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FINANCE

Are you worried about your mortgage, or facing foreclosure?

real stories. real advice.
Starting over after losing your home?
Buying a home or looking to refinance, and just don’t know where to start? JASON
BIRO

In Saving Your American Dream, industry veteran Jason Biro

S a v i n g Yo u r A m e r i c a n D r e a m
shows you step-by-step how to make it through these tough economic
times—without sacrificing the American dream of homeownership.

Find Out:
S a v i n g Yo u r
A me r i c a n
• What happened during the housing and lending crash, and what it means for you
• How to prevent foreclosure (even if it’s already in progress), and how to recover
financially if you can’t
• How lending works, what lending and mortgage terms really mean—and what
you can do right now to increase your chances of qualifying for an affordable loan
• How you can protect yourself from predatory lending and real estate scams
• How to improve and manage your credit, your finances, and your future

A Campaign to Help
Saving Your American Dream is also part of a campaign to help struggling home-
owners and former homeowners just like you. Use the unique code included with this
book for special access to up-to-date, expanded resources, financial tools, the Saving
Your American Dream online community, and much more.

With this book, you could also get the help you need to save your American dream.
How? Register online or use the form in this book to tell Jason your story. You could
receive direct financial assistance and one-on-one advice to help with your mort-
gage payments, to prevent or stop foreclosure, or to get back into a home of your own
once again.
To learn more, visit SavingYourAmericanDream.com
How to Secure a Safe Mortgage, Protect Your Home,
and Improve Your Financial Future

Trade Paperback • • •
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$19.50 CAN

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 S a v i n g Yo u r
American
How to Secure a Safe Mortgage,
Protect Your Home,
and Improve Your Financial Future

JASON BIRO

BENBELLA BOOKS, INC.

Dallas, Texas
Copyright © 2009 by Jason Biro and Carolyn Rodi

All rights reserved. No part of this book may be used or reproduced in any manner
whatsoever without written permission except in the case of brief quotations embodied
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While the publisher and author have used their best efforts in preparing this book, they
make no representations or warranties with respect to the accuracy or completeness
of the contents of this book and specifically disclaim any implied warranties of
merchantability or fitness for a particular purpose. The advice and strategies contained
herein may not be suitable for your situation. You should consult with a professional
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A campaign to restore hope . . .
one home at a time
 Contents

Acknowledgments VII
Introduction 1

PA R T I S E C U R I N G A SA F E M O R TG AG E 7
Chapter 1 Then and Now: 9
Why the Real Estate and Lending Industries
Collapsed … and What We All Can Learn

Chapter 2 Looking to the Future: 43

The New Realities in Lending

Chapter 3 The Lending Food Chain: 61

The Main Players Behind Every Loan

Chapter 4 Loan Specific: 83

Inside the Programs and the Process

Chapter 5 Broker or Consultant: 143

What to Expect from Your Mortgage
Professional and the Right Questions to Ask
to Find a Consultant for Life

PA R T I I P R OT E C T I N G YO U R H O M E 1 73
Chapter 6 Your Suit of Armor: 175
Your Best Defense Against Predatory Lending,
Real Estate Scams, and Rescue Schemes

V
Chapter 7 Default and Foreclosure: 221
Part I: Before Foreclosure
The Calm Before the Storm
Part II: Foreclosure
The Eye of the Storm

Chapter 8 Starting Over: 271

A Three-Step Plan for Recovery

PA R T I I I I M P R OV I N G YO U R F I N A N C I A L F U T U R E 291

Chapter 9 Your Credit: 293

Why Your Credit Is More Important
Now Than Ever

Chapter 10 The Bigger Costs of Living: 327

Taxes, Insurance, and Everything in Between
How to Make the Most of What You Can’t Change,
and How to Change What You Can

Chapter 11 Our Campaign: 361

A New Beginning

Appendix I Understanding Your Loan Documents 367

Appendix II Foreclosure Resources 391

Appendix III Planning Worksheets 403

Tell Us Your Story 411

Index 421
About the Author 431
 Acknowledgments

T
his book is the result of the efforts of so many. To my wife and
business partner Carolyn, who has the ability to creatively and
organizationally complete everything that’s been on our plate.
Over the years we’ve refined our strengths and weaknesses in order
to complement each other’s work. Our journey together with this
book is a testament not only to our partnership, but to our goal to
get out there and make a difference.
It’s been so important to have the complete support of our fami-
lies—and we’ve had it tenfold. To our family and part-time focus
group: my parents, John and Regina Biro, and Carolyn’s sister, Chris-
tine Walker, who has put in countless hours behind the scenes. We
also want to thank Christine’s husband, Brent, for supporting her total
involvement and many late nights working with us on our campaign.
To Julia Archer and G. Glen Friedman: thank you for working to-
gether with us as if this project were your own. We wouldn’t have
been able to do it without you. And to all of our friends, who haven’t
really seen us for a full year: thanks for not forgetting about us.
We’d also like to thank Glenn Yeffeth, our publisher; Leah Wil-
son, our editor; and the entire BenBella Books crew. You’ve allowed
us so much hands-on involvement and have overwhelmingly sup-
ported our needs in order to make this book a reality. You all have
been true partners throughout the process, and, for this, we can’t ex-
press our gratitude enough.

VII
 Introduction

T
his book is dedicated to you. But who are you?
You are one of the millions of homeowners who are struggling
to make their mortgage payments, month after month. You may
be one of millions more who are in the process of losing their homes,
and don’t know where to turn. You are the parent who has invested in
the American Dream of homeownership, and you want to protect
your family and your home. You are the couple who is buying a home
for the first time and are looking to make all the right choices, in-
cluding the right loan. Or you may be someone who wants to own a
home, but, in today’s economy, you just don’t know where to start.
Maybe you have already suffered through a foreclosure, have lost
your home, and would one day like to own again. Maybe you were a
victim of predatory lending, but never knew it. Or maybe you just
need some help in picking up the pieces.
You could be one of the many people who are simply perplexed
by home finance and anything to do with mortgages in general. You
could be anyone, really, who wants to protect their biggest invest-
ment and who wants to protect their finances overall.
You are a person who is ready to make some positive change in
your life. And you are ready to make a new start.
You, like so many other people, are someone who needs help with
one of the most important parts of life: homeownership and financ-
ing the American Dream.

