Withholding house payment no help in fight with bank

Dollars & Sense

December 07, 2003|By Liz Pulliam Weston | Liz Pulliam Weston,SPECIAL TO THE L.A. TIMES

My wife and I are desperate for advice. When we bought our house, the bank mistakenly reported our loan to the credit bureaus under the seller's Social Security number. The error came to my attention in February, and the bank told us that it would correct the mistake. But the mortgage is now being reported as being made in February, rather than the previous July, when we actually got the loan. This has had an adverse effect on my credit score to the point that when I tried to refinance with the bank it refused on the basis that my credit was bad. This is thanks to its mistake.

In addition, the bank reported that a payment was more than 30 days late, when I have a letter from them confirming that the payment was only 23 days late and therefore would not warrant reporting. The bank just blew off our complaints, so we stopped making payments on our mortgage and our RV loan more than three months ago to try to get some kind of response from them. Today, they repossessed our recreational vehicle without any warning, and they are threatening to foreclose. We have been forced to seek a lawyer to represent us, but do you have any advice in the short term?

Not that's printable in a family newspaper.

What in the world were you thinking? You don't stop payments on homes and vehicles just to get a bank's attention. Once you're even a single day late on a vehicle loan, the lender can repossess your car (or in your case, your RV). It takes a few more late payments to prompt a foreclosure, but the bank is perfectly within its rights to do so if you don't pay your mortgage.

In short, you turned a relatively minor problem into a very big deal that's going to have a negative effect on your credit for years.

And it was a minor problem, by the way. If the facts are as you state them, it's extremely unlikely that an incorrect origination date had anything to do with your inability to refinance with the bank. The problem more likely is what I'm guessing is your habit of paying bills late. If you would blow off a mortgage payment for 23 days, you probably have been tardy on other bills. Those late payments are reflected on your credit report, which the bank consults before deciding whether to grant you another loan.

Your best strategy is to pay what you owe, and pronto. You might be able to get your RV back, assuming it hasn't been auctioned, by making up the overdue payments and coughing up a rather stiff fee to cover the repossession. But the most important thing is to get current on your house. Otherwise, you'll be homeless and with credit too trashed to get another place any time soon.

I borrowed $10,000 from my 403(b) account about 10 years ago to add to my deposit for buying a home. I owe about $4,000. I am paying it back at about $104 a month through payroll deduction. The way the loan is structured, I am paying myself 7.85 percent interest. The 403(b) money was invested in a savings account that currently pays very low interest, so I am paying myself more in interest than I would make. I am still contributing my maximum to the 403(b) each year in stock and bond accounts. My question: If I have the money, should I pay the loan off? I have no credit card or other debt, except for a home mortgage. What do you think?

Of course you should pay off the loan.

The money you're using to pay interest to yourself is coming out of your own pocket. What's more, you have to pay taxes on the money before you can put it back in your 403(b). If you're paying $7.85 in interest, for example, you first have to earn $10.47 (if you're in the 25 percent bracket).

The interest the money would earn in your 403(b), by contrast, is being paid to you without any effort on your part. You see the difference? 'Tis far, far better to earn interest than to pay it, so retire that loan. Then start investing your 403(b) money in something that brings you a better return. Unless you're extremely old or extremely risk-adverse, you shouldn't have your retirement money withering in a low-interest account.

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