Probably the most confusion surrounds loan modifications. That’s when the lender agrees to modify the terms of your mortgage to make it more affordable or perhaps help you get current again on your loan after a temporary financial difficulty.
Technically, a loan modification should not have any negative impact on your credit score. That’s because you and the lender have agreed to new terms for paying off your loan, so if you continue to meet those terms, there shouldn’t be anything negative to report.
Probably the most confusion surrounds loan modifications. That’s when the lender agrees to modify the terms of your mortgage to make it more affordable or perhaps help you get current again on your loan after a temporary financial difficulty.
Technically, a loan modification should not have any negative impact on your credit score. That’s because you and the lender have agreed to new terms for paying off your loan, so if you continue to meet those terms, there shouldn’t be anything negative to report.
However, you will suffer some damage to your credit rating if you missed a few payments or made some partial payments in the months before your loan modification was approved. If that’s the case, those the Consumer Data Industry Association missed or partial payments will damage your credit, but the loan modification itself will not.
There have been some problems with damaged credit for people who have obtained loan modifications under the government’s Making Home Affordable Program. In that case, the problem is that borrowers obtaining loan modifications must undergo a three-month trial period at the new, reduced payment level before their loan modifications are finalized.
In many cases, these trial payments were reported to credit bureaus as partial payments, because the new payment schedule had not yet been fully approved. Part of the problem is that credit bureaus didn’t have a code to represent trial payments, so lenders were told to report them as partial. Starting in November, though, a new credit code is being implemented specifically for reporting trial payments in a loan modification program, which should help correct the problem.
Refinancing should not affect credit
If you simply refinance your mortgage at a lower rate to reduce your monthly payments, you shouldn’t have any negative credit impacts at all. Refinancing your mortgage is basically paying off your existing mortgage by taking out a new one, so there’s nothing negative to report. In fact, you’ll need good credit to refinance your mortgage in the first place.
One place a mortgage refinance might have a negative impact is if you try to take out another large loan, such as a car or boat purchase, within a few months of refinancing. Since the refinance is a new major loan, lenders may look askance at you seeking to take out another so soon, even though you’ve actually reduced your debt obligations.
Another way a refinance might damage your credit is if you do a short refinance. In this situation, your home has lost value and the lender agrees to write down the principal and issue you a new loan. You’re basically doing a short sale (see below) to yourself. This is typically a difficult arrangement to obtain, although in the current market environment, lenders may be more accommodating than in the past. Still, it’s going to show up on your credit score as a debt writeoff for the next seven years.
Short sale recorded as a writeoff
A short sale, mentioned above, is when the lender allows you to sell the property for less than the balance owed on the mortgage in order to avoid foreclosure. This is sometimes an attractive arrangement lenders, because the marked-down value of the property still exceeds what they could expect to get out of a foreclosure sale and is far less costly to process as well. Still, it goes on your credit score as debt writeoff, though the impact is considerably less than a foreclosure itself.
A deed in lieu of foreclosure is when a homeowner who can no longer afford mortgage payments simply signs the property over to the lender. Opinions on this are mixed. Some claim it’s better for your credit than a straight-out foreclosure, because you’re ending the foreclosure process early and reducing the number of missed payments that show up on your record. Others say it’s basically the same thing as a foreclosure and will have basically the same credit impact. Either way, it stays on your report for seven years.
A foreclosure has the most severe impact, although the impact will be far greater on someone with good credit than someone whose credit was already damaged. A foreclosure can drop your credit score as much as 200-300 points and stays on your credit report for seven years, although the initial impacts do moderate over time.
Getting a loan modification on your mortgage can be a real challenge. But once the bank says yes and offers to modify the terms of your loan, there’s yet another challenge to face – deciding whether to accept the offer or not.
At this point, your response may be “Are you nuts?! Of course we’ll accept! Do you think after all these weeks of trying to get the bank to say yes, we’re just going to say ‘no thanks,’ and walk away?”
But holding out – at least temporarily – can be in the homeowner’s best interest, according to many housing counselors. They say that by automatically accepting the lender’s first offer, homeowners in financial difficulty could be setting themselves up for failure.
