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The 5 Keys to Getting a Small Business Loan

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Image source: Images Money .

When your business needs money, going to your local bank and applying for a loan can be pretty stressful. Unlike mortgage loans, where banks have clear-cut standards for loan approval, a business loan is just as much art as it is science.

Whether your business needs cash to buy a new facility, new equipment, or simply to fund growth, these five concepts are the key to getting your loan approved.

1. Character
This may seem really obvious, but it’s more often than not the most critical factor in your loan approval. If the bank doesn’t think you have the character to pay back your loan, then they will not approve it. Plain and simple.

Banks assess character through a variety of methods. They’ll look at your personal credit history, and many times, they’ll review your business’ credit history. In some cases, banks will want to talk with your suppliers and other business partners, as well.

The point of all this background work is to learn how you’ve handled your obligations in the past. History tends to repeat itself. If you pay your bills on time and conduct business ethically, then you have nothing to worry about. That said, it’s still worth it to check your credit report at AnnualCreditReport.com to ensure it’s accurate.

2. Cash flow
Loans are repaid with cash. Not profits. Not growth. Not inventory. It takes cold, hard currency to pay your principal and interest. As such, banks care a whole lot about cash flow.

To banks, cash flow boils down to cash in versus cash out. That means it’s not only about your business’ sales, expenses, and profits, but also its inventory management, its account payables, and receivables.

If your business sells a lot of products at Christmas time, that means you’ll be spending lots of cash in the fall to build up your inventory to prepare for those seasonal sales. Do you have the cash flow to make your payments in addition to all that investment in your inventory?

For both you, the business owner, and the bank, cash is king. If you want the loan approval, prove to the bank that you understand cash flow and that you’re business has the cash flow to repay the loan.

Image source: Images Money .

3. Capital — the back up plan
Banks are in the business of risk and, therefore, they will always want a back-up plan. That means that your business should have enough cash held on the balance sheet in case of a short-term hiccup in your cash flow.

Further, the bank will want your business to have a low to reasonable level of debt relative to the company’s capital. The higher the ratio of your debt to your net worth, the bigger the risk, and the less likely your loan gets approved.

Think of this like you would if you were applying for a mortgage loan. The bank wants to ensure you have sufficient cash and net worth to ensure you can make a down payment, and also have enough in reserves in case of a financial hardship.

If your business distributes its extra capital every year for tax purposes, the bank may require you to personally guarantee the loan. The key to understand is that having strong cash flow is, by itself, not enough. There needs to be a back-up plan.

4. Collateral
The bank will typically require collateral for the small business loan. Most often, the collateral will correspond to the purpose of the loan. If you are buying a new facility, expect the bank to require that property as collateral. The bank can require equipment, inventory, accounts receivable, or sometimes, even all the business’ assets as collateral.

Again, this requirement is very similar to the home mortgage process. The collateral is the back-up plan to the back-up plan. If your cash flow, cash, and net worth all are unable to repay the debt, you can always sell the collateral.

5. The terms of the loan
This may be the most overlooked consideration in determining if your loan is approved or denied. Of course, if you request a loan with a 0% interest rate and a 100-year term, that will be denied. However, there are other more subtle concepts that could prevent approval.

Let’s go back to our Christmas sales example from above. Let’s say you request a five-year loan with fixed monthly payments for the purpose of buying inventory solely for this year’s Christmas season. As proposed, that loan will be denied.

Image source; Images Money

Why? Because you should have the cash to pay the loan back as soon as Christmas is over this year. You’ve sold all that extra inventory. The loan terms need to match the loan’s purpose and, in this case, that purpose is very short term.

Let’s quickly run through another example. Let’s say you need to purchase a new delivery truck that you expect will work for five years. If you request a 15-year loan to pay back that debt, that loan would be denied. Why? Because after just five years, that loan would no longer have value to you, and you’d still have 10 more years before you paid off the debt.

Before you apply for your loan, ask a few local bankers for advice on the best way to structure your debt based on your needs. That will go a long way to making the bank happy, and also making your business stronger.

Banks want to make the loan — make it easy for them
Richard Fischer, President of the Dallas Federal Reserve Bank, spoke with the Wall Street Journal in 2009 on the origins of the credit bubble. He concluded by saying, “In the end there can be no substitute for good judgement.”

