News: Credit After a Short Sale versus Foreclosure

One of the most commonly asked questions about a short sale is how it will impact a consumer’s credit score and their ability to purchase a home in the future.

Whether you are a buyer, seller or investor, it’s imperative to educate yourself on this all important aspect of credit to become fully informed before making a final decision or in order to assist sellers in determining the right course of action for their financial future.

Here to help sort through the confusion is a quick rule of thumb on credit after a short sale or foreclosure.  Keep in mind, every situation is different so these estimates represent the average experience of most individuals in this situation.  Your own circumstances may vary.

Average Time to Rebuild Credit to Purchase a Home:

•        After a foreclosure:  Five to seven years on the average.

•        After a foreclosure with extenuating circumstances such as disability, death of a spouse, etc:  Three to seven years.

•        After a Deed in Lieu of foreclosure:  Four to seven years.

•        After a Short Sale:  Zero to two years.

Several respected financial professionals and analysts in the credit and finance industry recommend consumers who are falling behind on their mortgage payments to meet with BOTH a credit counselor and a bankruptcy attorney.

St. Louis Refinancing Group and their St. Louis mortgage lending news team feel that then and only then can the homeowner make an informed decision having all the facts and their questions answered by both sets of experts.

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News: Government attempts to make short sales easier

The Obama administration laid out final guidelines that should make it easier for some financially troubled borrowers to sell their homes.

They are designed to encourage the use of short sales, and it also makes it easier for borrowers to voluntarily transfer ownership of properties through a “deed in lieu of foreclosure.”

Under the plan, borrowers will receive $1,500 from the government if they sell their homes for less than the amount of their mortgages.  Mortgage-servicing companies will also receive $1,000 for each completed short sale.

The program is open to borrowers who may be eligible for the government’s loan-modification program but don’t end up qualifying  or are delinquent on their modification.

The short-sale program is the latest addition to Washington D.C.”s $75 billion foreclosure-prevention plan, which includes incentives for mortgage companies and investors to rework troubled loans.

The government first said in May that it would include short sales in the program, but it has taken months to finalize the details.  In addition, second-mortgage holders can receive up to $3,000 of the sales proceeds in exchange for releasing their liens.

Investors who hold the first mortgages can collect up to $1,000 from the government for allowing such payments.  Borrowers who complete a short sale under the program must be “fully released” from future liability for the debt, according to the guidelines.

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News: Foreclosures in 2010

According to a new study from the research team at Credit Suisse, the second half of 2010 will be a time of stabilization or a “renewed leg down” in housing, and it all depends on how aggressively the industry can rein in the swell of foreclosures.

“It is estimated that roughly 3.2 million foreclosures must be prevented in 2010 for home prices to stabilize or potentially tick up,” the institution’s analysts wrote in their report.

The researchers called the feat an “uphill challenge,” with a very narrow path for success carved out by government programs.  The administration has promised that its federal modification program will help three to four million homeowners avoid foreclosure, but those projections cover a four-year span from 2009 to 2012.

And as it stands now, the program is way behind schedule.  As of the end of November, only 31,382 at-risk homeowners had been given permanent loan restructurings.

Credit Suisse called the performance statistics of the administration’s Home Affordable Modification Program (HAMP) “quite disappointing” but noted that increased government focus on raising conversion rates could lead to an improvement in short-term results.

How this affects St. Louis home mortgages and the St. Louis foreclosure market will be closely watched by the St. Louis Refinancing Group mortgage news team over the next several months.  Comments by local consumers are welcomed.

Source:  DSNews.com

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News:  New rule to speed up foreclosure rescues

The latest foreclosure rescue attempt is a new rule that allows mortgage servicers to waive the escrow requirements for first-lien home equity lines of credit (HELOC) and home equity loans during a Home Affordable Modification Program (HAMP) trial-period, according to HAMP administrators. 

The waiver applies to all servicers that “due to system and technology limitations” are not able to collect escrow payments on home equity loans or credit lines.  During the HAMP trial periods, the borrower must pay all escrow obligations, such as tax and insurance bills.

Trial period payments only apply to principal and interest.  However, once the trial modification is converted to permanent status, the loan must move to a servicing system that can accept escrow payments for home equity loans or credit lines, administrators said. 