1
 2 SAVING YOUR AMERICAN DREAM

Since 1996, I have helped over 2,000 individuals and families ful-
fill the dream of owning a home. As both a mortgage consultant and
partner of my own mortgage firm, I’ve helped homeowners of all
kinds not only to secure financing, but also to make some sense of
the confusing home finance process.
Throughout my career, I’ve also managed and worked side-by-
side with over 100 mortgage consultants and brokers. I’ve heard their
stories and have seen what their clients have experienced. And I’ve
often had to step in to make things right. It’s pretty fair to say that I
have been confronted with every type of transaction and situation
imaginable. I’ve also realized one important fact: the majority of peo-
ple are downright afraid of financing.
When asked about buying a home, mortgages, or lending, most
people seem to have a basic knowledge of the subject, but also have a
horror story or two. Or three. Maybe it was their own experience with
a broker or bank (or maybe it was a story about their sister, their
friend, or their neighbor) but at the end of the day, most people are
very reluctant to trust anyone in the business of mortgage finance.
It’s my goal to change that perception and ease that fear.
Over the past two years, as the lending markets collapsed and the
economy has declined, I’ve spent time and resources to help people
stay in their homes, manage their debt, and make a plan for the future.
I am out there, working one-on-one with people just like you. I’ve
seen the effects of the housing bubble firsthand; I see what’s out there,
and it’s not pretty. I know what you are faced with, and have written
this book and dedicated my time and effort to making a difference
for you.
Why am I doing this? Well, that’s a good question.

Belief and Purpose

It’s so important to wholeheartedly believe in what you are doing, and
I share this sense of purpose with my wife Carolyn. Our personal mis-
sion for Saving Your American Dream began in 2007, when the crisis
in real estate and home finance was becoming transparent, and it hit
 INTRODUCTION 3

us very close to home—literally. Right in our own neighborhood, we

saw the desperation and despair a family was faced with from losing
a job, their home, and their security, and it was too much for us to
take. Around this same time, I started to get calls from people by the
dozens weekly, all looking for advice: What’s going on with the mar-
kets? My mortgage? My home?
So many individuals in real estate, lending, and home building all
contributed to this giant mess and then bailed out, leaving home-
owners behind. As a professional, I felt I needed to share my knowl-
edge, think outside the box, and contribute in any way I could. My
wife and I decided to focus on how we could take our experience and
professional strengths and utilize them to help other families and ed-
ucate anyone who wished to learn. But we also wanted to provide as-
sistance and resources in a way that would impact as many people as
possible. And that was how this book, and our campaign, was born.
After months of intensive research, planning, and focus, we began
to realize our collaboration would result in something so meaningful,
educational, and positive that we had only one choice . . . Full steam
ahead!

What’s so Special About Saving Your American Dream?

Saving Your American Dream is a part of a much bigger campaign, a
campaign to help anyone who’s been impacted by the housing and
lending crisis. It’s a philanthropic solution for some, and a life-chang-
ing event for others. While I don’t have all the answers, and I cer-
tainly don’t have a sweeping economic solution for the entire country,
I do have many years of experience and sound common sense that I
can share with you. I am also giving you a commitment that goes be-
yond the written word.
This book comes with my personal invitation to make a difference
in your life: I want you to tell me your story. Tell me about yourself,
your life, your home, and why you need help. I’ve established a na-
tional fund to provide direct financial assistance to many individuals
and families throughout the country who are in genuine need. And
 4 SAVING YOUR AMERICAN DREAM

just by reading and registering this book at my website, www.sav-

ingyouramericandream.com, you’ll have the opportunity to receive
this assistance. I’ll be helping readers with their mortgage payments,
providing advice and funding to help save homes from foreclosure,
and working with readers one-on-one to develop the tools and strate-
gies to one day own a home again. At the end of this book, you’ll find
a chapter devoted to giving you more information about the cam-
paign, including how you can register your book and get started right
away.
My website also provides other resources that can help you. With
this book, you’ll receive access to an entire online community: ex-
panded book content and updates, financial tools, special partner-
ships, and more. As the lending industry changes further, I’ll keep you
updated through the website. You can even log in online to ask me
questions, join in the discussion, network with others, share resources,
and maybe even help others yourself.

What Will You Be Able to Take Away from This Book?

• A sense that you are not alone. I’ve worked with and counseled many
people, and I’ve learned a lot from their lives and situations. By shar-
ing their stories with you, it’s easy to see just how common and stress-
ful issues in real estate and finance can be—and what lessons we can
learn from them. I’ve changed the names and a few of the places, but
the facts and advice remain true.

• A refresher on the basics. I’ll cover some basic principles from the
worlds of lending and real estate, and I’ll help you to see how you can
make these basics, from homeowners insurance to credit ratings, work
for you.

• An insider’s take on the finance industry. Many industry terms can be

pretty baffling and downright confusing, but they don’t have to be. In
each chapter, I’ll explain how the finance industry works as if I were
consulting with you one-on-one. Understanding how lending, mort-
 INTRODUCTION 5

gages, and finance work will help you to make better decisions, now
and in the future, regarding your home and your personal finances.

• Solid advice and explanations. Over the years I’ve had so many
clients ask about easy tips, but, honestly, I see a red flag anytime any-
one talks about a “hot tip.” Instead, I’ll provide solid advice with
sound explanations that will save you money and help you to protect
your home.

• Ways you can protect yourself. I’ll take some time to deconstruct
what happened in the mortgage, lending, and credit collapse, and how
things have changed. I’ll also talk about some of the perils in the in-
dustry, and, most important, I will outline a plan for how you can pro-
tect yourself from becoming a victim, and how you can protect your
home.