“The problem is, a lot of servicers tend to put the pressure on and make an (initial) offer that’s in their best interest,” said Rich Korn, a certified foreclosure intervention counselor with Consumer Credit Counseling Services (CCCS) in Columbus, Ohio. “But it may not be in the borrower’s best interest.”
Korn said that in doing loan modifications, mortgage servicers often focus on getting a delinquent borrower current on their mortgage and resuming payments as quickly as possible, without fully considering whether the modification will work over the long haul. As a result, he said, many homeowners find themselves falling behind again within just a few months.
Need to consider overall financial picture
Homeowners are often in a panic situation when seeking a loan modification, he said, so they’re eager to just get the mortgage problem resolved as quickly as possible. However, they may fail to take into account how their modified mortgage payments fit into their overall financial picture – they may end up being able to keep up on their mortgage payments, but fall behind on their utility or car payments, or get hit with an unexpected expense that can knock their finances off balance again.
In dealing with clients obtaining loan modifications, Korn said he tries to ensure that they enter the loan modification with some sort of financial reserve on hand. Often, this can be as simple as working out an agreement with the lender to postpone the new payment schedule for a month or so to give the homeowner some breathing room to get their finances in order.
Although most lenders will work out loan modifications directly with qualified borrowers (i.e., those who many have fallen behind on their mortgage but still have the ability to meet a modified payment schedule), Korn said it can be helpful to review a proposed loan modification with a credit counselor before committing to the deal. Often, he said, they can help borrowers work out a better deal.
Avoid being pressured
He said borrowers should resist being pressured into signing an agreement immediately, noting that lenders sometimes will sometimes demand that homeowners sign and return a loan modification agreement within 24-48 hours of the offer. But he said there’s no reason the offer shouldn’t still be good for 2-3 weeks.
“The big thing is, don’t panic,” he said.
Local certified housing counselors can be found through the Department of Housing and Urban Development (HUD) or your state or community housing agencies and typically offer their services for little or no fee. They are different from so-called loan modification companies that offer to help consumers obtain loan modifications in return for a large fee paid in advance, and which most mortgage and financial advisors urge consumers to avoid.
One of the most frustrated Chase employees I met was Domonique Perez, whose job was to round up the documents from borrowers who had been granted temporary modifications.
It was, she said, not going well.
She told of one man who had filed almost all the necessary documents — the permission slip for Chase to look at old tax returns, the pay stubs for current income — but not the affidavit of financial hardship. She had called and called, she said, and sent letters by regular mail and by FedEx, but the man was not getting back to her.
Read more from the NY Times
Getting a mortgage after foreclosure is going to be no easy task. In fact it is going to be darn right impossible for a minimum of at least 3 years to a more realistic time frame of 5 years.
For example, Fannie Mae now requires a minimum of 5 years from the date of foreclosure for you to be able to qualify for their mortgage programs. The Federal Housing Administration (FHA) is a bit little more lenient with their loan programs. They allow just three years from the date of foreclosure. FHA also allows what they call “documented extenuating circumstances beyond the control of the borrower” and this may allow some borrowers to obtain financing prior to the three year period.
These special excetions are for unfortunate life events such as death, cancer or other serious illness. You would have to have to fully document your situation and prove this to the FHA underwriter’s review.
You need to understand that over 300 lenders have gone out of business and the options that you once had are very far and few in between. Fannie Mae, Freddie Mac, FHA, a few banks and your local credit unions are your only hope to obtain financing in the future and most likely for sometime to come.
As is the case with all loans and especially in today’s lending environment, good credit will need to be re-established in order to obtain a new mortgage in 3-5 years plus. So pay your bills and please pay them on time because your going to need good credit. If you skip or miss payments on bills, including utility bills, credit card payments, rent, etc., then you’ll have a tough time getting a mortgage until you have a good track record.
Making payments your payments on time, establishing new (limited) credit will help boost your credit score. Common sense.