Small business lending is, without question, just as much art as it is science. Your chances of seeing your loan approved are far better when you understand that art and can position your company as credit worthy. ;It’s your job as the small business owner to make that judgement as easy as possible.

Take advantage of this little-known tax ;”loophole”
Recent tax increases ;have affected nearly every American taxpayer. But with the right planning, you can take steps to take control of your taxes and potentially even lower your tax bill. In our brand-new special report, ” The IRS Is Daring You to Make This Investment Now! ,” you’ll learn about the simple strategy ;to take advantage of a little-known IRS rule. Don’t miss out on ;advice that could help ;you cut taxes for decades to come. Click here ;to learn more.

The article The 5 Keys to Getting a Small Business Loan originally appeared on Fool.com.

Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

Copyright © 1995 – 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

[…]

How financial ombudsman is trying to stop payday loans spiral out of …

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‘It can take 15 minutes to get a loan, then current rules give lenders eight weeks to resolve the case,’ says chief ombudsman Caroline Wayman. Photograph: Dan Kitwood/Getty Images

On one side is a borrower who takes out a payday loan of £100, makes no attempt to repay it and does not answer the lender’s calls. On the other is the lender who not only nearly trebles the debt by adding £175 in default charges but also makes 128 unsuccessful attempts to collect the money directly from the borrower’s bank account, charging a fee every time. Within five months the amount owed has ballooned to £900.

Who is being fair and reasonable here? – the lender, the borrower, or neither of the above?

Such questions are now being handled by a team launched within the offices of the financial ombudsman eight weeks ago to deal with the rising tide of problems involving payday loans – and, crucially, settle them before they get out of hand.

Consumers unhappy with the way they have been treated by a financial firm are usually expected to exhaust the company’s complaints procedure before they can bring a formal case with the ombudsman, the arbiter of last resort. But the essence of payday lending is speed, and that means charges can rack up fast too.

The usual procedure of then giving the company eight weeks to respond means it can be three or four months before a case is settled. “It can take 15 minutes to get a payday loan, and then the current rules give lenders eight weeks to resolve the case. I think that looks pretty outdated,” said the chief ombudsman, Caroline Wayman.

It can also be problematic for borrowers who are having their bank accounts plundered while they await a result, particularly by unscrupulous credit brokers.

The ombudsman’s dedicated payday loan team of five responds to calls, emails and, as of two weeks ago, live web inquiries about short-term, high-cost loans, and takes complaints to lenders straight away in an effort to get an early resolution.

In the case of the £100 loan, where the borrower admits he “buried his head in the sand” for two years, the case has now been settled with the ombudsman’s help and with the borrower and lender both happy with a final repayment of just under £300. But that is still in excess of the charge cap of 100% of the original loan that has been proposed by the industry’s regulator, and a vital part of the team’s work is to look again at such cases to see whether the outcome was fair and reasonable and apply those lessons to future problems.

Last year, the ombudsman received 794 complaints about payday loans, a 46% increase on the previous year. But it believes this is just the tip of the iceberg and many consumers are suffering in silence, unaware of their rights or the fact that they could get help. “There are millions of people with payday loans, and we are getting hundreds rather than thousands of complaints,” said Wayman.

In cases like those discussed at the team’s weekly meetings, the ombudsman will attempt to negotiate a solution that both parties are happy with, without opening a formal case. Often, as soon as contact has been made with the lender or credit broker concerned, money that should not have been taken is refunded, or charges are reduced.

Sometimes it takes more effort: caseworkers trawl through terms and conditions and pages detailing customer’s accounts and argue against anything that is unfair or excessive.

The target time for settling problems is 14 days, and in the main the team has stuck to the deadline. In the first seven weeks it had dealt with 250 complaints, and Wayman said the feedback from consumers had been positive.

Listening in to a call from a consumer concerned that he might not get compensation due from Wonga because he has recently moved, it is obvious how expert members of the team are at extracting information from callers and reassuring them that their problems will be addressed.

Colin, who answers the call, used to work at the debt charity StepChange, and he responds kindly as the caller spills out the whole story unprompted, seemingly embarrassed to have taken on the loan in the first place. This is not uncommon, it seems, and is one of the reasons the ombudsman believes that it does not get many calls – that, and some lenders’ failure to tell people of their rights. “These businesses had obligations when they were lending money – the fact that you don’t have the paperwork doesn’t mean you don’t have a leg to stand on, it just means it may take longer to piece together,” Wayman said.