• Relevant studies and facts. As boring as they can sometimes seem,

studies and facts provide important insight. So I’ve taken the most
important facts and statistics and have compiled them for you here.
I’ll discuss why they are important and what you can learn from them.

• A plan of action. Information is great, but you have to know what

to do with it. I’ll provide you with the action steps you need to make
immediate changes, as well as long-term plans to guide you through
larger issues.

It Starts Now
I’ve dedicated this book to helping you. Now it’s your turn. Make the
commitment to yourself to read through the entire book. Sure, you
could skip to the end and miss all of the great stories, explanations, ad-
vice, and plans, but trust me, the end of the book will always be there.
Stay the course, read on, and take the time to really think about what
I am telling you and how it can help you. Start taking steps now to im-
prove your situation. I know for a fact you will find something valu-
 6 SAVING YOUR AMERICAN DREAM

able and helpful within these pages.

I know it’s not always easy to find a starting point. Let this book be
the starting point for you.
 11

Our Campaign
A New Beginning

S
o you’ve made it! You’ve reached the end of the book. But re-
ally, this book is just the beginning.
I hope that I’ve been able to help you to understand more
about the world of home finance, how you can protect yourself and
your home, and how to plan for your future. It’s been my goal to pro-
vide all the information you need in one place—and to provide in-
formation that would allow anyone to help themselves. Hopefully,
my personal stories and experiences have given you some insight;
maybe they’ve made my advice a little more interesting, and maybe
they’ve even reassured you that you are not alone. I have one last story
to share with you, and it’s a story that will help to explain my cam-
paign and my purpose for this book even more.
A few years ago, my wife and I watched a television show about a
group of lucky lottery winners. I have to admit, I am fascinated by
the lottery, and over the years, I’ve seen my share of shows on the lot-
tery and how its winners live the high life. I’ve also seen a few sensa-
tionalized programs on how other lottery winners haven’t been so

361
362 SAVING YOUR AMERICAN DREAM

lucky and have quickly squandered their millions.

But this program was different. Although most of the lottery win-
ners had won large jackpots ranging from $1 million up to $25 mil-
lion, they weren’t thinking only of themselves: they were all doing
something inherently good with the wealth they received. They do-
nated to charities, lived modestly, and helped in their local commu-
nities. For a full hour, the show focused not just on lottery winners,
but on lottery winners who were trying to make a difference. It was
inspiring.
At the end of the program was a story about a billionaire busi-
nessman from Japan who owned homes around the globe, including
several homes in Hawaii. The homes were beautiful, in exotic loca-
tions, and were lavish in every detail. But somewhere along the way,
this businessman realized that the homes were only empty structures
unless there was someone there to enjoy them. So he created an op-
portunity—what you might call a small lottery of his own. He offered
the use of several of his Hawaiian homes to local, lower-income fam-
ilies for a ten-year period, without the worry of a mortgage, taxes, or
insurance. This generous man was simply looking to make a differ-
ence, and to change a few people’s lives.
One of the families he helped was featured on the show. They
were overwhelmingly thankful and had plans to make the best of their
good fortune. Not only did they have a place to live, but they would
be able to save money over the following ten years, which would pro-
vide for a more secure future. The single gift of a home changed their
lives immediately and would also continue to benefit them in many
ways for years to come.
This program had a profound impact on me, and it has always re-
mained in the back of my mind. Sometimes, the biggest gift is in what
you can give to others.

A Campaign to Help: Tell Us Your Story

As my wife and I began our work on Saving Your American Dream in
2007, we felt we needed to find a way to make a similar impact as this
 OUR CAMPAIGN 363

Japanese businessman—to truly change someone’s life. At the same

time, we saw the urgent need around us and knew that we needed to
help as many people as possible. Our solution was to write this book
for you. By reading this book, we hope that we have provided you,
and many others, with a solid foundation to make positive decisions
regarding your home (or your future home) and your finances.
As you’ve read through the book, I’m sure you’ve noticed that I
often refer you to the reader’s section of my website, where you’ll find
expanded book content, resources, links, interactive worksheets, tem-
plates, case studies, and much more. I’ll also be using my website to
keep you informed. As the industry and our economy change day by
day, I’ll use my website and blog to explain what these changes mean,
how these changes may impact homeownership in general—and most
importantly, how they may impact you. If you haven’t been there al-
ready, you can log on at www.savingyouramericandream.com.
And although what I’ve provided on the website and in this book
is a way to help many, it’s not the end of the story. This book can help
you even more.
On the inside back cover, you’ll find a peel-off label that reveals
a unique access code. This code will allow you to register your book
online, where you will also be able to write to me directly for help. If
you don’t have online access, you can also use the form I’ve provided
at the back of the book. I want you to tell me your story: tell me about
you, your life, your home. Tell me how I can help you.
I’m certainly not a billionaire like the Japanese businessman
whose story inspired me, but I am a businessman who is willing to
take my knowledge and know-how and use it to give back to others.
Profits from this book, plus financial resources from various partner-
ships, sponsors, and endowments, make up a fund that is being used
to directly help readers who need it the most. In fact, just by pur-
chasing this book, you have helped to make a difference, either for
yourself or for someone else.
From the stories I receive, I’ll be selecting individuals and fami-
lies to help one-on-one. For some, I’ll help by making their mort-
gage payments for a while to provide some relief. For others, I’ll
 364 SAVING YOUR AMERICAN DREAM