Create and follow a budget because you’ll need to save evrey extra penny you have in order to have enough money for a down payment. You’ll most likely need to put a hefty down payment of 15-20% and maybe 5-10% with FHA on your mortgage. The days of no money down loans are gone and left to only a select few first time home buyers with good credit.
If you create a budget and following your budget, you will be able to reach your goals.
Putting more money down might also lower the interest rate and help with your monthly payments. However, no matter what, you’ll be charged a higher interest rate since you have a foreclosure on your report. Either way, be prepared to save your cash and have money in hand when your ready to buy in 3-5 years.
Last but not least, buy a home you can afford for the long term. A mortgage with monthly payments that let your sleep at night and a loan that you can pay off as soon as possible.
Owning a home isn’t about flip this house or making millions. It’s all about the American Dream and raising your family in place that you can call your own.
Millions of homeowners such as yourself are suffering financially and they are desperatelylooking for mortgage help on the internet. You need to be really careful when searching for lender who offers loans for people in foreclosure because of the many scams that are out there.
What you do need to understand is that there’s no shame in having problems and hiding them just makes overcoming them harder. You have made the first great step of educating yourself and I commend you for doing that.
Some homeowners are able to obtain mortgage refinances through other lenders. However, the facts are that there are not many lenders who are willing to refinance a borrower in foreclosure, but these “hard money lenders” do exist. But be prepared to pay hefty origination fees and the highest interest rates possible.
These lenders would be your last ditch solution to your problems because they don’t mess around when it comes to being late and foreclosure. They will most likely take your home in a heart beat and rarely will offer you a loan modification.
(Scroll below and you will see our current list of lenders who offer assistance to struggling borrowers and free mortgage assistance.)
Warning: If you are this person, be careful of where you search and you ask because the loan predators are desperate too and they are out looking for fresh prey on. Many people wound up unintentionally signing over the title of their homes to so-called lenders who they thought were there to help. Don’t let this happen to you!
If you are that desperate, be prepared to pay 4-6% in origination fees and an interest rate in the 9-14% range. Also the length and terms of these home loans are usually short. 1-5 years.
If you really need a loan to avoid foreclosure, then the best net is to try and get a loan modification from your current lender.
The good news is that you shouldn’t have to use these shady mortgage bankers. “Why”, you ask?
Because lenders and mortgage servicers don’t like to foreclose on homeowners such as yourself because the cost can be sometimes greater than if they were to work with you and help you fix your loan. This is known as a loan modification or loan workout. We have plenty of free information to help you on this website and our home loans forum.
Your lender’s willingness to help assist you with your loan while you are in foreclosure depends heavily on your current ability to pay your mortgage and also on your past payment history. If you have a job and have made payments on time for the most part, then they will be willing to work with you.
More and more reports are coming out of foreclosed homeowners stripping their properties of anything of value before they bail on the bank.
In my forum over at LoanSafe.org, I am getting a lot of questions in regards to what I can take and what I can’t take. Often, these people used their own money to improve the home and they feel that its is rightfully theirs.
Let me shed some light on what is considered a fixture, security interest and what you own and do not own when you have a mortgage. This is an actual exchange from California Professor Shays, myself and a forum member yesterday.
You can join the discussion here if you like.
Q. In CA it is now common place to hear stories of people being arrested for stripping their homes in foreclosure. Does anyone know what you can take with you when you leave? Can you take your appliances, ceiling fans, garage door openers, window treatments? The things that you paid to have installed? Any ideas?
A. The focus should not be on “what the loan paid for” but “what does the lender have a security interest in.” Truth is, the lender’s security interest on your typical residential real estate loan covers only real property and fixtures. A free standing refrigerator is not a fixture, but personal property. To secure an interest on the refrigerator the lender must have filed a UCC-1 financing statement that you would have signed with the California Secretary of State. Same would be true of the washer and dryer. Now when you get to things like toilets, built in dishwashers, etc., then you cross the line from personalty to fixtures (which are characterized as real property.
So legally your guiding light should be on what the lender has a security interest in, and not what the loan paid for.
