault credit card companies for charging charities to make the donation process smoother so all of this great rescue can happen more quickly, and probably on a grander scale, than without it.

This objection to merchant fee profits is just another day in the credit card provider witch hunt that got the CARD Act through in the name of protecting consumers.  This will actually hurt us all in the long run.  Now a few more tens of millions of dollars have been shamed away from the credit card providers at a moment of opportunity.

If these transaction costs bother you (they might) the solution is pretty easy:  Write a check, mail it in, and bear all of the transaction costs yourself.  (Which actually isn’t true either:  workers have to open your envelope, record the check, take it to the bank, etc.)  Or charge it to a credit card that’s currently waiving its fees for donations to your chosen charity.

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I did my best today to clear away the stuff that was on my desk.  (I can actually see the surface again!)

In the process I found a little pamphlet entitled “Teach Children About Money.”  It really is little — a single tri-fold piece of paper that’s smaller than a standard sheet of paper — but there’s quite a bit of information in there.  Then I found another one with the title “Back in the Black: Tools to Keep Your Checkbook on Track.”  Same size, lots of information.

I picked these up from my credit union in the place that people endorse their checks.

I’ve mentioned before that I’m my credit union’s supervisory committee, which is the group of volunteers that acts as oversight to the board of directors, takes care of the credit union’s audits, handles member complaints, and other things.  Over the years I’ve gotten to see a bit more of the credit union than most members get to see, and putting out these pamphlets is consistent with other observations I’ve had.  Local credit unions (and local banks, perhaps) do care about educating their members — right down to helping them balance their checkbook if they need it.

It may not be the only reason you’d move your money to a local bank, but it certainly doesn’t hurt.  Check to see what your credit union or bank has in the way of educational information the next time you make a deposit or withdrawal.

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Managing a checking account isn’t rocket science but it’s not basket weaving either.  (No offense meant to basket-weavers.  I tried to weave a basket in eighth grade art class and it ended up looking more like a Frisbee.)

But managing a checking account boils down to one key skill:

You have to know that the money is available before you make a payment or a withdrawal.

This can be illustrated in a number of ways:

• A deposit isn’t in your account until the bank says it is. Bank and credit union policies differ.  Some banks or credit unions will trust you until they can’t:  If you go to an ATM or a teller and deposit a $200 check, they may give you use of the money immediately.  Others may place a hold on the funds until the check clears.  The bottom line is that it’s up to you to know when you can use those funds, either by verifying your balance at the bank, or through a call-in service, or online.
• A withdrawal or a payment has left your account when the bank says it has. Checks clear a lot faster than they used to, and automated clearing house (ACH) withdrawals can happen very quickly.  It’s therefore wise to assume that there is no lag between when you make the payment and when it’s debited to your account.  For recurring debits like a mortgage payment, it’s best to earmark those as “debited” at least a few days in advance of the expected payment date.
• Relying on a linked savings account as a buffer will cost you. If you have a linked savings account, your bank will probably offer as a service the ability to dip in automatically to funds there if your checking account goes negative.  This saves bounced check fees and non-sufficient funds (NSF) fees, but banks charge for each transfer from savings.  This is the “slap on the wrist” charge.
• Relying on more extensive overdraft services will cost you more. This is essentially a loan from the bank that carries a per-transaction fee.  If your account goes negative, and you don’t have sufficient funds in a linked savings account to cover the charge and the fees, then if you’re opted in to this overdraft service, the bank will intervene, make the payment anyway, and charge you a larger fee for covering your six on that transaction.  This goes beyond slap on the wrist to spanking.
• There’s always the big guns:  non-sufficient funds fees and bounced-check fees. The savings-transfer fees and overdraft service fees mentioned above are less costly than NSF fees.  These are not only assessed by the bank, but by the merchant that you didn’t pay.  All because you didn’t know that the funds were unavailable when you wrote the check.
• Your “balance” may not be your actual balance. Some banks may include the amount of your overdraft service protection when you ask for your balance.  So, if you have $100 of protection through an overdraft service, and your actual funds are $500, then the balance might report as $600.  It’s still up to you to know that you really have only $500.
• Know what happens when you pay with a debit card at a gas pump. I don’t pay with debit at a gas pump, but I do know that stations put a hold on some amount above and beyond what you’ll actually pump, just to be sure that they’re paid.  Be sure you understand how this affects your balance, and for how long.
• Know the other rules of your account. Do you have a minimum balance?  A maximum number of transactions per month?  Teller fees?  Paper statement fees?  All of these and more can affect your balance.  Be sure you understand them.
• Do not expect the bank to hunt you down the second you go into the negative. It may take a few days for the notice to get to you.  This happened to me a few years ago.  My checking account got low, and the savings transfer kicked in on one transaction, along with a $5 fee.  By the time I got notice of the first fee (sent through the mail, not even at first class rates), I had already made three more transactions, at $5 apiece.  Of course, if I had kept more careful track of things, I wouldn’t have done it in the first place.  Nonetheless, it was $20 later before the bank brought it to my attention.

These are specifics, but if you always know your actual available funds before you make each and every payment, things will go fine.

Update: A special thank-you to Money Crasher for featuring this post as an Editor’s Pick in the Carnival of Personal Finance!