Wayman is unsure how long the team will continue to operate as it does, saying it will be reviewed in the coming weeks but also that lessons learned will be spread across the service. Other borrowers who have seen their debts snowball will surely be hoping that there continues to be someone there to help.

Figures from the ombudsman for the first half of the year show that it took on 191,129 new cases across all types of financial services. Although complaints about payment protection insurance (PPI) fell, driving down the headline figure, they still accounted for 70% of the total. Lloyds Banking Group was the most complained-about business, with 62,132 cases across its brands, although that was 27% down on the previous quarter. In two-thirds of Lloyds cases, the ombudsman found in favour of consumers, compared with 93% against MBNA, 78% against HSBC and just 12% against Nationwide building society.

Separate figures from StepChange showed it dealt with 43,716 clients with payday loan debts between January and June, compared with 30,762 a year previously. The average debt remained little changed, at £1,652 per client.

[…]

Bad Credit? No Problem. Here's How to Get a Home Loan

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Image Source: Images Money

You’ve found the house . You have the savings for a down payment and the cash flow in your budget to afford the payments. Everything is great, except for one thing: Your credit score is bad. Is this a death knell for your home purchase?

Maybe. But then again, maybe not. Here are the best strategies and tactics you can follow to overcome that credit score and buy the house in spite of it.

What is a bad credit score?
Generally speaking, credit scores break down as follows:

760+ Excellent 710-760 Good 650-709 Average 620-649 Below Average Below 620 Poor

There are tons of different reasons a credit score could fall; however, moving into that below average or poor range takes a pretty serious event like several missed payments, bankruptcies, foreclosures, or collection accounts. But don’t worry… life happens to even the best people, and a missed payment in the past is not the end of your home buying journey.

A bad credit score simply indicates to a bank that you’ve had trouble repaying debts in the past. To overcome that history, you must take extra steps to prove to the bank that history won’t repeat itself. To do this, you must think like a bank.

How to think like a bank
Banks care first and foremost about getting repaid. That means you must prove to the bank that the loan will be repaid. Remember, as we work through these concepts, you probably won’t have every “i” dotted and “t” crossed. That’s OK. At the end, we will bring it all together with a solution for the worst-case scenario.

Question 1 : How are you going to repay the loan?
Typically, the answer to this question is through your monthly cash flow. This is the income from your job after you subtract your living expenses like food, water, electricity, debt, etc. Banks use a ratio called the debt-to-income ratio to determine if your monthly cash flow is sufficient to afford the debt. The ratio is calculated by dividing your total monthly debt payments into your total monthly income (before taxes).

Image Source: Images Money .

For borrowers with good credit, a 40%-50% debt-to-income ratio is typically enough to qualify for the loan. For those with credit problems, this ratio needs to be much less.

Question 2 : If that doesn’t work out, what is the backup plan?
What happens if you lose your job? That could be the reason your credit score isn’t the best in the first place. The reality is that this can happen and, when it does, both bank and borrower feel the financial pressure. That’s why banks always look for a backup plan.

Do you have any savings or cash hidden under the mattress? Banks will want to see enough savings to cover your living expenses and debt payments for at least six months. The more savings, the better.

Image Source: Images Money

It gives the bank comfort that, if something goes wrong, you, your family, and the bank will all be financially stable until you can find another income source.

Question 3: What happens if your backup plan fails?
It may seem like overkill, but banks want a backup plan for the backup plan. When all else fails, the bank wants to make sure that if the house must be sold, the loan will be repaid. Unfortunately, this often means foreclosure.

To you, that means a bigger down payment. By putting in more of your money up front, it creates breathing room for the loan if it must be sold quickly. If a conventional mortgage requires a 20% down payment, try to put down 30%, 40%, or more.

You may be thinking, “Why should my family put in more money now just so the bank won’t lose money later?” Well, if you don’t do this, you most likely won’t get the loan. And if you accept the loan, you’re giving your word that you’ll repay the debt. As long as you pay the monthly payments as you’ve agreed to do, you have nothing to worry about.