As a citizen, you and I have a moral obligation to make sure that a person’s property is not subjected to vandalism. Best approach in that regard is to do the responsible thing. That means that if you intend to vacate the property before the foreclosure date (or anytime thereafter), you should contact the lender and make sure that arrangements are made to transfer physical possession to the lender and do a “walk through” just as you would in a landlord-tenant situation.
You want the lender to acknowledge receipt of possession and also acknowledge the condition of the premises at the time the keys are turned over. Taking pictures at the time of surrender helps eliminate the possibility of lender claims for waste (vandalism) that occur once possession has been turned over.
Don’t leave your common sense behind. Deal with this issue as you would other life circumstances. The lender doesn’t want your home. From a practical standpoint if it is over encumbered as many homes are today, you don’t want it either.
For the past few years I have helped thousands of people by teaching them to help themselves through my blogs, forums and emails. I really enjoy assisting my fellow Americans in a time of need and have found a great new career working from home.
Since becoming a full time consumer advocate and blogger in 2007, I have found that one of the best teaching tools is to answer the questions I receive on my blog for the world to see and learn.
This morning I received this email and I though this exchange could help a few people out there that may have the same question.
from C*@bellsouth.net
to Moe@loansafe.org
dateSat, Jun 20, 2009 at 8:22 AM
subject: Your thoughtful Insight Needed
Greetings Moe,
I have read many of your different blogs on various websites. Your passion for helping others is well documented. If you don’t mind, I have almost completed my loan mod with American Home Mortgage. I’m pleased with their first offer, but should I asked for more. For example, could they wave the $500 Modification Fee?
I have listed below the details of my modification (my previous APR was 6.625%):
1st year APR 3.5%
2nd year APR 4.0%
3rd year APR 5.0%
4th year and beyond (25 yrs) APR 5.5%
Also, I have 2 months mortgages payments rolled up into the loan.
Our insight is greatly appreciated.
Thanks,
C*
To: C*@bellsouth.net
dateMon, Jun 22, 2009 at 6:51 AM
subject Re: Your thoughtful Insight Needed
My answer:
Hello Cordie and thanks for the email!
This looks like a great offer. If you can afford this modification long term, then I advise you might want to accept it. As far as the $500 modification fee, many mortgage servicers do have these fees added in to handle their costs associated with processing your loan modification.
What upsets me is the fact that they get an additional $1500 from the US government and they still have their hands our for more money from homeowners. But I am not surprised to say the least.
By all means, you can counter this offer and do not have to take it. I have seen some people get better offers by doing this. I have also witnessed homeowners who countered the offer on the table, as the current offer expired, only to never receive another loan modification. Sadly, they ended up losing their homes.
If you counter or deny this offer, you run the risk of losing it and maybe all offers in the future. But do not take an unaffordable loan modification because you feel pressured to accept it. If you can’t afford it, then fight for better!
Loan modifications are what the industry calls a privilege and are not mandatory. You being an American, you have the right to choose what is best for you and your life.
With that being said, lets end this with an old country song by the great singer Kenny Rogers, “You gotta know when to hold em, know when to fold em, know when to walk away, know when to run!”
I wish you the best in all you do and choose!
—————
Best Regards,
Moe Bedard
Unfortunately, many homeowners simply don’t know what to do when they are in foreclosure. I get many emails asking me, “Will filing bankruptcy stop foreclosure?”
Well, yes and no!
Many homeowners will file for Chapter 13 specifically to stop their sale date. Only to find out later, that their mortgage is not included and now they may have both on their credit reports. In most cases, when you file BK, an automatic stay is granted prohibiting your creditors from attempting to collect or contact you.
However, the automatic stay and the stopping of the foreclosure is ONLY temporary.
More often than not, a creditor such as your lender can get around the automatic stay by asking the courts to remove (”lift”) the stay because it is not legally binded to the proceedings.
In many cases a homeowner will shell out $2,000-$3,000 to file an emergency BK the day before their property is to be sold at the notice of trustee sale. Often there is no equity in the home and there is no way for the borrower to come up with the full amount owed to their lender and in some cases, the homeowner is jobless.