provide the funding, advice, or action that’s needed to help prevent or

stop foreclosure. For others still, I’ll provide financial assistance and
planning to help with down payments, with rent, or with lease-to-
own purchases. The options for assistance are as unlimited as the sto-
ries I receive. I’ll personally read every story, and whether you are
struggling to pay your mortgage, have recently lost your job, or have
already lost your home, you’ll have the same opportunity to ask for as-
sistance. Even if you are managing to stay current on your mortgage,
I know you may still need some help. It doesn’t matter what your sit-
uation is, and it doesn’t matter where you live—but it does require a
long-term commitment from you.
For those I help, I’ll need to know that you are ready to make a
positive change in your own life, and that you are as committed to
helping yourself as I am to helping you. I’ll work with you to develop
a long-term plan for your finances, your home, and your future. I’ll
expect you to reach certain milestones, and to receive ongoing finan-
cial counseling and education. I believe in giving responsibly, and pro-
viding this assistance is just one of many ways you will be able to reach
your goals. Together, we can turn your life around. Just follow the
steps on my website or at the back of this book to submit your story.
Then tell your friends about it. Share this idea with others. Although
I can’t help everyone, my goal is to help as many people as possible.
And with your help to get the word out, we can make that happen.
The concept behind our campaign is simple: the more people who
read our book, the more people we can help.
As more people register online and our online community grows,
we can make even more of an impact. You’ll have access to other fi-
nancial aid, legal help, counselors, and non-profit organizations who
all can provide immediate assistance. You’ll be able to talk to others
in your own area through community message boards, or join the dis-
cussion on my blog. And maybe together, we can all help each other
out.
In the end, it all comes down to making a difference. Both writ-
ing this book and developing our campaign has been a long and in-
tensive process. My wife and I have both worked hard, knowing that
 OUR CAMPAIGN 365

if we could use our talents for the greater good, our efforts would be
worth it.
If we can make a difference for even one person, we are richer for
it. That’s our goal for this book—and for saving your American
dream.
300 SAVING YOUR AMERICAN DREAM

ORE INF O
Who’s Allowed to Access Your Credit Report?
M

With so much personal and private information on

your credit report, knowing who has access to this in-
formation is very important. Only those who have your direct
permission to run your credit, or those who have a valid busi-
ness reason to review your credit, are permitted to access your
credit file. If someone has checked your credit without your
knowledge or without good reason, they are in violation of the
Fair Credit Reporting Act, which could result in a year in prison
and a fine of up to $5,000—payable to you—which should be
a great incentive for you to check your credit inquiries often.
Legitimate credit inquiries include:

• Lenders and mortgage professionals

• Businesses where you have applied for credit
• Businesses that have already granted you credit
• Insurers who are writing a new policy or renewing a policy
• Potential or current landlords
• Potential or current employers
• Hospitals and health care providers
• Government agencies
• Inquiries governed by court order or subpoenas
• You, at your own request (in writing)

ployers all make decisions based on an individual’s credit score alone:

over 75 percent of mortgage lenders and over 90 percent of credit card
lenders use credit scores when making their final lending decisions,
which makes a credit score one small number with a lot of power.

How Credit Scores Are Determined

When most people talk about their credit score, they’re usually re-
ferring to their FICO score, a credit scoring model developed by the
 YOUR CREDIT 301

Fair Isaac Corporation. Developed in the 1950s, the FICO scoring

model has been used to rate millions of credit scores, and has proven
the test of time in accurately conveying a person’s credit history and
credit worthiness.
FICO credit scores can range from 300 to 850 possible points.
The higher the score, the better the credit. In the U.S., the average
credit score is between 580 to 650 points, and only 20 percent of
Americans have a credit score above 720. (If you are within this top
20 percent, give yourself a pat on the back and keep up the good
work—but keep reading.)
While a credit score is a simple number, how it is determined is
part of a much bigger and more complicated equation. Your credit
score is a direct product of everything contained within your credit
report. Statistical models, scoring tables, and various equations are all
used to translate this information into a score. And although all of
the information in your credit report contributes to your credit score,
some information is more important than others.

ACCOUNTS

NEW CREDIT 10%

35% PAYMENT HISTORY
10%

15%
CREDIT LENGTH

30%
DEBT

Figure 9.1: What Makes Up Your FICO Credit Score?

35% Your payment history: How often do you pay on time?

30% Your debt: What are your credit limits, how much debt
do you have, and how is your debt distributed?
15% Credit length: How long have you been using credit?
10% New credit: How many inquiries and new accounts
do you have?
10% Account type: What kinds of accounts do you have?
302 SAVING YOUR AMERICAN DREAM

In addition to the FICO scoring model, each of the three credit

repositories also uses its own statistical models and scoring systems to
process credit information. Think of a scoring model as a filter to
process information; with different filters, you’ll have different re-
sults. This is why, when a business or lender runs your credit, you’ll
often receive different—and often widely varying—credit scores.

REPOSITORY CREDIT SCORING MODEL

Equifax Beacon Score

Experian Fair Isaac Score
TransUnion Empirica Score

FICO, the Beacon Score, Fair Isaac Score, and Empirica Score
are the most recognized scoring models, but there are literally hun-
dreds of scoring models that are used in the credit industry. New scor-
ing models, industry-specific scoring models, and customized scoring
models are being developed all the time. Why the variety? Well, dif-
ferent scoring models are often used for different situations. For ex-
ample, one model may be used by auto financers, another by insurers,
and another by healthcare providers. And although these models may
be very useful to specific industries, it makes things very confusing
for consumers.
As a borrower, you could receive one credit score from your
lender, and a completely different score when you apply for a car loan.
And when you check your credit yourself, you’ll receive a different
credit score from each credit repository. One person could literally
have dozens of different credit scores, and it makes it very difficult to
know how good, or bad, your credit score really is.
For example, FICO’s scoring range is from 300 to 850 points. But
other scoring models range from 501 to 990 points. Saying you have
a 720 credit score may mean you have excellent credit, or it may mean
your credit is below-average, depending on the scoring model. That’s
a huge difference.
Every few years, this topic rears its ugly head within the credit
 YOUR CREDIT 303

industry, sparking discussion about a one-score system to prevent the

confusion that results from multiple scoring models. Currently, there
is an effort among the credit repositories to make the VantageScore
the final scoring system, but only time will tell if this change will hap-
pen. For now, to help consumers accurately gauge their credit score,
the repositories qualify their scores further. Your credit score may be
accompanied by a grade from A to F, the repository may show you a
percentile rank, or your credit may be shown on a scale from “bad” to
“great” or from “high risk” to “super prime.”
While I always recommend that you carefully review what is
listed in all three credit reports (I’ll explain how you can receive a free
copy of your reports later in this chapter), when it comes to your ac-
tual credit score, you’ll want to pay the most attention to the FICO
scoring model. FICO scores are used by lenders and most businesses,
and your FICO score will give you the best sense of your true credit
rating, and where you stand as a potential borrower.

