My husband and I have been trying to refinance our home loan for well over six months now - reaching for that elusive 4.44 percent mortgage rate.  So far no luck.

Why?  Like many Americans today our loan is greater than the home is actually worth thanks to the great housing recession of 2007, 2008, 2009.  Will it stretch into 2010?  So far, yes.  Our credit score is pretty fantastic, but because we added a sunroom for $26,000 four years ago and did a refinance in 2006, the two liens on the property are for a greater amount than what the real estate is now worth to a tune of about $20,000.

As a result, we’re sitting for a few more years at the 6.5 percent interest rate.  What a tragic waste.

For us and for most of the rest of the country, the 4.44 percent interest rate is wasted according to CNN Money.

The fall in rates ostensibly means homeowners can lower their monthly loan payments by refinancing their existing loans. They’re certainly trying — the Mortgage Bankers Association reported last week that 78.1% of all mortgage applications fell under the refinance category, up from 58.7% in April.

But many of them are filling out all that paperwork only to get a rejection letter in response. The mortgage association does not quantify how many of those who apply for refinance actually get approved, but mortgage brokers say many homeowners are ineligible.

Yes, that’s us.  Just another middle class American tragedy.

As the values of houses have begun their slow climb out from under the depths of the the watery ocean in which they were swimming, so are borrowers getting out from underwater on their mortgages.  According to CNN Money, fewer borrowers are underwater on their mortgages than in the last quarter.  However, the article cautions that this is largely due to the fact that more people have already lost their homes to foreclosure.

Nevertheless, some of it is good news,

In some markets, residents were helped by improving home prices. As prices rise, it narrows the gap between what homeowners owe and what they could sell for. As a result, hard-hit metro areas such as Merced, Calif., and Orlando, Fla., recorded huge declines in the number of underwater borrowers. Merced was down to 40% while Orlando fell to 64.6%.

Prices have begun slowly creeping back up in many parts of the country.  Real estate experts are saying the recovery is expected to take at least two to five years in most parts of the nation, although some areas that were already suffering economically before the recession hit nationwide will likely take longer.

Flickr Creative Commons photo by Rain Rannu.

It should have been predicted a year ago - and perhaps it was.  With more people in foreclosure or facing short-sales to get out from under their house mortgage, credit scores across the country are sinking.

According to a report by FICO, Inc., more than 25 percent of Americans today have a credit score of 599 or less.  There have been increases in people whose scores are above 800, but the middle-of-the-road borrowers are fewer and farther between.

MSNBC reports on the lower scores,

It can take several months before payment missteps actually drive down a credit score. The Labor Department says about 26 million people are out of work or underemployed, and millions more face foreclosure, which alone can chop 150 points off an individual’s score. Once the damage is done, it could be years before this group can restore their scores, even if they had strong credit histories in the past.

How has your credit score been impacted in the last two years?

I read a really good article online today about paying off debt.  Logic states that you should pay off your higher interest rate debts first because in the long run, they’ll cost more.

Let’s say you have $400 to pay toward two credit cards.  One charges a 10 percent interest rate and the other charges 22 percent.  Naturally you would want to pay $200 each, but in the long run it would be smarter to pay off the higher interest rate card first.  Instead, I’d make the minimum payment to the 10 percent card and use the rest to pay down the principal of the other card.

However according to the article, sometimes the emotional satisfaction of paying off something that reminds you of a terrible time in your life is a better option.  For example, say someone was planning to get married and bought a $20,000 wedding gown, $5,000 for flowers (paid in advance), a deposit of $2000 for a church and reception area, etc.  Then the groom breaks up with the would-be bride - he left her for her best friend.  Yet the bride has accrued $27,000 on a new credit card just for the wedding.  Every single month as she makes her payment, she’s reminded of the two horrible people who very nearly ruined her entire life.  To get rid of that credit card (at a low interest rate of 8 percent) may be better for her psychologically than paying off another higher rate card.

From MSNBC.com, think about how freeing yourself from an emotional debt will help you in the long run,

… if the hatred you feel for a debt is keeping you up at night, feel free to attack it with abandon. It may not be costing you more than others financially, but sleep and peace are precious commodities too. In the end, says Crawford, any repayment approach can be effective, but “what really matters is staying motivated and seeing progress. Just find and plan and stick with it.”

Here, here.

Photo by Video4Net via flickr creative commons.

I just talked with one of my former clients who told me she is trying to get her Wells Fargo home loan modified. She has been very cooperative - a study in opposites from how the company has treated her.  She said the last round ended with her loan modification being denied because all of the paperwork she sent - every single page - hadn’t been signed and dated.  Never had they told her to do that.  She has finally hired attorneys to help her through the process because the company seems to be stalling in order to turn her down.  In the end, they will have a full year of every paycheck stub and bank statements.  Is that really necessary?