This is a really common scenario. The banks know this and their lawyers understand this like the backs of their hands. And like clock work, shortly after you file for bankruptcy, the lender will ask for permission to proceed with the foreclosure and quite often (since it is the law), the foreclosure proceeds.
Now the person is stuck with two HUGE black marks on their credit and the are probably mentally depressed?
What you need to understand is that if you have a second mortgage then there are different rules that may apply and help you in your mission. More on that at the end of this post. But if you just have a first mortgage and you decide to file, if is is before the foreclosure sale date, a bankruptcy will stop the foreclosure sale from taking place.
However, under a Chapter 13 plan, you will be required to make regular monthly payments on your mortgage once the automatic stay is lifted. You will then be given a reasonable period of time to bring your mortgage payments up to date to save your property.
Obviously this is a temporary fix and if you have no way of paying your mortgage or it will be very difficult, then maybe this is not an option for you to choose. Bankruptcy may be the best solution for a lot of extreme financial hardships.
However, it should be used as a last resort due to its limiting protections for homeowners with a first mortgage and the long lasting consequences to your credit.
For more information on foreclosures, consult with an attorney experienced in bankruptcy law.
If you own a home with more than one mortgage, you may be able to completely remove or “avoid” the second and subsequent junior mortgages from your home and county records, thus leaving only the first original mortgage!
To qualify for this defense, the court will generally require objective evidence that the home is appraised for less than the value of the initial mortgage, which can be obtained through a county property appraisal or through a third party certified appraisal that is accepted by the court.
In an environment where home prices in most markets have fallen at least 30%-50%, many borrowers may qualify.
If the courts remove this 2nd mortgage, this is known as “stripping” the lien, “cram down” or “strip down,” which can also occur if the loan is secured by other collateral that is part of the filing or if the home is not your principal residence, or even if the payment structure on the 2nd mortgage falls heavily during the bankruptcy filing itself.
Ultimately, working with a qualified tax, real estate attorney and or experienced real estate bankruptcy lawyer will help you present your case to the Federal bankruptcy court, so it’s important to get qualified legal advice in advance of any filings.
Please read the many more blog posts below on cram downs and second mortgages!!
Would you like a free consultation with experienced mortgage bankruptcy attorneys?
If you are in the state of California, please call the Law Offices of Fransen & Molinaro at (888)756-2652 or visit their website at www.ModifyLoan.net
If you are in the state of New York, please call the The Radow Law Group, P.C. at (516) 338-7800 or visit their website at www.NewYorkLoanLaw.com
If you are in the state of Michigan, please call The Law Offices of Shannon Shaya, P.C. at (248) 789-5551 or visit their website at www.MichiganLoanModification.net
LoanWorkout.org is searching for attorneys who would like to be included on our blogs and advertisements to help homeowners with bankruptcy, loan modifications and foreclosure defense. Please contact moe at moeseo.com or call 888-516-1116 for more information.
LEGAL DISCLAIMER – The comments, posts, threads and material on this websites are NOT to be taken as legal advice and we highly recommend that anyone facing foreclosure should seek the counsel of an attorney and or an accountant. ALWAYS obtain a second and third opinion on your particular situation from a trusted source.
Many homeowners want to know the ramifications that a foreclosure will have on their credit and most importantly, their lives.
The facts are that a foreclosure is definitely not the end of the world and it isn’t really going to change your life that much in the long term. Yes, the short term effects will suck, but in the end you may just be better off.
Yeah, you heard it right, you just might find yourself in a better place, sleeping at night and living a more gratifying life because you’re not strapped to an unaffordable mortgage and home. But you’re still going to have to pay the piper in more ways then one for your new found debt free renting life.
What the piper says you’ll have to pay can be many things. For the most part a foreclosure on your permanent record means that you will have a black mark on your credit/financial profile. Anything you do in relation to a loan or applying for some type of credit will be affected by this foreclosure.
Many Americans are saying, ‘I’ll never buy a house, car or get a credit card ever again!” If that’s the case, the only other thing you will need to worry about is renting another home and a possible judgment brought against you by your lender. This possibly could result in a wage garnishment claim against you. But this is very rare that a lender will spend money in legal fees trying to collect from millions of Americans who have gone broke.
