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Financially stressed homeowners looking to cut their mortgage payments through a loan modification, short sale or principal reduction under one of the Obama administration’s programs needn’t wreck their credit scores in the process.

In fact, according to a new study covering more than 400,000 active consumer credit files, some modification options can increase your scores rather than depress them. Other alternatives to modification — such as foreclosure and bankruptcy filings — can tank your scores and take years to rehabilitate.

The study was conducted by VantageScore Solutions, a joint venture created by the three national credit bureaus — Equifax, Experian and TransUnion. The “VantageScore,” now being used by growing numbers of mortgage lenders and banks, is designed to be an alternative to the long-dominant FICO score.

The VantageScore scale runs from 501 to 990, with low scores indicating high risk for the lender. FICO scores run from 300 to 850. According to Sarah Davies, VantageScore Solutions’ senior vice president for analytics, the two scores show roughly similar impacts of loan modifications, short sales, foreclosures and bankruptcies on consumers with similar credit histories. The 400,000 consumer files accessed in the study were scrubbed of all personal identifiers to preserve privacy.

Some of the most frequently used mortgage modification strategies turn out to have relatively minimal negative impacts on consumers’ scores, the study found.

For example, people with excellent scores at the time of a loan modification — those who had paid their mortgage and other credit accounts on time — might find their scores depressed by 30 to 40 points after a modification that involved deferral of payments for a period of months.

The same consumers could see a small net gain in their scores — about 10 to 30 points on average — if their lender modified their loan by forgiving 10 percent of the balance owed and chose not to report that forgiveness as a charge-off to the credit bureaus. If the lender reports a charge-off, however, their scores could drop by 100 points or more.

Modifications involving what lenders call “recapitalizations” — rolling delinquent payments and fees into a new balance typically carrying a more affordable interest rate — also can increase scores modestly, the study found. On the other hand, homeowners who do not pursue — or whose lenders do not grant — modifications can end up in short sales, foreclosure or bankruptcy, with major hits to their scores.

For homeowners with good credit, a short sale can knock their scores down by 130 points instantly. A foreclosure for the same homeowner is worse — a 140-point decline. A bankruptcy filing is almost certain to be a nuclear event — as much as a 365-point cratering of scores for borrowers with previously solid credit.

“If someone is on the margin and can find a way to avoid bankruptcy,” said Barrett Burns, president and chief executive of VantageScore, not only should he pursue it vigorously but he “ought to know what the consequences are.”

VantageScore’s simulations of scoring scenarios also examined how quickly homeowners could bounce back from one or more negative events connected with their mortgage. The results should be encouraging for consumers who manage to get current on their loan payments after a modification.

For example, in the case of delinquent borrowers who started with scores just above 600 and saw them drop by more than 100 points after a significant restructuring of their loan terms, scores can rebound to 700 in just nine months — provided they make on-time payments on all of their credit accounts.

Borrowers who file for bankruptcy, by contrast, can expect only minimal gains in scores plus a huge negative mark on their credit files for at least seven years.

Other noteworthy findings in the study:

– Credit scores assign disproportionate weight to mortgage payments over other accounts. For example, there was a 108-point average difference between the scores of borrowers who were current on their mortgages but delinquent on other credit accounts and homeowners who were delinquent on their mortgages but had perfect payment histories on credit cards, car loans and the like.

– Growing numbers of homeowners appear to be ignoring this overweighting, inadvertently depressing their scores disproportionately by paying credit cards and auto loans on time while becoming delinquent on their mortgages.

Davies called the shift “a sea change” with profound implications for mortgage lending and home buying. It’s not yet clear whether this is a temporary trend connected with the housing boom and bust or a longer-term shift, she said. But whichever the case, it’s the wrong strategy for borrowers who care about their credit scores.

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If you’d like to discuss your personal situation to learn what options are available to you, give me a call at 702-204-3945 or you can contact me via email kenny@tfmcpartners.com or by leaving a comment below.

Kindest Regards,

Kenny Wagner
The Foreclosure Mitigation Company

P: 702-204-3945

Chat with Kenny @ TFMC

by Rob Chrisman

http://www.mortgagenewsdaily.com/channels/pipelinepress/12212009-onewest-modifications-us-bank.aspx

Modifications aren’t going so well. Why not? Well, getting to the essence of things, from someone in the trenches, most people do not qualify income-wise on paper. Self-employed borrowers write off a lot on taxes, and many wonder if the government should help a tax cheater. Others experience the loss of spouse’s income (divorce, death, joining the circus, etc.), loss of job, overtime hours, or second job. Folks dealing with borrowers in this sector report that most borrowers are angry with their servicer because they cannot pay their mortgage, and that this “feud” prevents an open dialogue especially when there is huge amount of paperwork to be filled out. Lastly, sometimes servicers do not have rights to the loans when the MBS holders own the rights – often the servicer is just the administrator of the pools.

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The above is for informational purposes.  For those that follow my blog, the reason for the recent posts/info on Loan Modifications is because I come across many folks looking to “save their home from foreclosure” with the hopes of a loan modification and I want to dispel the misinformation and false hopes that are being given to these poor homeowners.  As I’ve said before, if you want to stay in your home please contact your lender directly and if they don’t have a program that you qualify for and you need to sell, feel free to give me a call or email me to discuss your situation.

If you’d like to discuss your personal situation to learn what options are available to you, give me a call at 702-204-3945 or you can contact me via email kenny@tfmcpartners.com or by leaving a comment below.

Kindest Regards,

Kenny Wagner
The Foreclosure Mitigation Company

P: 702-204-3945

Chat with Kenny @ TFMC

“Loan Modifications Are Just Another Exotic Mortgage”.

Isn’t this a big part of why we are in the real estate mess that we are in right now?

The bottom line is that after initially referring a client (yes just one) to an “attorney backed” loan mod firm; it not helping out my client and further investigation into the ability of loan modifications to help a homeowner long term, I have come to my own personal opinion and conclusion that

LOAN MODIFICATIONS DO NOT WORK FOR 99.9% of homeowners.

They are a temporary fix with most lasting, at most, for 5 years which is just delaying the inevitable.

If you want to stay in your home, and haven’t yet spoken directly to your lender about qualifying for a loan mod please do so but directly with your lender as it is in my opinion that if the lenders will not or can not approve you for a loan mod with the current monetary incentives that the President is offering lenders to approve loan mods, than a third party loan mod firm that charges a fee, from a law firm or a firm that is attorney backed or not, will not help you any more than what you can do on your own.

Consider this, from what I’ve last read, more than 60% of the loan modifications firms in California, including attorneys, have gone out of business because the new law California instituted states that loan mod firms, again including attorneys, can not charge an upfront fee until they have successfully modified a loan that is agreed on by the homeowner.  Moreover, the hold message that some lenders have when you call into their loan modification department or home retention department, caution you of third party firms offering loan mod services as the the lenders themselves can work directly with you to see if you qualify for one of their loan modification programs.

If you’d like to discuss your personal situation to learn what options are available to you, give me a call at 702-204-3945 or you can contact me via email kenny@tfmcpartners.com or by leaving a comment below.

Kindest Regards,

Kenny Wagner
The Foreclosure Mitigation Company

P: 702-204-3945

Chat with Kenny @ TFMC