ORE INF O
No Matter What the Repositories Say,
M

Stick with FICO

As you become more familiar with credit, you’ll notice
how the “big three” will each claim that their own scoring mod-
els (which are advertised on their websites) are now being used
by lenders instead of the FICO score. Is this true? No. Only the
FICO scoring model is used by mortgage lenders, and, currently,
out of the three repositories, only Equifax provides FICO scores to
consumers (for a fee). You can also pay to have your FICO scores
run online, which may run as much $15 to $20 per report.
The smarter idea is to get your FICO scores for free: If you
are currently applying for a loan, your mortgage consultant will
be able to supply you with a copy of your credit report that will
show your FICO score from all three repositories. And free is a
price that can’t be beat. If your consultant hasn’t provided you
with a copy of your credit report, be sure to ask.
 304 SAVING YOUR AMERICAN DREAM

Your Credit Score Through the Eyes of a Lender

When lenders review your credit, they’ll be looking at a customized
version of your credit report called a tri-merged credit report. This re-
port includes information from each of the three repositories, filtered
through the FICO credit scoring model. Since each repository col-
lects different information, a lender will receive three sets of infor-
mation, and three different FICO credit scores. Of these scores,
lenders will use the middle value, referred to as your middle score, as
your final credit score. (The lowest and highest scores are discarded.)
Here’s an example:

685/ 705/ 722

The lender uses 705 for the loan.

Why are the scores so different? It all goes back to the informa-
tion that’s used to calculate the score, and the fact that the three
repositories all gather different information.
Here’s a real-world example: Let’s say you opened a credit ac-
count with a furniture store and purchased a living room set on credit
for $1,500. A few months later, you were late in making one of your
payments. The furniture store reports this information to one repos-
itory, which now reports you have a late payment. The fact that you
have $1,500 in new debt, plus a late payment, collectively lowers your
credit score.
But since the furniture store only reports to one of the reposito-
ries (and not all three), the other two repositories have no idea that
you even made the purchase, let alone that you were late in making a
payment. According to these repositories, you don’t even have the ac-
count, so they’ll give you a higher credit score.
With all of the different information that the repositories could
collect, it’s easy to see how you could have very different credit scores.
You should always expect that your three FICO scores will vary, and
sometimes widely.
 YOUR CREDIT 305

How a Lender Grades Your Credit

Although the credit repositories will tell you if they think your credit
is good or bad, what matters most is how your lender views your
credit. Most lenders grade your credit as follows:

A score above 720 is considered Excellent

A score between 700 to 719 is considered Good
A score between 660 to 699 is Acceptable
A score between 620 to 659 is Low
A score between 580 to 619 is Poor
A score between 300 to 579 is Bad

If only one person is applying for a loan, a lender will use the in-
dividual’s middle credit score to determine what type of financing
they might qualify for. But if two people are applying jointly for a
loan, each person’s credit will be run independently, their middle
scores will be determined, and the lower of the two middle scores will
be used for the loan. This is an important fact to keep in mind when
you are shopping for a mortgage, because this lower credit score will
limit the loans you can qualify for—if you can even qualify for a loan
at all! Let’s take a look at a husband and wife’s credit. Here is how
their scores appear on the tri-merged credit report:

Husband’s Scores: 560/ 575/ 588

Wife’s Scores: 725/ 732/ 744
The lender uses 575 for the couple’s loan.

This couple’s 575 credit score is poor, and will be too low to qualify
for any type of affordable financing in today’s market. However, if the
wife could qualify for the loan on her own (based on her income, as-
sets, savings, and debt), with a 732 credit score the couple could eas-
ily receive very good financing.
 Index

80/20, 117–118 example of, 387–389

70/30, 117–118 Amount financed, 378
Annual credit report, 311
A Annual percentage rate (APR),
Acceleration clause, 225, 380 376–377
Adjustable rate mortgage (ARM): Application, 151
checklist for, 111, 133–134 1003 (ten-oh-three), 151
defined, 105 credit, 151–152
details, 105–111 final, 154
how rates are determined, Appreciation, 10, 116–117, 131
106–110, 154 Appraisal:
loan modifications, 53–54, 227 defined, 16
option ARM, 87, 126–132 fees, 159, 188, 370
predatory lending, 177, jumbo loans, 126
195–196 keeping your HELOC, 58
planning for, 404 lender review, 49–50, 100
reasons for, 110 mortgage insurance, 119
Adjustment period, 107–108 to lower taxes, 332, 336
Affordable financing, 52, 71–72, use by lenders, 94, 99–100
84, 138–142 www.zillow.com, 57
Alt-A, 84–85, 134–137 Appraiser:
defined, 134 artificial value, 16, 100
Alternative documentation, defined, 16
102, 135–137 government, 329–331
Amortization, 103–104 research, 214
defined, 103 ARM. See adjustable rate mortgage
Amortization schedule, 103–104 Artificial value, 39, 100