Putting down a bigger down payment will benefit you by lowering the monthly payment, as well, making it less likely that you’ll ever be in the worst-case scenario in the first place. Even further, it gives you more leeway to sell the house yourself prior to foreclosure, saving your credit score from further damage in the future.

Again, the idea with all of these considerations is that, because your credit score is low, you need to prove beyond a shadow of a doubt that you can and will repay the loan.

The worst-case scenario
What if you’ve worked hard, saved up, dotted your “i’s” and crossed your “t’s,” but the bank still won’t approve your loan? You have the cash flow, the savings, and the down payment, but you still get declined for a conventional mortgage?

At this point, it’s time to look at subprime options. Subprime is a kind of dirty word in the post-financial crisis world; but that doesn’t mean it’s not a viable solution for many families.

Image Source: Images Money

With a subprime loan, the specialized banks and lenders mitigate the perceived risks of a loan by charging a substantially higher interest rate. They lower their lending standards so that you can get the money you need. The higher interest rate is, in essence, the bank charging more for lowering those standards.

The subprime loan will be much more expensive, but at least you’re able to get the financing you need to buy the home. Over time, as your credit score improves, you should be able to refinance that subprime loan into a conventional loan with a better rate.

Take advantage of this little-known tax ;”loophole”
Recent tax increases ;have affected nearly every American taxpayer. But with the right planning, you can take steps to take control of your taxes and potentially even lower your tax bill. In our brand-new special report, ” The IRS Is Daring You to Make This Investment Now! ,” you’ll learn about the simple strategy ;to take advantage of a little-known IRS rule. Don’t miss out on ;advice that could help ;you cut taxes for decades to come. Click here ;to learn more.

The article Bad Credit? No Problem. Here’s How to Get a Home Loan originally appeared on Fool.com.

Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

Copyright © 1995 – 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

[…]

Money talks: payday loan customers overpay and courts face surge …

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Payday loan customers overpay by £45m a year, according to the Competition and Markets Authority. Photograph: Dan Kitwood/Getty Images

Hello and welcome to this week’s Money Talks – a round-up of the week’s biggest stories and some things you may have missed

Money news

Vince Cable asks banks to reduce size of mortgages they offer

Payday loans: UK borrowers overpaying by more than £45m a year

Flight delay claims could soar after court ruling

Insurance premiums may be cut by plan to cap cost of courtesy cars

Energy firms under pressure to cut bills after sharp drop in wholesale costs

Tesco offers current account with no-gimmicks pledge

Rail season tickets for part-timers in the sidings

Blog

One in four 25-34-year-old men said they may take an unauthorised absence during the World Cup. Photograph: John Rensten/Getty Images

What’s the score on flexible working during the World Cup?

Consumer champions

Sky’s ‘supplement for not having Sky TV’ is the limit

Virgin Atlantic allowed me to buy tickets for flights it knew it was to scrap

In pictures

Ex-chapel in Totnes by the river Dart. Photograph: March and Petit

Home and away: riverside properties

In the spotlight

Kate and Alex Jefferson and their five-year-old son Isaac have swapped London’s Ealing for rural Nottinghamshire. Photograph: David Sillitoe for the Guardian

With house prices rising in the capital by £4,500 a week, we speak to the families who have swapped postage-sized properties for spacious homes in the countryside

Money deals

• The new M&S current account gives you one M&S Loyalty Scheme point for every £1 spent on your debit card in store or online, plus there is no monthly fee

Santander’s 123 current account offers up to 3% cashback on a variety of household bills including council tax, energy and mobile costs for £2 a month

Competition

Win a one-year Guardian and Observer tablet subscription with Guardian Money Deals. Enter by 21 July 2014 for your chance to win. Details and full terms and conditions can be found here

[…]

Payday Loans With Four-Digit Interest Get Thumbs-Up From Some …

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Payday loans function as the last resort for Americans in tough economic times to get a quick infusion of needed cash for overdue bills, sudden medical expenses — or even to buy a gift for a loved one on a birthday or anniversary. But payday loans, from lenders who generally operate out of no-frills storefronts in lower-income and poor neighborhoods, can create more far worse problems than they solve with massive interest rates that would make even the big credit card companies ashamed.

That is why payday loan companies are often referred to as “predatory lenders.” They prey on the desperation of hard-working people who still can’t make ends meet thanks to poor wages from low-paying jobs.