The escrow-relate waiver is the second such rule to take effect this weeks intended to speed up HAMP processing.  “By eliminating the need to convert these   loans during the trial period to a new servicing system, the loan can begin the trial modification process faster,” said a statement by HAMP administrators to servicers.

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News: Loan Modification Takes a Slight Derailment

The Treasury department has become increasingly impatient with loan servicers and their performance in regards to negotiating loan modifications.  The goal was to help 3 to 4 million distressed homeowners who were within 60 days of default on their home loan.

Understandably there were financial incentives put into place for servicers to be compensated for making “trial modifications” with the help of a 5 month extension permanent.

But apparently here is the ever-growing problem:  For every 5 calls fielded by these loan modification servicers, only one on the average seems to qualify for the Treasury’s Home Affordable Modification Program.

Of those that appear to qualify with providing the necessary paperwork to process these requests, only a handful of “distressed homeowners” return the documents signed.  How encumbering is this paperwork?  Only two pages.  And many servicers do not require homeowners to document their income!

News to the mortgage arena has it that the Treasury has informed these loan modification servicers that no financial income will be paid to them until these “trial or temporary modifications” convert to permanent modifications.

Now on the surface, this grand idea may seem plausible until you factor in such variables as lazy homeowners not returning documents and the hard reality that these servicers cannot control unemployment, negative equity (up-side-down values), indebtedness, etc.

If things were not bad enough, this double-edged strategy may actually blow up in the Treasury’s face and compound these mortgage problems even further.  Shocking isn’t it?

Sad to say, this may very well create a condition that makes it financially burdensome for compliance and may create a massive disincentive for these loan modification servicers to pursue.

So, who loses in this scenario?  That’s debatable.  But what seems inevitable is the proverbial “blame game” that will continue to manifest itself as homeowners and servicers wander aimlessly as they continue to bathe in this financial quagmire.

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News: Bankruptcies up 33%

The American Bankruptcy Institute (ABI), an industry research firm, said 388,485 bankruptcies were filed during the last quarter, compared to 292,291 filed during the same period in 2008, according to data released by the Administrative Office of the U.S. Courts.

That’s 33% — the highest level since 2005, when 2,078,415 were filed before Congress passed amendments to the Bankruptcy Code.  Filings for the first nine months of the year climbed 35% to 1,100,035, compared to 841,496 filings during the same period in 2008.

A total of 1,117,771 bankruptcies were filed last year.  The ABI report said business bankruptcy filings rose 32% in the third quarter of 2009 to 15,177, and filings for the first nine months of the year totaled 45,510, topping the total 43,546 business bankruptcies filed in 2008.

Personal bankruptcies increased 33% to 373,308 during the last quarter, led by a 42% hike in Chapter 7 filings, which totaled 265,721.  The number of consumers filing Chapter 13 bankruptcies rose 15% to 107,142 filings in the third quarter, according to ABI.

“The spike in bankruptcy filings for both consumers and businesses reflect the continuing effects of today’s weak economy,” said ABI executive director Samuel Gerdano in a statement.  “With unemployment surpassing 10% and credit to businesses remaining tight, consumers and businesses are increasingly turning to the financial relief of bankruptcy.”

This in turn has led to St. Louis refinance loans and purchase loans heading spirally downward in this 4th quarter.

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News: Foreclosure scams

The Federal Trade Commission (FTC) announced six new lawsuits brought against companies accused of running foreclosure rescue and loan modification scams.  The suits are the latest action federal and state authorities are taking in “Operation Stolen Hope,” which to date includes 118 actions by 26 federal and state agencies, including a total of 28 FTC lawsuits filed against alleged fraudulent firms.

According to the FTC, foreclosure “rescue” professionals identify targets by researching public information about foreclosures.  They often send a personalized letter to distressed homeowners and they may also rely on public advertising. They promise they will save your home and may promise they can negotiate a better deal with your lender.

1.  But there’s always a catch.  Often these firms want you to pay an upfront fee.  Sometimes scam artists require you to make payments directly to them while they negotiate with your lender.  In both cases, once the money leaves your hands, the scammer disappears.

2.  Other tactics include having you sign documents that surrender the title of your home to the scammer, or asking you to “rent-to-buy” your own home after surrendering title. The appeal of this scheme is that you are told you can remain in your home as a renter and repurchase it within a few years.  But the terms of the deal are usually unfavorable for you, and the scam artist walks off with most of the home’s equity or worse — if they default on the loan, you get evicted.