421
422 SAVING YOUR AMERICAN DREAM
defined, 15–16
Assets:
bankruptcy, 259–261
defined, 92
in alternative documentation,
135–136
in loan workouts, 231–232
Assessed value, 329–333
appeals, 330–332
challenging, 330–332
defined, 329–330
lowering, 332–333
Assigning a contract, 18–19,
216–218
Assigning your title, 209–210
defined, 210
Association of Independent
Consumer Credit
Counseling Agencies
(AICCCA), 280
Assumption, 381
Attorneys:
bankruptcy, 261–262
contract review, 25, 36, 289
foreclosure, 240, 252–253,
258, 269–270
hiring checklist, 252
real estate, 36–37, 207
title, 160, 162–163, 382
Auctions:
notice of, 262–264
process, 267–269
time frame by state, 398–401
Automated underwriting system
(AUS), 47, 152–153
Automatic stay of relief, 259
B escrow waiver, 24–25
Bait and switch, 192–199
lender switch, 194–195
Balloon loan, 112–113
disclosure of, 153, 379
modifying, 227
Balloon payment, 112–113
Bankruptcy, 258–262
builder bankruptcies, 35
Chapter 7, 259–260
Chapter 13, 260–262
defined, 258–259
impacts on credit, 297–298
qualifying for a loan, 97–98,
151
recovery, 271–286
Bankruptcy Reform Act, 259
Banks, 70–72
in lending food chain, 62
Beacon score, 302
see also credit score
Boom:
HELOCs, 55–58
history of, 10–17, 38–39, 43–44,
68, 76, 242–243
impacts from, 44–51, 68–69,
84–86, 118–119, 264, 331
Borrowers:
during the boom, 16
in lending food chain, 62
new borrower story, 308
Broker. See mortgage broker
Budgeting, 41–42, 347
creating a budget, 281–286
expense tracking worksheet, 406
for loan workouts, 237–238
for real estate taxes, 333–336
sample budget, 407–409
saving, 348–356
Builders:
during the boom, 16, 32
fees, 33–35
researching, 24, 36–37
Buyer’s market, 17

C Conventional loan, 51–52, 85,
Cash reserves, 46–47
defined, 93
Certificate of deposit (CD):
as an asset, 92
emergency fund, 285
reasons to use, 57, 131–132,
285, 340, 357
Chapter 7. See bankruptcy
Chapter 13. See bankruptcy
Charge-off, 312–313
Checkbook control, 345–348
Clear to close, 162
Closing:
checklist, 382–386
defined, 19
predatory tactics, 146, 194–199
what to do before, 200–201
what to expect, 162–163
Closing costs, 163, 368–374
Collateralized debt
obligations (CDOs):
defined, 14–15
global statistic, 17
Collateralized mortgage
obligations (CMOs):
defined, 14–15
global statistic, 17
Collections, 97, 261, 298–299
Collection agency, 97, 298
Combination loan, 117–121
consolidation of, 54
defined, 117
Community loans, 141–142
Condominium association, 37
questionnaire, 101–102
Conforming:
defined, 90–91
guidelines, 91–98, 125–126,
198, 274
Jumbo loans, 125–126
INDEX 423
89–98
defined, 90–91
guidelines, 91–98
Correspondent lender, 73, 148
Costs of Funds Index (COFI), 106
Creative financing, 84–87, 122–123
Credit:
100-word explanation, 277, 316
counseling, 277–280
creditworthiness, 294–295, 297
depth, 297
disputes, 313–316
foreclosure, 225–226, 245,
254, 258
free report, 311
history, 96–97, 273, 275
how lenders view, 304–305
inquiries, 152, 299, 323
public records, 297–298, 312
rebuilding, 272–280, 310–324
repair, 257, 277–279
Credit agency. See credit repository
Credit bureau. See credit repository
Credit Repair Organizations Act
(CROA), 279
Credit report, 151–152, 295–300,
370
cost, 188, 311, 370
Credit repository, 225–226,
304, 311
defined, 151, 294–295
Credit score, 295, 299–305
Beacon, 302
breakdown, 301
defined, 96, 272, 299–303
Empirica, 302
FICO (Fair Isaac), 300–305
lender requirements, 96, 152,
305–306
missed payments, 225–226,
 424 SAVING YOUR AMERICAN DREAM
245, 254
Credit union, 62, 70, 357
D
Debt, 40–41, 93–95, 356–357
bankruptcy 259–261
Debt to income (DTI), 93–94,
135–136
worksheet, 95
Declarations page, 343
Declining market adjustment,
50–51, 99–100
Deed, 215, 256
defined, 208
Deed in lieu of foreclosure,
256–258
credit after, 274–275
Deed of trust, 208, 215–216
by state, 398–400
Demand feature, 379–380
on TIL disclosure 377
Default, 225, 244
Defense Readiness Condition
(DEFCON):
foreclosure, 223–224
Deferred interest, 127–132
defined, 129
Deferred payments, 54–55,
128–129
Deferred-interest loans, 126–132
Deficiency judgment, 268
by state, 398–401
Department of Banking and
Finance, 169–170, 206
Disclosure, 200–201, 204
Discount points, 156–158,
182–183
loan discount on GFE, 370
Discount rate, 63–64
Documentation, 158–159
see also alternative documentation
Down payment, 44–47, 83–84
lender requirements, 92–93
Due-on-sale clause, 380
E
Emergency fund, 285–286,
356–357
Empirica. See credit score
Equity, 40, 257
defined, 9–10
Equal Credit Opportunity Act, 57
Equity stripping, 209–212
Equifax, 295, 302–303, 311
see also credit repository
Escrow account:
hazard insurance, 161–162,
340–341
real estate taxes, 161–162,
336–337
Escrowing, 226, 336–340, 405
defined, 162, 336–337
homeowners insurance reserves,
343, 374
tax reserves, 337–339, 374
when purchasing, 337–338
when refinancing, 338–339
Escrow waiver, 24–25
Eviction, 268–269
renter’s, 213–216
Exotic loan, 14, 87–88
Experian, 295, 302–303, 311
see also credit repository
F
Fair Housing Act, 57
Fair Credit Reporting Act, 300
Fair Isaac score. See credit score
Fannie Mae (Federal National
Mortgage Association):
community loans, 141
defined, 51, 66–67, 84