Now lawmakers in two states want to give predatory lenders even more liberty to charge debilitating interest rates to borrowers who often are out of options simply to keep the lights on.

Over the next decade, experts project that one of every four Americans will be stuck in a low-wage job, the kind that though it requires full-time hours, pays an hourly rate at or below the federal poverty level.

That’s where payday loans come in — taking advantage of people who need cash fast and have no other legal way to get it. Each year, about 12 million people take out payday loans according to one recent study.

A different study looked at why individuals take out payday loans. The number one reason, at 69 percent, was simply to pay regular bills. After that, in a distant second place with 16 percent, were people who take out payday loans to cover unexpected emergencies. Paying for special occasions was third, with only eight percent resorting to payday loans to pay for gifts, vacations, and so on.

In other words, seven out of 10 payday loan borrowers, or about 8.4 million Americans, resort to payday loans simply to make ends meet. And each one of those Americans will pay the payday loan company $520 in interest and other fees for every $375 he or she borrows — an effective interest rate of 1,387 percent.

While paying that much interest can be crippling for families with no other options than to take out payday loans, lawmakers in at least two states are pushing to allow those interest rates to soar even higher.

In Pennsylvania, which is one of 15 states that currently ban payday loan companies by capping interest rates at 24 percent, Republican legislators Chris Ross and Pat Browne have introduced a bill to lift that cap.

In Missouri, rates are now capped at 75 percent of the total loan — an effective annual interest rate of 1,950 percent for a two-week loan. Republican State Senator Mike Cunningham has introduced a bill to lift that limit — in a state where 2.34 million payday loans were issued in 2012.

On the other hand, in Alabama, several pieces of legislation from both Republicans an Democrats aim to place caps on payday loan interest rates at rates ranging from 30 percent to 36 percent annually.

But the lenders complain now that if rates are capped, they won’t make enough money.

“It would be virtually impossible for us to operate a storefront at that rate,” Buck Wilson, of Modern Financial Services — a group that represents the interest of payday loan companies in Alabama — said, warning that desperate borrowers would then be sent into the hands of illegal loan sharks, who are the main competition in the payday loans industry.

[Images: Shaun Wilkinson / Shutterstock and taberandrew via photopin cc]

[…]

Payday loans charter demands new rules for lenders | Money | The …

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A cash loans shop in London: campaigners said the rules did not go far enough and are calling for better affordability checks. Photograph: Dan Kitwood/Getty Images

Payday lenders are facing fresh calls for a regulatory crackdown with the launch of a campaign backed by MPs, debt campaigners and consumer groups on Tuesday.

Consumers are being urged to sign up to the Charter to Stop the Payday Loan Rip-Off, which demands that the government takes a stronger stance against the £2bn industry in shorter-term loans.

Lenders, which can charge annual interest rates in excess of 5,000%, will be regulated from April 2014 by the Financial Conduct Authority, which recently outlined new rules for the sector, including limiting the number of times a loan can be extended and how many attempts a lender can make to recover payments from a borrower’s bank account.

However, campaigners said the rules did not go far enough and are calling for better affordability checks, a crackdown on advertising which would include rules on when promotions could be shown, and real-time data from the industry so lenders can check if a borrower already has other loans. They also want to see restrictions on the total amount lenders can charge so that loans do not spiral out of control.

Paul Blomfield MP, who has been attempting to get a private member’s bill through parliament, said: “The FCA’s proposals for regulation are a step in the right direction, but they don’t go far enough. We want members of the public, MPs, councils and charities to back the Charter and join our call for tougher regulation and enforcement.

“If this ‘once in a generation’ opportunity is missed, payday lenders will be able to carry on exploiting people.”

The Charter has cross-party support and the backing of a number of debt charities, who have reported growing numbers of clients falling into difficulties with repayments.

Peter Tutton, head of policy at StepChange Debt Charity, said: “Over 30,000 people contacted us for help with payday loans in the first half of 2013, almost the same as for the whole of 2012. This is a dangerous market for financially vulnerable consumers and effective regulation is long overdue.”

[…]

Payday loans action: it makes sense to focus on the vulnerable …

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A man walks past a payday loan store and pawnbroker in Dalston, east London. Photograph: Dan Kitwood/Getty Images

Well done, the Financial Conduct Authority: its new regime for payday lenders may be an intelligent (albeit late) response to a complex problem.

