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FICO to walkaways: You're on our screen

by Alexandra Zega

Will early-warning system make homeowners think twice?

(c) Ken Harney, Inman News™

Fair Isaac, developer of the ubiquitous FICO score, has a new warning for homeowners plotting a strategic default or walkaway: We can now spot you in advance. We've developed a black-box risk-identification tool that enables lenders and mortgage servicers to tag you months in advance -- and then pursue their own strategic measures to intervene.

The tool is so effective, according to FICO, that it can "capture nearly 67 percent of strategic defaulters" who are otherwise unremarkable and undetectable, paying their mortgages on time.

Sound a little spooky? Not for the major lenders who are working with FICO to install the new statistical risk-scoring model, aimed at some of the costliest and most perplexing defaulters in the marketplace: people who just stop paying on their loan abruptly, without ever previously being late, even though they have the income to pay.

Strategic walkaways are a multibillion-dollar headache to banks and investors. A study by researchers at the University of Chicago's Booth School of Business found that during last September alone, 35 percent of mortgage defaults in the U.S. were strategic -- up sharply from 26 percent in March 2009.

With an estimated 23 percent of all residential mortgages underwater as of March of this year, according to data from consulting firm CoreLogic, spotting -- and dealing with -- walkaways has become a high priority for the biggest banks.

Walkaways are also more than a slight concern to default risk-scoring giants like Fair Isaac and Vantage Score LLC, the joint venture created by the three national credit bureaus: Equifax, Experian and Trans Union.

Both companies have been stunned to find that the very consumers they deemed the least likely to go into default -- people with 800-plus FICOs and 900-plus Vantage scores -- are statistically more likely to default strategically, with no outward signs of impending payment stoppages, than the lower-scoring masses.

People with low FICO scores still default more often than high scorers, but when high scorers do default, they are far more likely to do so out of the blue. In the lowest score category (300 to 499) more than twice as many people default nonstrategically -- they begin missing payments over time, typically because of income declines -- than strategically.

These walkaways are especially vexing to score-modeling experts like Andrew Jennings, Fair Isaac's chief analytic officer and head of FICO Labs. "They open up new credit accounts" before stopping their mortgage payments, he told me in an interview last week. "They prepare."

They intentionally default on their mortgages in part "because they believe it is in their best financial interest, and because they believe the consequences will be minimal," Jennings said.

Jennings supervised Fair Isaac's work in developing a special tool that pinpoints likely strategic defaulters while they're still cocooning and haven't yet revealed their intentions to lenders.

Some of the research involved examining massive samples of credit bureau data -- 5 percent of all U.S. mortgage accounts -- during a recent one-year period, looking for telltale clues, month by month, that would separate out strategic defaulters from ordinary defaulters.

What the project turned up, said Jennings, helped formulate the model that FICO has now created for lenders and servicers.

So what's in the black box? Obviously the complex statistical model and exactly how it works is proprietary. But Jennings said it looks at a composite of separate risk factors from credit and real estate databases, and enables servicers to identify borrowers whose profiles match those of strategic defaulters most closely.

Some of the key characteristics include:

--How long have the borrowers owned the house? The shorter the time span, the higher the risk.

--Are they good to excellent managers of their household finances and credit relationships? Do they make modest and responsible use of credit cards and other revolving debt? Do they pay their accounts on time as a rule? Do they rarely, if ever, go over the limits on their cards -- or even come close?

--Have they departed from their past credit usage patterns in recent months by opening up multiple new accounts?

--Based on local property-value indexes, is it likely that they have slipped into negative equity territory? Remember: How deeply underwater is only a moderately predictive factor. Lots of owners whose properties are worth far less than their mortgage balances do not strategically default, but keep plugging away paying every month, while borrowers who fit the FICO strategic defaulter profile may be only slightly underwater but still walk away abruptly.

By the way, location is not a key factor in the equation. FICO found that 40 percent of all strategic defaulters live in "recourse" states where lenders can -- and do -- pursue defaulters for any un-recovered debts following a foreclosure.

Of course, the model cannot peer into would-be walkaways' minds and motivations. "We're not trying to explain their psyches," Jennings said, "but you see the patterns" and certain borrowers' profiles light up like flashing neon signs.