Before you accept that foreclosure as the only way out and start looking through the classified rent ads, consider trying to avoid it.
The first question you need to decide is whether you want to keep your house or give it up. If you want to keep it, you need to try to work out a loan modification to get back on track. This is the most common way to get back on track and an affordable payment. Some lenders will drop the rate down to 2-4% to help homeowners. If a 2-4% rate will help you, call your lender now or visit our 16,000 homeowners forum to get free mortgage help.
If you’re in over your head, have no job and or bought too much house, a loan modification probably isn’t going to help. So, please keep reading for some tips to help smooth the process.
Unfortunately, now you’re going to have to juggle the art of locating a home to rent while yours is being foreclosed on. Time is not on your side and the longer you wait, the more difficult renting will be. If you’re going to life with mom and pop, ride the foreclosure out till the end. Just make sure to check your states foreclosure laws and keep an eye on the sale of your home so you can time your departure just right.
Having a past foreclosure can make renting hard because landlords fear you might become late on the rent. Fortunately, you can still rent after a foreclosure.
Try looking for apartments or landlords that do no credit checks. Fortunately, foreclosure is the norm now. A lot of people have suffered one themselves or know someone who has. These people understand that bad things happen to good people and second chances+redmeption are the way to live life.
Large apartment complexes are typically owned by property management companies are going to have a strict approval criteria. You’re more likely to get a credit check at one of these complexes (and denied if you have a foreclosure) so don’t apply there.
Money talks and you know what walks. So save those Benjamin’s and dress to impress. Paying a higher security deposit may be your ticket to renting glory. Giving your landlord a high deposit lets them know you’re serious about paying your rent.
While you’re searching for that perfect new place to cal home, you still have to deal with reality and your current situation. So get educated on what you can do to help make your move easier.
You can also try something called a “deed in lieu of foreclosure”. This basically means you turn over your house to the lender and walk away without owing anything. But you’ll need to work this out with the lender and you can just send them a letter with your keys.
Banks do not like jingle mail. If you decide this is the route you would like to pursue, then I advise you seek a reputable attorney in your state that can assist you in dealing with your lender. You may also want to seek the advice of a tax attorney to determine if you may have tax issues in the future.
A good attorney who knows real estate and mortgage law can help. If you can’t afford an attorney, try your local bar and ask for a legal aid firm in your area or a non-profit HUD approved housing counselor. Mortgage servicers and lenders are more likely to work with a competent third party if you can’t get your items together during the process.
If all else fails, you may have to consider just moving to Costa Rica or Tahiti. If that’s too extreme maybe just allowing foreclosure to proceed and or filing for bankruptcy is the ticket to freedom.
The good news is that the ramifications of foreclosure aren’t too bad. Hell, you can’t go to jail, the bank can’t send thugs to your work to collect the mortgage and your life may just be better off.
Only you can decide the best course to take, but by all means, move ahead my friend and get going down that course!
Under intense pressure to help more people stay in their homes,mortgage lenders canceled far more scheduled foreclosures in November than in the previous month, according to a report Tuesday.
A total of 10,469 scheduled foreclosures were canceled in November throughout California, up 20 percent from 8,741 in October, according to ForeclosureRadar, a Discovery Bay company that tracks foreclosureactivity daily. In Santa Clara County, 337 were canceled, up from 269 in October.
The raw numbers may actually understate the scale of the increase, said Sean O’Toole, ForeclosureRadar’s founder. There were 416 cancellations each business day in October, and 581 each business day in November. That was an increase of 40 percent on an average daily basis because there were three fewer business days in November than October.
Read more from Mercury News
The Federal Housing Finance Agency (FHFA), conservator of Freddie Mac and Fannie Mae (the Enterprises) has established its final housing goals for the Enterprises in 2010-2011. FHFA is required by the Housing and Economic Recovery Act of 2008 (HERA) to set such goals for targeted segments of the mortgage market The new rules establish three goals for single-family, owner-occupied home purchases; o
READ MORE ALL NEWS