The regulator has not sought to legislate the industry out of existence. That would be absurd since, bizarre as it may sound, there is clearly demand for expensive short-term loans from borrowers who can afford to repay and who prize convenience. Most of these creditworthy individuals would be better off with a credit card. But, if it’s a payday loan they want and they are aware of the dangers, it’s not the regulator’s job to tell consenting adults how to behave.

Instead, the FCA has tried to protect punters whom Wonga et el should not be lending to in the first place – the vulnerable, defined as those who cannot afford to repay. Sensible reforms include: no more than two rollovers of loans; and only two unsuccessful attempts to reclaim a debt.

But the interesting element in the mix is the demand that lenders make thorough checks on affordability. Wonga, naturally, would say it does already. But its default rate last year was 7.4%, which is surely far too high even in a high-risk market. The FCA has not defined an acceptable rate of default – but one hopes it will pursue a substantially lower figure. If nothing improves, the blunter weapon is a cap on interest rates. The FCA should not be afraid to use it.

[…]

Bank of America former employees: ‘We were told to lie’

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Real estate

Bank of America former employees: ‘We were told to lie’

John W. Schoen CNBC

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Former employees of Bank of America say they were told to lie to customers about whether they could modify their loans to more affordable terms. They also paid cash bonuses to bank staffers to pushing homeowners into foreclosure.

Bank of America routinely denied qualified borrowers a chance to modify their loans to more affordable terms and paid cash bonuses to bank staffers for pushing homeowners into foreclosure, according to affidavits filed last week in a Massachusetts lawsuit.

“We were told to lie to customers,” said Simone Gordon, who worked in the bank’s loss mitigation department until February 2012. “Site leaders regularly told us that the more we delayed the HAMP [loan] modification process, the more fees Bank of America would collect.”

In sworn testimony, six former employees describe what they saw behind the scenes of an often opaque process that has frustrated homeowners, their attorneys and housing counselors.

They describe systematic efforts to undermine the program by routinely denying loan modifications to qualified applicants, withholding reviews of completed applications, steering applicants to costlier “in-house” loans and paying bonuses to employees based on the number of new foreclosures they initiated.

The employees’ sworn testimony goes a long way to explain why the government’s Home Affordable Modification Program, launched in 2008 during the depths of the housing collapse, has fallen so far short of the original targets to save millions of Americans from being tossed from their homes.

Bank of America denied the allegations in the affidavits, which were filed in a Massachusetts lawsuit on behalf of dozens of Bank of America borrowers in 26 states.

“We continue to demonstrate our commitment to assisting customers who are at risk of foreclosure and, at best, these attorneys are painting a false picture of the bank’s practices and the dedication of our employees,” a spokesman said in a statement. “While we will address the declarations in more depth when we file our opposition to plaintiffs’ motion next month, suffice it is to say that each of the declarations is rife with factual inaccuracies.”

Share Your Story: Have you worked for a mortgage servicer?

Since the housing crisis unfolded in 2007, Bank of America and other large mortgage servicers have maintained that the widespread delays in processing loan modifications largely resulted from an overwhelming and unprecedented wave of troubled loans.

But regulators have repeatedly cited lenders for mistreating borrowers trying to modify their mortgages. In April 2001, five big banks—including Bank of America—settled a sweeping complaint with 49 states and several federal regulators about their foreclosure and loan modification practices. The banks agreed to provide $26 billion in relief and adhere to a sweeping series of new rules when modifying loans.

Later this week, a monitor assigned to track the bank’s practices will issue a report that’s expected to cite ongoing violations of those new rules.

(Read More:Banks Slow to Clean Up the Mortgage Mess)

In their sworn testimony, the former Bank of America employees detail a series of specific company policies designed to provide as little foreclosure relief as possible.

“Based on what I observed, Bank of America was trying to prevent as many homeowners as possible from obtaining permanent HAMP loan modifications while leading the public and the government to believe that it was making efforts to comply with HAMP,” said Theresa Terrelonge, a Bank of America collector until June 2010. “It was well known among managers and many employees that the overriding goal was to extend as few HAMP loan modifications to homeowners as possible.”

The reason was fairly simple, according to William Wilson Jr., who worked as a manager in the company’s Charlotte, N.C., headquarters, where he supervised 13 mortgage representatives working on with customers seeking HAMP loan modifications.