The top bracket of high-risk homeowners identified by FICO's new model are 110 times more likely to strategically default than other borrowers -- even though they otherwise appear to be solid customers, according to Fair Isaac.

Armed with these risk profiles, what are banks and servicers likely to do as they scan their portfolios? Fair Isaac recommends that they intervene early with what it calls "pre-delinquent treatments."

These include contacting high-risk borrowers to warn them about the consequences of strategic defaults: Their credit scores will tank by 150 points or more, they'll be hampered or penalized in applications for rentals, employment, car loans or leases, and they can forget about buying another home for at least several years, possibly as long as seven.

If they live in a state that allows deficiency recoveries, servicers will probably emphasize their determination to do so in the event of any default.

Will all this work? Major banks and FICO think it should help. The jury is out at the moment, but if the early detection concept is valid, who knows?

Maybe it will cause some homeowners to think twice and discourage them from taking that first, crucial step: Secretly plotting their walkaway, months in advance.

Gearing Up for Summer Fun

by Alexandra Zega

RISMEDIA, - Summer is the perfect time of year for outdoor entertaining. But before you start planning the menus and guest lists, make sure your house and yard are ready to take on the fun.

“Your grill, outdoor power equipment and appliances play a big part in your summer routines,” says Jamie Breneman, contributor to TheSavvyShopperBlog.com. “So you want to make sure everything is in good working order to avoid any unnecessary hassles that may get in the way of your fun-packed summer. A few simple steps can guarantee that your entertaining space is a welcoming place for guests.”

Before You Fire Up the Grill

• If you have a gas grill, check for leaks. Mix a small amount of dishwashing liquid and water in a spray bottle. Spray the hose and all connections then, with the hose connected to the propane tank, open the gas. If bubbles appear, you have a leak and need to replace the hose or fix a loose connection.

• Check the flame on gas grills — it should be blue. A yellow flame means there are either clogged air jets or burners that need adjustment. 

• Clean the grill, inside and out. Scrub burners and grates with a wire brush, and then cut the grease build-up with a vinegar and water solution. Rinse clean and let dry thoroughly. A good all-purpose cleaner can take care of the outside of the grill.

Keep Your Cool

• “Food safety is vital,” says Breneman. “Make sure your refrigerator and freezer are in tip-top shape so they can keep prepped ingredients and leftovers at the right temperatures.”

• Make sure the interior cooling vents are not blocked. The air needs to circulate to ensure safe food preservation.

• Keep the refrigerator temperature at 36ºF to 38ºF and the freezer at no colder than 0ºF to 5ºF. You can buy inexpensive refrigerator and freezer thermometers to help you maintain the right temperature.

• Keep gaskets on the refrigerator and freezer doors clean with mild detergent and water, not bleach. This will ensure a good seal and prevent wasted energy.

Tidy Up Outside

• Check the deck and stairways for any loose boards or railings. Now is a good time to get out the power tools and make the yard safer as well as neater.

• If you haven’t done so already, give your lawn mower a check-up. Make sure it’s functioning at its best so that you can mow efficiently and safely.

• After mowing the lawn, break out the trimmer and edger to give your yard a neat-as-a-pin appearance.

To help you keep your appliances and power tools in good working order, Breneman recommends looking into protecting them with extended service plans. “Anything mechanical can break down or have parts that just wear out,” she says. “And manufacturers’ warranties don’t cover as much or for as long as you might think.”

Breneman adds that service plans bring something else to homeowners—peace of mind. “You spend a lot of money on things like refrigerators or riding mowers, and it can be frustrating trying to find someone reputable to fix them. To know that you can get support at any time from prescreened professionals makes it a whole lot easier to relax and enjoy all the fun that comes with summer.”

(c) RISMEDIA and www.thesavvyshopperblog.com.

States With the Healthiest Housing Markets

by Alexandra Zega
By Cindy Perman , CNBC.com
No doubt, some housing markets were hit harder than others during the recession. As a result, the markets less banged up are poised to be the first to bounce back when the housing recovery takes off.

