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Loan Modification and Your Credit Score

A friend is currently going through the loan modification process on his home loan. He was nearly devastated when he discovered that his credit score had dropped a full 100 points. However, it’s not the modification that hurts your credit score – it’s the late payments.

Often the reduced payments in the “trial modification” periods go to an escrow account rather than to your actual house payment. Therefore your “late” payments may have a crushing impact on your credit score. You can negotiate the impact on your credit score, though. Before you dive in to a home loan modification, negotiate this in advance with your lender.

According to Correct Your Credit Scores and Get Better Credit Scores,

Try to stay current on your loan. Even though many companies are advising people that they have to be delinquent to get a loan modification, try to keep making your payments on time. Then be diligent and consistent with contacting your loan servicing company regularly to request an appointment with someone in their loan modification department. Tell them you are trying very hard to avoid getting behind, that you are experiencing financial difficulties, and you want their assistance in modifying your loan before it is too late.

Getting a loan modification can be a huge help for people struggling to make ends meet, however be forewarned that it could have a detrimental impact on your credit score that could take years to fix.

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Not As Many Walking Away

by Kathy T. Leave a Comment

The new reality is that if people do walk away from their homes, given the very challenging climate to get a new home loan – they may be better off staying put, making those house payments, and waiting (perhaps years) for the real estate market to return.

More people may be realizing this, according to CNN Money,

“There are two effects that suggest [walk aways] won’t happen so easily,” he says. “The first is the endowment effect. People tend to value their own house above its market price. Owners don’t want to sell at a loss. They have what we call a loss aversion.”

The second is that people weigh the importance of immediate outcomes more heavily than long-term effects. Walking away involves upfront expenditures of time, money and effort, while the benefits of walking away are back-loaded.

It is refreshing to see that people are recognizing the devastating reality of walking away from a home loan. As long as people have the ability to make the payments, they should

Photo by nikcname via flickr creative commons.

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First Time Buyers Fading

by Kathy T. Leave a Comment

Investors with plenty of money are getting credit for any upswing in home sales rather than the important first-time home buyer. With homes available at incredibly low prices thanks to foreclosures, anyone with cash and a little patience can swoop in and find a great deal.

Even when first-time buyers can qualify with the stricter loan standards, they are not jumping in to the housing market according to MSNBC,

Many potential buyers who could qualify for loans are hesitant to enter the market, worried that prices will fall further. High unemployment is also deterring buyers. Job growth, while expected to pick up this year, will not likely raise home sales to healthier levels.

The article said first-time buyers have dropped to their lowest level in two years and in January foreclosed homes were 37 percent of residential real estate sales.

Photo by Bradley Gordon via flickr creative commons.

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Check Neighbors’ Abandoned Homes

by Kathy T. Leave a Comment

The horrible story about a foreclosed home in the state of Washington reminds us to become a Mrs. Gladys Kravitz every now and then. According to foreclosure.com, a financially distressed hoarder stopped feeding the animals she lived with. When the home was finally foreclosed upon, the person changing the lock knew something was wrong based on the smell.

The owner had actually lived with the dead animals before eviction,

She tries to explain:

“I just shut down. I didn’t see it, I didn’t want to deal with it…. I spent as much money as I could feeding them, taking care of them, but there wasn’t enough money to go around.”

Shelters apparently would not take the animals, which is an excuse that doesn’t appear to be flying with the local police department. In fact, the owner — who has breast cancer — and her son have been slapped with 31 counts of animal cruelty.

This definitely serves as a reminder to keep your eyes open to see if your neighbor has pets while they are living next door to you. If they do and they lose their home, it’s okay to do some tentative snooping to be sure the pets have not been abandoned.

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Home Ownership After Foreclosure

by Kathy T. Leave a Comment

The great recession of the 2000-aught-years was one for the record-books. Fine, upstanding citizens from all across the country lost their jobs and then their homes. While some of those who faced foreclosure were n’er-do-wells, most were dedicated to keeping their finances in good order.

As the job market slowly recovers, people again want to buy their own home. The question arises about when they will be able to do this. While foreclosures stay on a credit history for at least seven years, it could take only three years to qualify again to buy a home.

According to Steve McLindon of Bankrate.com, there are conventional loans to be had. But you’ll need to save ahead to put 20 percent down in order to qualify,

Even though a foreclosure lingers on your credit report for seven years, it’s very unlikely you’ll be shut out from a conventional mortgage loan for that long. Fannie Mae, America’s largest mortgage buyer, has said the waiting period is a minimum of three years before you can get a mortgage loan again following a foreclosure due to extenuating circumstances. It’s roughly the same time frame you’ll find for Federal Housing Administration- and Freddie Mac-backed conventional mortgage loans. All three are considered conforming lenders.

The advice columnist goes on to say that continuing to pay your bills on-time and pay-off old debts (or dispute those that are laid unfairly at your feet) will also help you get back into home ownership.

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REOs Have Rose-Tinted Glasses

by Kathy T. Leave a Comment

Real estate owned (aka REO’d or bank-owned properties) are more and more commonplace in today’s housing market. Some banks are willing to work with you, others are not. The only true rule is that it’s like the wild west out there… everyone has their own set of rules and state laws can be ignored!