After stonewalling qualified borrowers seeking an affordable HAMP loan, Bank of America representatives could upsell them to a more costly “in-house” loan modification, with rates 3 points higher than the 2 percent rate available under HAMP guidelines, Wilson testified.

“The unfortunate truth is that many and possibly most of these people were entitled to a HAMP loan modification, but had little choice but to accept a more expensive and less favorable in-house modification,” he said.

Courtney Scott was among the Bank of America customers who experienced repeated delays and denials for a government-sponsored modification of the mortgage on her suburban Atlanta home. The retired nurse and grandmother grew increasingly frustrated after bank representatives repeatedly requested she fill out paperwork covering the same information.

So she was surprised when the bank approved her six months later for an “in-house” modification.

“I got the [HAMP] denial in January, 2010 and then in June they came back with an in-house offer saying ‘Congratulations, you’ve been approved for a modification,'” said Scott. “But it only lowered my payments by about $7 and some cents.”

Scott turned down the offer and the bank moved to foreclose,an action she is contesting with the help of an attorney.

Scott’s frustration in complying with the banks request was designed to motivate her to agree to the in-house modification according to the former Bank of America workers.

In his affidavit, Wilson said most of the information the bank repeatedly requested from homeowners was already available in multiple document review systems. Some completed applications were denied one at a time, while other borrowers were rejected en masse in a process known as “the blitz,” Wilson said.

“Approximately twice a month, Bank of America would order that case managers and underwriters ‘clean out’ the backlog of HAMP applications by denying any file in which the financial documents were more than 60 days old,” he said. “These included files in which the homeowner had provided all required financial documents.”

The procedures described in the affidavits will come as no surprise to attorneys working with borrowers trying to save their homes from foreclosures, according to Max Gardner, a North Carolina bankrupctcy attorney who trains other lawyers on legal strategies to thwart foreclosure

“This policy—of dragging it out as long as we possibly can and tell [the homeowner] you didn’t qualify or the mod failed or we didn’t get this document or you didn’t sign it in the right place or we lost this form—is consistent with what we’ve seen,” he said.

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Suit: Bank of America paid bonuses for foreclosures

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Real estate

Bank of America former employees: ‘We were told to lie’

John W. Schoen CNBC

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3 hours ago

STAN HONDA / AFP – Getty Images

Former employees of Bank of America say they were told to lie to customers about whether they could modify their loans to more affordable terms. They also paid cash bonuses to bank staffers to pushing homeowners into foreclosure.

Bank of America routinely denied qualified borrowers a chance to modify their loans to more affordable terms and paid cash bonuses to bank staffers for pushing homeowners into foreclosure, according to affidavits filed last week in a Massachusetts lawsuit.

“We were told to lie to customers,” said Simone Gordon, who worked in the bank’s loss mitigation department until February 2012. “Site leaders regularly told us that the more we delayed the HAMP [loan] modification process, the more fees Bank of America would collect.”

In sworn testimony, six former employees describe what they saw behind the scenes of an often opaque process that has frustrated homeowners, their attorneys and housing counselors.

They describe systematic efforts to undermine the program by routinely denying loan modifications to qualified applicants, withholding reviews of completed applications, steering applicants to costlier “in-house” loans and paying bonuses to employees based on the number of new foreclosures they initiated.

The employees’ sworn testimony goes a long way to explain why the government’s Home Affordable Modification Program, launched in 2008 during the depths of the housing collapse, has fallen so far short of the original targets to save millions of Americans from being tossed from their homes.

Bank of America denied the allegations in the affidavits, which were filed in a Massachusetts lawsuit on behalf of dozens of Bank of America borrowers in 26 states.

“We continue to demonstrate our commitment to assisting customers who are at risk of foreclosure and, at best, these attorneys are painting a false picture of the bank’s practices and the dedication of our employees,” a spokesman said in a statement. “While we will address the declarations in more depth when we file our opposition to plaintiffs’ motion next month, suffice it is to say that each of the declarations is rife with factual inaccuracies.”

Share Your Story: Have you worked for a mortgage servicer?

Since the housing crisis unfolded in 2007, Bank of America and other large mortgage servicers have maintained that the widespread delays in processing loan modifications largely resulted from an overwhelming and unprecedented wave of troubled loans.