“You have some markets where so many things have gone wrong; it’s very difficult for those markets to make a recovery,” said Cameron Findlay, the chief economist at LendingTree. “Then, there are other markets, where only a couple things have gone wrong. For those markets, there’s still hope of a recovery.”

LendingTree crunched the numbers for all 50 states and the District of Columbia to find the healthiest and least healthy housing markets, based on five key criteria: debt-to-income ratio, unemployment, home ownership, negative equity and the average loan-to-value ratio.

It’s worth noting that all of the top 10 have home prices that are below the national average of $298,000, most of them well below that mark.

Geographically speaking, more than half of the top 10 states came from the central time zone, while two came from New England and there were one each from the Mountain and Pacific Time Zones. Still, the top 10 only make up a small part of the overall U.S. market – 8.15% to be exact. By comparison, the bottom 10 make up nearly 36%. California, alone, accounts for nearly 23%.

Here are the top 5 states with the healthiest housing markets:

Iowa | Photo: Thinkstock | Comstock Images | Getty Images

5. Iowa
Debt as percent of income: 13%
Unemployment rate: 6.1%
Home ownership: 71.1%
Negative equity: 42.9%
Average home price: $152,000
Loan as percent of home value: 66.7%
Percent of U.S. Market: 0.42%

Iowa has some of the lowest real estate prices in the top 10. But it has one of the highest rates of negative equity in the top 10, which is probably what kept them from ranking higher on the list, Findlay said. Other than that, it has the best debt as a percent of income on the list at 13% and it has a low unemployment rate. “They just missed out on taking the gold!” Findlay quipped.


Maine | Photo: David McLain | Getty Images

4. Maine
Debt as percent of income: 17%
Unemployment rate: 7.5%
Home ownership: 73.8%
Negative equity: 30.1%
Average home price: $210,000
Loan as percent of home value: 58.6%
Percent of U.S. Market: 0.11%

Debt as a percent of income is pretty low in Maine, and the loan as a percent of home value is the lowest in the top 10. They have the second-highest home ownership rate in the top 10. The average home price is $210,000, compared to the national average of $298,000.


New Hampshire | Photo: Denis Tangney Jr | Getty Images

3. New Hampshire
Debt as percent of income: 18%
Unemployment rate: 5.4%
Home ownership: 74.9%
Negative equity: 25.2%
Average home price: $243,000
Loan as percent of home value: 69.8%
Percent of U.S. Market: 0.42%

New Hampshire has a very low unemployment rate at 5.4%, compared to the national rate of 8.8%, which helped the state keep its debt as a percent of income to just 18%. There’s a high percentage of home ownership here and the average home price is below the national average of $298,000.


Minnesota | Photo: Anne Rippy | Photographer's Choice | Getty Images

2. Minnesota
Debt as percent of income: 17%
Unemployment rate: 6.7%
Home ownership: 72.6%
Negative equity: 22.2%
Average home price: $224,000
Loan as percent of home value: 65.6%
Percent of U.S. Market: 1.01%

The low rate of unemployment is what really stands out with Minnesota, Findlay said, at 6.7% compared to the U.S. rate of 8.8%. Negative equity was among the best at just 22.2% and debt as a percent of income is just 17%.


North Dakota
Photo: Richard Cummins | Robert Harding World Imagery | Getty Images

1. North Dakota
Debt as percent of income: 14%
Unemployment rate: 3.7%
Home ownership: 67.1%
Negative equity: 37.7%
Average home price: $173,000
Loan as percent of home value: 60.1%
Percent of U.S. Market: 0.07%

And the healthiest real-estate market in the U.S. is … North Dakota! “There’s a very low cost of ownership there and a very low unemployment rate, which is a huge factor for them,” Findlay said. They have a low cost of living, the unemployment rate is less than half the national average at just 3.7% and debt to income is the one of the best on the list at just 14%. Real estate prices are pretty inexpensive here, with the average home price at $173,000, compared to the national average of $298,000.

Click here to see all 10 States With the Healthiest Housing Markets

The When-to-Wash-It Handbook

by Alexandra Zega

Real Simple put together an expert consensus on how frequently you need to launder key warm-weather clothing pieces—barring stains or especially sticky days, that is.