Meanwhile, the process has decimated her credit score.  She had a conversation with Equifax, though, and that representative told her that credit scores are tanking throughout the country by nearly everyone.  So good luck in getting a new loan, which seem to be highly desirable right now according to MSNBC,

For homeowners who qualify, it’s a good time to refinance. The average rate on a 30-year fixed rate mortgage dipped this week to the lowest rate of the year — 4.84 percent, down from 4.93 percent a week earlier. Homeowners who took out adjustable-rate loans at 4.5 percent in 2005 are now seeing their rates fall to 3 percent to 3.25 percent, McBride says. As a result, they have extra cash to spend.

I’d rather see the economy in a strong, steady recovery, frankly.

Only 34 percent of the American working population earn more than $65,000 in annual salary.  In fact, according to My Budget 360, only 17.8 percent of all U.S. households make more than $118,200 a year.  Only 2.67 percent make more than $200,000.  The median household income in the U.S. is $46,326.  That’s not much, folks, when you’re trying to make a house payment, car payment, paying utilities, credit cards, food, cable, insurance, and more.  Wonder why so many people have fallen behind on their mortgages?  Consider this from the site:

On average, the net pay for a household is $3215.37.

I ran the numbers for a state with no state income taxes, Texas.  A family at this level is only bringing in $3,215 a month.  The national median home price peaked around $200,000.  So let us assume this family purchased the median home:

5% down payment: $10,000
Mortgage 30-year fixed (6.5%): $1,200
Taxes and Insurance: $333
PITI:  $1,533

Right off the bat, this family is spending 47% of their net pay on a median priced home.  We didn’t even account for any pre-tax retirement account investing.

Renting really can be a better option for many!

Can you afford the little dog house or the big one?

Photo by cogdogblog via flickr creative commons.

For most folks, the idea of reading a credit report isn’t all that appealing and it’s made even less desirable through the steps you have to complete just to get your hands on it.

I signed up for a free credit report a few years ago and after jumping through several hoops, finally had the massive document ready to print.  I was deeply disappointed then to see that while all my credit pluses (and one or two minuses) were there, no score was to be found anywhere.  That’s where they get you… you get your report FREE but have to PAY for the score.  Ay yi yi…

The Federal Trade Commission offers some great advice on how you can obtain your credit report and credit score here, but here are the details that get to the heart of it:

To order, visit annualcreditreport.com, call 1-877-322-8228, or complete the Annual Credit Report Request Form and mail it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. The form is on the back of this brochure; or you can print it from ftc.gov/credit. Do not contact the three nationwide consumer reporting companies individually. They are providing free annual credit reports only through annualcreditreport.com, 1-877-322-8228, and Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281.

You are entitled to get a free report each year.  Beware of sites that try to charge you for them if you don’t cancel after a certain amount of time.  And remember, no one else can get it unless you give them permission (which many employers do, as well as anyone you want a loan from, e.g., credit card companies, car loans, etc.).

Trying to repay credit card debt can be devastating, especially when the debt amount is so high that you never get in front of it when making the minimum payments.

Growing up, I always heard you should have one credit card in case of emergency.  My parents were talking about having them if you were on a trip and your radiator went out, for example.  Unfortunately with the economy today, paying the power bill to keep the house full of kids warm during the winter has become the new emergency.

As a result, more and more people are suffocating under credit card debt and the relentless collection companies calling sometimes a dozen times a day to collect.  It’s no wonder that people keep it a secret and many people do, according to CNN Money.com,

Hidden debt is a common and insidious problem. “It’s a form of cheating so subtle you don’t even know you’re doing it,” said Bonnie Eaker Weil, a relationship expert and author of the book Financial Infidelity. “It’s a power struggle that can be more harmful to a relationship than adultery.”

I’ve reached the point in my own life that when I get an envelope in the mail promising me a silver, platinum or gold card with no interest payment for a year, I just put it in the shredder.  Sometimes enough is enough.

Photo by squeaky marmot via flickr creative commons.

When people lose their homes, the dark times in their lives can eventually be overcome.  By hard work, attention to bills, and saving when possible, a good credit score can be rebuilt.  However, what people are only now realizing is a bad credit score doesn’t just prevent you from buying a home.  Now low scores can prevent affordable purchases, dictate that you’ll live somewhere bad, and even stop you from getting a job.

Let’s say you need a car to get back and forth to work.  A low score doesn’t necessarily mean you CAN’T buy one, it means that you’ll pay out the nose on your higher interest rate.

A low credit score and foreclosure will also be found if you’re renting an apartment or house.  Savvy landlords check your payment history because they don’t want to become another statistic on your list of nonpayments.

What’s even worse - in my opinion - is that now employers check those scores, too.  MSNBC.com reports that bad credit can become a barrier to finding a job,

There are no hard numbers on how often poor credit reports thwart someone’s effort to find a new job. Many applicants will never know; employers aren’t required to explain why a candidate was turned down for a job.

But a recent survey by the Society of Human Resource Management found that many employers use credit checks to screen job candidates. Of the roughly 350 employers who responded, 60 percent said they checked credit histories for some or all job applicants. That’s up from 43 percent in 2004 and just 25 percent in 1998.

A friend of mine just lost out on a job because of her credit score.  She has worked for me in the past so I know from personal experience that she is smart, dedicated, and relentless in getting the job done.  I’m sorry she won’t have the chance to prove this to the other would-be employer.