But regulators have repeatedly cited lenders for mistreating borrowers trying to modify their mortgages. In April 2001, five big banks—including Bank of America—settled a sweeping complaint with 49 states and several federal regulators about their foreclosure and loan modification practices. The banks agreed to provide $26 billion in relief and adhere to a sweeping series of new rules when modifying loans.

Later this week, a monitor assigned to track the bank’s practices will issue a report that’s expected to cite ongoing violations of those new rules.

(Read More:Banks Slow to Clean Up the Mortgage Mess)

In their sworn testimony, the former Bank of America employees detail a series of specific company policies designed to provide as little foreclosure relief as possible.

“Based on what I observed, Bank of America was trying to prevent as many homeowners as possible from obtaining permanent HAMP loan modifications while leading the public and the government to believe that it was making efforts to comply with HAMP,” said Theresa Terrelonge, a Bank of America collector until June 2010. “It was well known among managers and many employees that the overriding goal was to extend as few HAMP loan modifications to homeowners as possible.”

The reason was fairly simple, according to William Wilson Jr., who worked as a manager in the company’s Charlotte, N.C., headquarters, where he supervised 13 mortgage representatives working on with customers seeking HAMP loan modifications.

After stonewalling qualified borrowers seeking an affordable HAMP loan, Bank of America representatives could upsell them to a more costly “in-house” loan modification, with rates 3 points higher than the 2 percent rate available under HAMP guidelines, Wilson testified.

“The unfortunate truth is that many and possibly most of these people were entitled to a HAMP loan modification, but had little choice but to accept a more expensive and less favorable in-house modification,” he said.

Courtney Scott was among the Bank of America customers who experienced repeated delays and denials for a government-sponsored modification of the mortgage on her suburban Atlanta home. The retired nurse and grandmother grew increasingly frustrated after bank representatives repeatedly requested she fill out paperwork covering the same information.

So she was surprised when the bank approved her six months later for an “in-house” modification.

“I got the [HAMP] denial in January, 2010 and then in June they came back with an in-house offer saying ‘Congratulations, you’ve been approved for a modification,'” said Scott. “But it only lowered my payments by about $7 and some cents.”

Scott turned down the offer and the bank moved to foreclose,an action she is contesting with the help of an attorney.

Scott’s frustration in complying with the banks request was designed to motivate her to agree to the in-house modification according to the former Bank of America workers.

In his affidavit, Wilson said most of the information the bank repeatedly requested from homeowners was already available in multiple document review systems. Some completed applications were denied one at a time, while other borrowers were rejected en masse in a process known as “the blitz,” Wilson said.

“Approximately twice a month, Bank of America would order that case managers and underwriters ‘clean out’ the backlog of HAMP applications by denying any file in which the financial documents were more than 60 days old,” he said. “These included files in which the homeowner had provided all required financial documents.”

The procedures described in the affidavits will come as no surprise to attorneys working with borrowers trying to save their homes from foreclosures, according to Max Gardner, a North Carolina bankrupctcy attorney who trains other lawyers on legal strategies to thwart foreclosure

“This policy—of dragging it out as long as we possibly can and tell [the homeowner] you didn’t qualify or the mod failed or we didn’t get this document or you didn’t sign it in the right place or we lost this form—is consistent with what we’ve seen,” he said.

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Cash Rules Bay Area Housing Market

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Cash Rules Bay Area Housing Market

Need a mortgage to buy your home? Then you’re out of luck.

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Chances are, the buy was made with cash — not a loan.

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It’s not enough to have wealth in order to get a piece of Bay Area real estate — you need liquid wealth, according to reports.

All-cash offers are winning out even over offers above the asking prices, according to the SFGate.com’s On The Block blog.

“That’s motivating some folks — even fairly regular people who don’t have Silicon Valley mega-bucks — to go the extra mile to be able to make cash offers,” the blog reported.

For instance, buyers will take out a home equity loan — which equals cash (plus the debt) — or cash out their retirement funds for the capital necessary to buy a home without financing.

An all-cash offer might win out over a higher offer “with inspection, appraisal and oan contingencies.”

But as it turns out, people who buy with all cash might end up getting a mortgage anyway to pay back the pile of cash, or to manage the property once it’s bought.

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