Jeans
Wash jeans after 4 to 5 wears

Jeans

How often you should wash them:
After 4 to 5 wears.

What to know: Durable denim is excellent at masking dirt—which is a good thing, since overwashing can cause jeans to fade and fray. To keep yours looking like new (or “weathered” just the way you want them): Throw them in the washer inside out and use cold water. Avoiding the dryer will help retain color, too.

Exception to the rule: Take them for a spin cycle sooner if they stretch out. Or just toss them in the dryer for 10 minutes (but no more than that). Spandex-heavy “jeggings” (jean leggings) should be washed after every wear so the knees don’t bag.

Dress pants
Wash dress pants after 4 to 5 wears

Dress Pants

How often you should wash them: After 4 to 5 wears.

What to know: You’re probably wearing these in an (overly) air-conditioned office, so feel free to revisit them multiple times, particularly those made of stain-repelling synthetic blends. Part of a suit? Dry-clean both pieces together so one doesn’t fade faster than the other.

Exception to the rule: Your nice trousers will last longer between washings if you change into your “play clothes” as soon as you leave work (as opposed to wearing them to your daughter’s soccer game).

Jackets and blazers
Wash jackets & blazers after
5 to 6 wears

Jackets and Blazers

How often you should wash them:
After 5 to 6 wears.

What to know: Typically layered over a blouse, a tee, or a camisole, these don’t require much upkeep. However, a jacket can retain odors (say, from last night’s fajitas), so before you stuff it in a closet, air it out near a window or spritz it with the Laundress Fabric Fresh (Starting at $16 for eight ounces, Yahoo! Shopping).

Exception to the rule: Periodically check the high-friction areas—collar, cuffs, and placket—for signs of dirt. But you can roll up the sleeves (or even pop the collar) temporarily to conceal stains on an otherwise-clean jacket.

Khaki Shorts and Pants
Wash khaki shorts & pants after
2 to 3 wears

Khaki Shorts and Pants

How often you should wash them:
After 2 to 3 wears.

What to know: Light-colored cottons are vulnerable to noticeable spots. Zap smudges between washes with Oxi Clean Spray-A-Way Instant Stain Remover ($3.50 at drugstores), which Chicago stylist Amy Salinger likes because it doesn’t leave water rings behind.

Exception to the rule: With stain-resistant fabrics, you can get away with an extra wear or two. Never use fabric softeners or dryer sheets, as they diminish the effectiveness of the fabric.

Pajamas
Wash pajamas after 3 to 4 wears

Pajamas

How often you should wash them:
After 3 to 4 wears.

What to know: Swap out your pj’s twice as often as you change the sheets. “People don’t realize how much they sweat at night,” says Elizabeth Scott, Ph.D., a codirector of the Simmons Center for Hygiene and Health at Simmons College, in Boston. “We also shed thousands of skin cells a minute.”

Exception to the rule: Do you shower before bedtime? If the answer is yes, you can sneak in an extra wear or two. However, if you snooze in silk pajamas, which absorbs more body oils than cotton, you should switch up your sleepwear daily.

Skirts
Wash skirts after 4 to 5 wears

Skirts

How often you should wash them:
After 4 to 5 wears.

What to know: Chances are you’re not doing anything strenuous in skirts, so you can wear them multiple times. Just refresh nonsilk fabrics with a 10-minute spin in the dryer with a dryer sheet, suggests Steve Boorstein, host of Clothing Care: The Clothing Doctor’s Secrets to Taking Control! DVD (Starting at $14, Yahoo! Shopping).

Exception to the rule: You can be more lenient with circle and A-line styles, which hardly skim the body. But “whites and silks are prone to discoloration and should be cleaned after every wear,” says Brian Sansoni, vice president of the Soap and Detergent Association, in Washington, D.C.

Swimsuits
Wash swimsuits after every wear

Swimsuits

How often you should wash them:
After every wear.

What to know: Salt and chlorine will eat away at a swimsuit and stretch it out prematurely. Hand wash your suit with cool water and a gentle detergent, like Soak ($10 for four ounces, soakwash.com), which deep-cleans and removes that notorious chlorine smell. Allow the suit to air-dry.