3.  A variation on the theme occurs when a scammer says they have a buyer for the home, and asks you to transfer the deed.  The scammer then rents out the home and keeps the profits while the foreclosure proceeds.  Even worse, you are still responsible for the unpaid mortgage, because transferring a deed doesn’t dismiss a mortgage obligation.

4.  A final tactic is when a scam artist files a bankruptcy case in your name, sometimes without you even knowing about it. The scam artist keeps the fee for his “services” during a temporary pause in home foreclosure proceedings, while you end up with the fallout from having a bankruptcy on your credit history.

Although any financial decision requires your utmost attention and due diligence, St. Louis Refinancing Group is in no way saying that all loan modification companies or offers are scams.

There are honest individuals who are determined to help as many homeowners as possible to remain in their homes.  However, you must be careful and read the fine print.  We will be reporting more news on legitimate loan modification companies in upcoming posts.

- Check back daily for more financial news.

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There are times in life when bad things happen to your finances.  When one loses their job or experiences a medical condition, this can lead to foreclosure, even bankruptcy.  Although these things are possibly beyond your control, how you handle this type of financial crisis may determine how long your finances will be affected. 

Avoiding bankruptcy is the best step to take but many are finding this unavoidable.  Thus, if you are responsible with your credit again after filing bankruptcy, it may not take 10 years to actually rebuild your credit although it will appear on your credit report for that amount of time.

One must learn how to control their spending such as eating at home, turning off lights in empty rooms and perhaps carpooling.  Simple choices such as these can have a positive impact on your finances.  Stay within a fixed budget and start an emergency savings plan as soon as possible to help avoid future disasters.

Many experts suggest getting a secured credit card from your bank which allows you to charge purchases against your savings account.  This will help you control your spending and more importantly, creditors will more likely offer you a loan in the future if you demonstrate you can responsibly use credit.

- What is your opinion on these credit building tips?

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Next wave of foreclosures coming?

According to a new report released this week by Standard & Poors (S&P), 93% of option-ARM buyers selected the worst, most irresponsible, option. 

Given a choice of which to pay:  interest and principal, interest only, or a minimum amount less than the interest due; almost everyone paid the minimum — presumably in hopes that the value would keep going up. 

Nearly all of the 350,000 option-ARM borrowers owe more than when they first bought their homes thanks to the unpaid interest accumulating, and many loans written during the first big wave, which started in 2004, are getting ready for their five-year reset when they become standard amortizing loans.

Some newer loans will even reset early if the accumulated interest has pushed the loan-to-value ratio above 110% to 125%. 

That will change things — in one scenario outlined in the S&P report, the payment on a $400,000 mortgage jumps from $1,287 to $2,593. 

Some industry pessimists say the looming default problem could have the power to derail the nascent housing market recovery. “The crux of the matter is that as soon as these mortgages recast, the history is that they will default,” said Brian Grow, one of the S&P report’s coauthors. 

The last year that any option-ARMs were issued was 2007. In the first 20 months after issuance, this vintage of option-ARMs had an average default rate of just over 22%.

But if you calculate only default rates for 2007 option-ARM borrowers who are now underwater, the default rate jumps to 25% after just 20 months, according to S&P.

So, regardless of how many of these kinds of loans there are out there, their high default rates will have an outsized influence on housing markets, adding to already bloated foreclosure inventories and driving prices down further.

 - What is your opinion on this startling annoucement?
 - Did consumers buy too much “house” with little money?
 - Who is to blame?  The lender or the homeowner?

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Comptroller of the Currency John Dugan said regulators should prohibit lenders from making payment-option adjustable-rate loans and other negative amortizing products.

“The U.S. national bank supervisor urged regulators to adopt minimum standards that require verification of borrowers’ income and assets, meaningful downpayments and underwriting that takes into account the fully indexed interest rate. “We fundamentally lost our way” and the consequences have been “disastrous,” Mr. Dugan said. “It’s simply hard to believe how far and how fast originators strayed from basic, fundamental, common-sense principles of sound underwriting.”

Indeed, most recently FHA added a requirement for a “net-tangible” benefit to be present for the approval for all FHA Streamline Refinances and the new Good Faith Estimate mandated by HUD beginning January 1, 2010 presents a comparison of loan options.

Source:  http://www.occ.treas.gov/index.htm

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