For example, “time is of the essence” in a real estate transaction. By my state law, notification from the buyer to the buyer’s agent to the seller’s agent can stand when it comes to a full-binding contract. Unfortunately the same is not true of bank-owned property. Even when a bank agrees to a sale, sends final paperwork to the buyer, the buyer signs and sends back – until the bank ALSO signs, another buyer can snatch it out from under first buyer.

Other banks refuse to sell their foreclosed properties unless THEY approve the loans. From Sonoma Couny, California, Cynthia Larsen of Safe Haven Realty reports on her experience,

Here is an example of the agent remarks in the MLS, not viewable by the public. These remarks are instructions for the agents as to when a home can be viewed and where to submit an offer.

“Bank of America REO. Pre-Approval with BofA required. Offers w/out PreApp letter will NOT be reviewed“

So this is us, Bank of America, myself and my pre-approved buyer walking away.

These are the days when rapport is absent from transactions between buyers and sellers – especially when the sellers are corporations. I am finding buyers less likely these days to waste their time waiting for banks to try to dictate the rules everyone has to follow. Instead, they are seeking to buy property owned by an actual homeowner.

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Court Orders Lenders to Appear

by Kathy T. Leave a Comment

Foreclosures have slowed during the holiday season because some lenders are feeling generous – not kicking people out of their homes during these winter holidays.

Yes that’s right, not only are the government agencies doing it, but several of the bigger mortgage companies are acting on Santa Claus fantasies again this year. They are saying that they will not follow through and evict borrowers that are in default, but just for the holidays.

Other foreclosures have stopped pending review of their process and the legality.

Robo-signing…that’s when bank employees allegedly signed documents without proper verification in states that process foreclosures through the court system. California isn’t one of those states. But RealtyTrac’s Daren Blomquist says the state still benefited.

However, some foreclosures are slowing because of court-ordered appearances.

Six lenders who have combined to file nearly 30,000 foreclosure actions in New Jersey this year face the possible suspension of their operations next month under a court order announced Monday by state Supreme Court Chief Justice Stuart Rabner.

In the end, people will lose their homes if they don’t pay their mortgage, but it’s still good to see that some rabid foreclosures have slowed in favor of doing real research on whether a home is truly behind.

Photo by Andrew Bain via Flickr Creative Commons.

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Second Liens Preventing Short Sales

by Kathy T. Leave a Comment

Home equity loans are wonderful when home-owners need to do a little updating, fix that leak in the roof, or replace the gutter around the house. They can get you new double-paned vinyl windows, a lovely new deck, fresh paint, new flooring, and much more.

The down side of home equity loans, along with other second-mortgages on your piece of real estate, is that if you are forced to sell in a bad market and you’re underwater, you most likely will not be approved for a short sale. Percy D. Mitchell writes about why,

Second mortgages are also a big stumbling block on short sales, where the borrower sells the home for less than the value of the amount owed. Real-estate agents have complained for months that many of these deals fall through because the second-lien holder isn’t willing to approve the deal, or is requiring more money from the transaction.

With the massive amounts of second mortgage debt on the books of nearly every bank, it’s not surprising they will not cooperate in taking a smaller payoff. However, a little something is better than a lot of nothing which is what a foreclosure would get them.

Think hard before you get a second mortgage because if you end up in trouble with your mortgage, your choices will be much more limited with that second lien hanging over your head.

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Giving Wealth, Then Taking it Away

by Kathy T. Leave a Comment

Toxie seems to be a popular character on NPR and throughout the blogosphere that focuses on asset and financial management. Toxie is the name given the toxic mortgages throughout the U.S. When Toxie was good, she doubled, tripled, quadrupled the value of housing in different parts of the country.

But then she had to pay her dues and Toxie became toxic. Toxie gave wealth. Toxie took it away.

Toxic assets — bundles of mortgages that Wall Street sliced up and sold to investors — were at the center of the financial crisis. When the housing market tanked, no one wanted to own them. That’s when we bought one. When we bought Toxie , in January of this year, she seemed like a great deal. We paid $1,000. That was 99 percent less than she cost dring the housing boom.

In the end, people could not figure out how much Toxie’s assets were really worth. And there are millions more still out there waiting to see how their story ends.

Photo from Palimpsest.

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Mortgage-gate Is Huge

by Kathy T. Leave a Comment

The subprime mortgage mess started it, but now we’re full blown into another problem with a catchy new name: Mortgagegate. And it’s a lot bigger than people think. The paperwork on the mortgages was bad in the beginning, but it’s not just the mortgages. It’s also the tax consequences and title problems.

According to Les Jones,

Many of those mortgages were bundled together and sold as mortgage-backed securities, most of which did very poorly after 2008. If the properties were never properly titled and assigned then the original sale of the securities could be invalid, which could lead to trillions of dollars of securities being forced back on the original seller, what Janet Takavoli calls “the biggest fraud in the history of the capital markets.”

Photo by The Market Oracle.

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