guidelines, 89–98, 125–126,
273–274
in lending food chain, 62
looking forward, 51–52
Federal funds rate, 63–65
Federal Deposit Insurance
Corporation (FDIC), 357
The Federal Home Loan Bank, 84
The Federal Housing
Administration (FHA):
community loans, 141
defined, 52, 85, 138–140
foreclosure prevention, 248–249
in lending food chain, 62
looking forward, 51–52, 290
The Federal Reserve (The Fed),
152
Board of governors, 63, 207
defined, 63–65
in lending food chain, 62
The Federal Trade Commission
(FTC), 207, 216, 295, 311
FICO score. See credit score
The Financial Institution Fraud
Unit of the FBI, 207
First position loan, 56, 117
Fixed expenses, 283
worksheets, 406–409
Fixed rate loan, 103–104
Floating a rate, 154–155
Flood certification, 374
Flipping, 17–19
Freddie Mac (Federal Home Loan
Mortgage Corporation):
community loans, 141
defined, 51, 67
guidelines, 89–98, 125–126,
273–274
in lending food chain, 62
looking forward, 51–52
Forbearance agreement, 234–235
INDEX 425
Forbearance plan, 234–235
Foreclosure, 215, 221–224,
248–250, 333
lender’s view, 97–98
prevention, 239–241, 265
procedures by state, 398–400
recovery, 271–273
Foreclosure sale, 263–264
G
Good Faith Estimate (GFE):
defined, 77–80, 368
disclosure, 78, 153, 191,
200–201, 375
examples, 191, 369
Government recording, 373, 385
Government-sponsored
enterprise (GSE), 51, 66–67
Government-sponsored loan,
66–67, 71–72
defined, 72
Government-insured loan, 66–67,
71–72
defined, 72
Grace period, 224, 319
H
Hard money lender, 73
defined, 248
in lending food chain, 62
Hard money/equity loan, 248
Hardship, 232–233
Hardship letter, 232–233
how to write, 394–397
sample, 395–396
Hazard insurance. See homeowners
insurance
High-cost loan, 177–179
Home equity line of credit
(HELOC), 55–56, 203
Home equity loan, 55–56, 203
 426 SAVING YOUR AMERICAN DREAM
Homeowners association:
documents, 36–37
questionnaire, 101–102
Homeowners insurance, 100,
161–162, 340–341, 373–374
coverage, 342–343
defined, 161
flood insurance, 374
paying for in advance, 159, 373
Homeownership, 17, 84–86
loans that promote, 138–141
planning for, 286–288,
291–292
planning worksheet, 404–405
reasons for, 9–10
Homestead exemptions, 333
Hope Now Alliance, 240
HUD (U.S. Department of
Housing and Urban
Development), 240, 253
HUD-1 settlement statement,
78–80, 382–386
example, 383–384
Hybrid ARMS, 126
see also deferred-interest loans
I Liquidation bankruptcy, 259–260
Impound account. See escrow
account
Impulse purchase, 37–38
Index, 106–107
Indices, 106
Initial cap, 109
Initial consultation, 150–151
Initial interest rate, 108
Inflation, 30
Interest, 103–104
Interest-only loan:
3-year example, 114–116
10-year example, 116–117
defined, 113–114
option arm, 126–132
Interest rate, 75, 376
adjustable, 107
fixed, 103–104
role of Fed, 63–64
Interest rate caps, 109
J
Judicial foreclosure, 398
Jumbo loan, 85, 368
defined, 125–126
Junk fees, 371–372
L
Lease-purchase, 287–290
Lease-to-own, 287–290
Lenders:
during boom, 13–14, 43–44
Lending implosion, 14
Lender inspection fee, 370
Lender-placed insurance, 341–342,
344, 380
Letter of explanation. See hardship
letter
Lien, 23, 159–160, 337
Lifetime cap, 109
Lis pendens, 215, 400
by state, 398–401
defined, 246
Loan consolidation, 54
Loan discount. See discount points
Loan modification, 53–54, 235–236
Loan program, 74, 89–90, 152–153
modification of, 235
Loan to value (LTV):
combined (CLTV), 120
defined, 44–46
lender requirements, 94–95
Loan workout, 234
London Inter Bank Offered