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No Credit Needed is taking his oldest daughter (ten years old) to open her first savings account.  He and his family have been free of consumer debt for over three and a half years now and this is a milestone in how he’s educating his children in wise money management.  Trips to the bank will be regular occurrences, and (hopefully) his daughter will become accustomed early to how this system works.

My daughter is four — “and a half,” as she likes to add — and we opened up a savings account before she could even say “money.”  We’ve put in the birthday checks that we didn’t spend on gifts for her in there, and she really doesn’t even know about it yet.  So, in a sense, she won’t get the experience of opening her “first” savings account, because we’ve already done that, but what’s hers is hers: it’s in her name now.

If you’ve been there, which route did you take?  Did you set up an account early, or did you wait until your kids “got it?”

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A fairly well-traveled post of mine, “Why PayPal makes it a chore to pay by credit card,” needs an update.

I bought some replacement batteries for our wireless phones off of eBay last night (how I can get two of them from Hong Kong, shipped, for under $6, I’ll never know) but when I logged into PayPal to pay, it was a little different.  It actually has been for a while, but I just noticed it.

I still had to change the payment type from “withdraw from my linked checking account” to “charge my credit card,” but the bother screen was gone. That’s the screen that asked me to “confirm” my choice of paying by credit card by clicking on a “yes” button when the “no” button was in boldface.  This time, after I selected  my credit card, it took me right back to the payment screen.

Even better would be to allow me to set my preference for paying by credit card, but regardless, what they’ve done is a change for the better.

Thanks PayPal!   AAAAA++++ Will Do Business Again!

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Experian still does credit scoring, but you aren’t allowed to see them anymore, and that’s got some people ticked off.  Experian alleges that its hand was forced a little bit by “unreasonable” demands from Fair Isaac Corporation (FICO) in contract talks, leading to its change in service.

I don’t see this as the beginning of a credit apocalypse. Sorry.  This is nothing more than businesses (Fair Issac Corporation and Experian) doing what’s best for their business, and for the time being they can’t work together.  It’s nothing more than that.  It’s certainly nothing to write Congress about.

The credit reporting agencies certainly do good business.  They provide a service to consumers and to banks: evaluating creditworthiness against a (mostly) fair set of rules such that banks and credit unions can use them as a key metric in their lending processes.

When credit reporting agencies began letting consumers peek at “their number” it created a clientele that not only wanted to know their number, but monitor it.  Manage it.  Rehabiliate it.  Obsess over it. The number became more important for some people than the habits that resulted in their number being what it was:  paying your bills on time, building up a history, and generally being, well, creditworthy.

Aside from outright mistakes in reporting, should anyone’s credit rating really be a surprise? Should they really be wondering why they’re paying 11% for a 30-year-fixed if they’ve missed a bunch of credit card payments and defaulted on their car loan?  If they are, then they’re more than a little naive.  Or if someone has never missed a payment or been late, should they be surpised that they have excellent credit?  I don’t think so.

The bottom line is that there are still two companies that will tell you your FICO score (TransUnion and Equifax) so if you really need to know your number, then you can get two decent ones.  Plus, you can go to AnnualCreditReport.com for your free credit file disclosure once a year.  Your credit file is not a secret.  You can see it, and you can report discrepancies on it.  That hasn’t changed.  If you are disapproved for a loan, and you really don’t have a clue why, then you can find out why.

Your credit doesn’t go down the tubes overnight, and it won’t come back overnight, either.  Each company has its own special sauce that it mixes in to arrive at your number, but the broad trends are, and will be, based on how faithfully you repay your debts.  Be concerned about that first and foremost.

(Thanks to Free Money Finance for including this post in the Carnival of Personal Finance!)

(One final note:  Even though, you can’t get Experian scores through MyFICO.com anymore, you still can get your TransUnion and Equifax FICO Scores/Reports from MyFICO.com.  Also, I’ve tracked down a 20% off coupon that works now: CPPSAVINGS.)

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Apparently Chase has taken some of the fun out of their balance transfer accounts.  Some of these low-APR accounts now have raised minimum payment requirements (from 2% of the balance to 5%) and raised monthly fees to $10 per month from nothing per month.

Would you be a little ticked if this happened to you?  I know I’d be ticked.

But it’s perfectly within Chase’s power to do this. It’s a business decision that makes a lot of sense for them.  The user agreement states clearly that they can change the terms, including APR, fees, default rate, and more, at any time, for any reason.  Chase saw an opportunity to get extra revenue from people who are already over a barrel, and who may have fewer options available to them than they did ever six months ago.

There are no guarantees that the rate you start with will stay that way, or that you will have no additional fees tacked on.  People who are so close to the bone that they cannot afford more than double the payments that they were making will see their APR skyrocket after they miss a payment.  This is what Chase and other credit card companies want:  to turn marginally profitable customers into really profitable ones.

Larry Winget, in his new book People Are Idiots And I Can Prove It!, goes so far as to say that people who are surprised when their APR goes through the roof when they miss a payment or are late are idiots.  “While the print is small, the rules and regulations are clearly laid out in black and white — all you have to do is read them,” he writes.

In any case, changes in terms and conditions for credit cards can happen, and they are happening.  A good debt reduction tip is to plan for changes to your credit card terms by dedicating part of your emergency fund to it.  Do this while trying to find a better deal elsewhere.

Look out for yourselves, because the credit card issuers are certainly looking out for themselves.

(Note:  This post was included in the Carnival of Personal Finance over at Taking Charge.  Thanks!)

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