Exception to the rule: None. Even if you only dipped a toe in the water, a swimsuit, like underwear, is an intimate garment that absorbs body oils, bacteria, and odors. Best to wash it every time.

Tops and dresses
Wash tops & dresses after
1 to 3 wears

Tops and Dresses

How often you should wash them:
After 1 to 3 wears.

What to know: Three ways to keep these pieces in ready-to-wear shape: Don’t overdo the deodorant—one dab will do you. Prevent underarm stains with an undershirt or dress shields (Garment Guard shields, starting at $11 for 5 pairs, Yahoo! Shopping). And inspect the item closely prior to ironing, which can set stains.

Exception to the rule: Again, whites and silks need a cleaning after every wear. And if your dress is formal or semi-formal, it’s best to dry-clean after each outing, since you don’t want any stains setting during the weeks or months between wears.

 

Wash t-shirts, tanks & camisoles after every wear
Wash t-shirts, tanks & camisoles
after every wear

T-Shirts, Tanks, and Camisoles

How often you should wash: After every wear.

What to know: Treat them like underwear. “Close-fitting and oil-absorbing, these basic pieces add life to your pricier blouses, sweaters, and jackets,” says Corinne Phipps, founder of Urban Darling, a wardrobe- consulting firm in San Francisco. Wash in hot water.

Exception to the rule: Stick to the four-hour rule. If you wore a T-shirt or camisole only briefly, there’s no need to be rigid. “It’s OK to put a barely-worn tee back in the drawer every now and then,” says Salinger.

Bras
Wash bras after 3 to 4 wears

Bras

How often you should wash: After 3 to 4 wears.

What to know: Bras don’t come into direct contact with the underarms, so they can withstand a few wearings. But they need a 24-hour break between wears for the elastic to recover, so try a rotation system: Line them up in a drawer. In the a.m., take a bra from the front, then send it to the back of the line in the p.m.

Exception to the rule: Sweat a lot? Then wash bras daily with a gentle baby detergent, like Dreft. “Perspiration wears down the elastic, so keeping a bra clean will increase its life span,” says Jennifer Manuel Carroll, owner of the Seattle lingerie shop Bellefleur.

(c) Sarah Jio with photos by Aimee Miller, RealSimple.com

Pets Can Reduce Stress, Cholesterol and Obesity

by Alexandra Zega
 Looking for a holistic way to reduce stress, cholesterol and obesity? Get a pet. Statistics show that 62% of American households own a pet. According to a national survey, most pet owners say companionship, love, company and affection are the No. 1 benefits to owning a pet.

We know that pets make good companions and decrease loneliness, but numerous studies have shown other profound health benefits of owning a pet:

1. Pets help recovery from heart attacks. A National Institutes of Health (NIH) study of 421 adults found that dog owners had a better one-year survival after a heart attack, compared to those who did not own dogs.

2. Pets help us calm down. A study of 240 married couples showed that pet owners had lower heart rates and blood pressure as compared to those without pets.

3. Pets help reduce stress better than our human companions. Pet owners had less stress and quicker recovery from stress when they were with their pets as compared to when they were with their spouse or friend.

4. Pet owners have less obesity. A study looking at 2,000 adults found that pet owners who walked their dogs had less rates of obesity and were more physically active than those without pets.

5. Pet owners have better mobility in their golden years. Another NIH study looking at 2,500 adults aged 71-82 showed that adults who regularly walked their dogs had more mobility inside the house than non-pet owners.

6. Pets increase opportunities for socialization. Many studies have shown that walking a dog leads to more conversations and socialization.

7. Pets can help your cholesterol. The Centers for Disease Control and Prevention state that owning a pet can decrease cholesterol, triglycerides and blood pressure.

8. Pets can help comfort children. Child psychologists have found that pets can be very comforting to children and help them develop empathy. They have also been found to help autistic children with socialization.

So for those of you with pets, continue to enjoy the hidden health benefits of your furry friends. And for those of you thinking of getting one—do so. Pet ownership may be a path to your good health.

(c) Drs. Kay Judge and Maxine Barish-Wreden  , The Sacramento Bee (Sacramento, Calif.).

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