Rate (Libor), 106
Loss mitigation department,
226–232
lender worksheet, 392–393
M No doc, 136
Making Home Affordable, 227,
249
Margin, 53–54, 64, 156
defined, 107
Market value, 329–330
Middle credit score, 304–305
Mortgage, 208, 215, 225, 264,
by state, 398–401
Mortgage banker, 72–73
Mortgage broker, 72–75, 148–150
broker/consultant, 164–169
credit checks, 149
defined, 72–73, 143–144
during boom, 15
finding a professional, 169–171
in lending food chain, 62
Mortgage broker fee, 190–191,
368–369
Mortgage–backed security (MBS),
67–68, 264–265
Mortgage Forgiveness Debt Relief
Act, 255
Mortgage fraud, 205–206
Mortgage insurance (MI), 139
cost of, 118
defined, 117–121
removing, 119
Mortgage servicer, 67–70, 229
N Periodic cap, 109
National Association of Home
Builders (NAHB), 24
National Association of Mortgage
Brokers (NAMB), 169
National Foundation for Credit
INDEX 427
Counseling (NFCC), 280
Negative amortization, 129
Negative amortization cap, 129
Negative equity, 128–129
Neighborworks America, 240
Nonconforming, 122–137
costs of, 123–124
defined, 122–123
Nonexempt assets, 259–260
Non-judicial foreclosure, 398
Non-payment, 221
Notice of default (NOD),
244–246, 401
by state, 398–401
defined, 245
Notice of foreclosure (NOF),
262–264
by state, 398–401
sample, 263
Notice of hearing, 401
Notice of sale (NOS), 262–264,
by state, 398–401
O
Option ARM, 87, 126–132
Option fee, 288–289
Origination fee, 75–77, 368–370
defined, 76–77
Oversupply adjustment, 50–51
P
Par rate, 180–183
Past due, 225
Percentage point, 77
Pick-a-payment loans, 126–132
Planned unit development (PUD),
37, 101
Points, 77, 156–158
see also discount points
428 SAVING YOUR AMERICAN DREAM
Portfolio, 62, 70–71
Portfolio loan, 70–71
Pre-construction, 19–20
Pre-foreclosure, 224–226
Predatory lending, 175–192,
206, 219
defined, 177
fees, 187–192
lending fact, 76
where to get help, 207
Prepaid interest, 373
Prepayment penalty, 381
defined, 123–124
example, 125
shady practices, 196–198
when not allowed, 198
Primary residence, 333
Prime rate, 106
Principal, 103–104
Private mortgage insurance (PMI).
See mortgage insurance
Processing fee, 77, 370–371
Produce the note, 264–267
Program swapping, 195–196
Promissory note, 225, 264
defined, 208
Q Retail lending, 74–75
Quit claim deed, 208–209
R S
Rapid Credit Rescore, 316–318
Rate caps, 109
Rate locks, 154–156, 201
confirmations, 201
extension, 155–156
Rate sheet, 180–182
Reaffirmation agreement, 260
Real estate:
contract extension, 201–202
professionals, 15–16
sales contract, 24–25
Real Estate Procedures Act
(RESPA), 153–154, 207
Real estate property taxes,
161–162, 329–336
planning for, 333–336
reducing, 332–333
Re-amortization, 236
Re-amortization plan, 236
Retail lending divisions, 75
Recast, 113–114, 129
defined 113
Redemption period, 263
by state, 398–401
defined 267–268
Re-establishment of note, 266
Refinance, 94–95, 202–203, 336
foreclosure prevention, 247–248
reasons to, 89, 179–180
worksheet, 181
Reinstatement plan, 236–237
Rent premium, 288–289
Rent to own, 287–290
Reorganization bankruptcy,
260–261
Repayment plan, 236, 251, 261
Reset, 107–108
Right of rescission, 36–37, 203
Savings and loan association, 70,
357
in lending food chain, 62
Saving Your American Dream
campaign, 3–4, 271, 361–365
Score improvement analysis,
316–318
Scoring model, 300–303, 313,
320–321, 322–323
defined, 302

see also credit
Secondary market, 62, 66–70
defined, 67–68
history, 68
Second mortgage, 55–56
Second position loan, 117
Seller’s market, 17
Servicer, 67–70, 229
Servicing agreement, 154
Settlement statement, 382–386
see also HUD-1 settlement
statement
Sheriff’s sale, 264
Short sale, 254–256
credit after, 274–275
SISA (Stated Income/Stated
Assets), 136
SIVA (Stated Income/Verified
Assets), 135
Slow pay, 319
Social services, 358
Specialty loan, 141–142
Stated loan, 46, 135–136
Straw buyer/borrower, 211–212
Subprime, 13, 122–123
defined 134–135
Subprime lending, 84–85, 134–137
T U.S. Department of Justice, 280
T-note, 64–65
Tax assessor, 214, 329–331
Tax collector, 214
Tax lien, 337
Tax service fee, 370
Teaser rate, 108
Term, 53, 104
Title:
charges, 372, 385
defined, 159, 208
details, 385
insurance, 160–161, 372
INDEX 429
reissue, 161
search, 159–160, 372
Transunion, 295, 302–303, 311
Treasuries, 64–65
Treasury bills, 106
Treasury securities, 64–65
Tri-merged credit report, 151–152,
how lenders use, 305
Trustee, 259–261, 398
Trustee sale, 264
Truth in Lending Act (TILA), 203
Truth in Lending Disclosure
(TIL), 124–125, 153–154,
376–381
amount financed, 378
finance charge, 378
payment schedule, 379
sample, 377
total payments, 378–379
U
Underwriter, 74–75
defined, 47–49
fees, 371
Unimproved property, 334–335
Unimproved property tax rate,
334–335
Unimproved tax estimate, 335
U.S. Department of Veterans
Affairs (VA), 85, 207,
140–141
foreclosure prevention, 248–249
in lending food chain, 62
U.S. Department of Housing and
Urban Development (HUD),
78, 207, 240, 253
V
VA loans, 71, 85, 140–141
VantageScore, 303
 430 SAVING YOUR AMERICAN DREAM

Variable expenses, 283–284 Wholesale rate sheets, 180–183

worksheet, 406–409 example 182
Variable rate feature, 380
Verification of deposit (VOD), 102 Y
Verification of employment Yield, 64–65
(VOE), 91–92 Yield spread premium (YSP),
VISA (Verified Income/Stated 180–190, 196–197
Assets), 136 defined 75–77
on GFE, 79, 368–369, 371
W
Wall Street, 14–15, 62 Z
Warranty deed, 208 zillow.com, 57
Wholesale lending, 62, 73–75
 About the Author

With a career in real estate and lending that

spans more than fourteen years, Jason Biro
has helped more than 2,000 individuals and
families fulfill the dream of owning a home.
After years as a mortgage consultant and
partner of a residential lending firm, Jason
founded Saving Your American Dream as a
way to help local communities, and to pro-
vide counseling and assistance to those im-
pacted by the housing and lending crisis.

431
SYAD Paperback Cover for eBook:Layout 2 10/8/09 7:00 PM Page 1

FINANCE

Are you worried about your mortgage, or facing foreclosure?

real stories. real advice.
Starting over after losing your home?
Buying a home or looking to refinance, and just don’t know where to start? JASON
BIRO

In Saving Your American Dream, industry veteran Jason Biro

S a v i n g Yo u r A m e r i c a n D r e a m
shows you step-by-step how to make it through these tough economic
times—without sacrificing the American dream of homeownership.

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S a v i n g Yo u r
A me r i c a n
• What happened during the housing and lending crash, and what it means for you
• How to prevent foreclosure (even if it’s already in progress), and how to recover
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• How lending works, what lending and mortgage terms really mean—and what
you can do right now to increase your chances of qualifying for an affordable loan
• How you can protect yourself from predatory lending and real estate scams
• How to improve and manage your credit, your finances, and your future

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