By now, most homeowners understand that a foreclosure judgment is a “significant ding” that will reflect in the credit score and perception of manual underwriting for many years to come.  Being late on your mortgage payments is a serious issue, but if you or your loan modification company are already negotiating with your lender, it certainly doesn’t hurt to attempt to get the lender to remove the delinquencies. It’s amazing how powerful a letter from the creditor says that they “made an error in reporting.”  But several readers recently wrote to Lisa Sitkin, in an effort to get clarification on the impact of loan modification and the long standing credit implications.  If the lender doesn’t agree, consider credit repair. 

Lisa Sitkin, a staff attorney with Housing & Economic Rights Advocates in Oakland, was kind enough to take a crack at answering that question. Here’s what she wrote:  Our view is that a loan modification that included a principal reduction might be reported as a write-off of some sort. Home loan modifications without a principal reduction (which will be the case in most borrower’s loan workouts) should not be reportable, but that is not a guarantee it won’t be. Credit reporting is something borrowers should be asking servicers about as they discuss lower mortgage rates. They should also request that prior past-due derogatory comments on the credit reports be changed to reflect new current status after the mortgage loan modification.

Sitkin suggests checking with an attorney with debt collection and/or fair credit reporting expertise for more insight on this issue; there is an attorney directory on Naca.net.  See the full article >

Chief economist for Lending Tree Cameron Findlay, says to get the lowest rates, you’ll need a FICO credit score of 720 or higher, says. To avoid surprises, you should obtain your credit score before you apply for a mortgage, says Nancy Flint-Budde, a financial planner in Salem, N.Y. Your credit score is based on information in the credit reports compiled by the three main credit bureaus: Trans Union, Equifax and Experian. You can order a free copy of all three of your credit reports once a year at www.annualcreditreport.com. You’ll have to pay for your credit score.

Once you’ve received your credit reports, check them for errors that could hurt your score. If your reports show late payments – and the information is accurate – the only way to achieve credit repair is by showing lenders that you’ve changed your ways, says Craig Watts, spokesman for Fair Isaac, developer of the FICO score. That will take time, because you need to demonstrate a pattern of on-time payments.  However, if your credit reports show large credit card balances, you can raise your score quickly by paying them off, Watts says. Your “credit utilization” ratio, which reflects the amount you’ve borrowed as a %age of your available credit, accounts for 30 % of your credit score.

Ideally, you should have at least 20 % equity, based on your home’s current appraised value, says Keith Gumbinger, vice president of HSH Associates, a publisher of mortgage and consumer loan information. Most lenders will require an appraisal before refinancing your loan, and if the value of your home has dropped, you may be unable to refinance, or decide it’s not worth the trouble.

Homeowners with less than 20 % equity may still be able to refinance, Gumbinger says, but they’ll probably need to buy private mortgage insurance. Private mortgage insurance, which protects lenders against default, is no longer available in some markets where home prices have plummeted because insurers no longer want to take the risk, Gumbinger says. And even if you can get mortgage insurance, the monthly premiums will reduce the savings from refinancing.  Sadly, the millions of Americans who owe more on their mortgages than their homes are worth – known as being “underwater” – won’t be able to refinance. Those borrowers “really don’t have a lot of alternatives,” Findlay says.  FHA introduced a new program called Hope for Homeowners that was created specifically to help distressed homeowners refinance even if their mortgage is larger than the value of their property.

If you have a home equity loan or line of credit, you’ll probably need to pay it off before refinancing, says Bob Walters, chief economist for Quicken Loans.  Before a mortgage lender will refinance your first mortgage, it typically needs approval from the lender that holds your second mortgage. The lender with the home equity loan must agree to “subordinate” the loan, which means it will take second place behind the new first mortgage.  In the past, that hasn’t been a problem. But in the wake of the credit crunch, many lenders are eager to rid themselves of home equity lines and loans, which are considered a higher risk than 1st mortgages.

According to Bankrate, borrowers in high-cost areas may not qualify for the lowest rates, even if they have outstanding credit, lots of equity and no second mortgages. That’s because the interest rates for loans that exceed $625,000 – known as jumbo loans – have remained high. The average jumbo rate is 6.8 %, nationally, the lowest rates are limited to home loans of $417,000 or less. Those are known as “conforming” loans because government-sponsored mortgage giants Fannie Mae and Freddie Mac will buy them in the secondary market. That makes those loans less risky for lenders.  In years past, FHA home loans had been more conservative than Freddie Mac for setting loan limits, but since 2006, FHA has allowed mortgage loans as high as $729,750 for qualified borrowers looking to borrower against their home located in a high cost area.

In some instances, Freddie and Fannie also will purchase loans for up to $625,000. The rates on these loans, which Gumbinger calls “expanded conforming” loans, averaged 5.28 % last week, according to HSH.

Trouble is, expanded conforming loans are only available in some parts of the country – mainly New York, Los Angeles, San Francisco and Washington, D.C., Gumbinger says. In Boston, where there are plenty of high-cost homes, the expanded category only covers loans up to $465,750. Loans above that amount are jumbos, with jumbo rates.  Read the original article >

Stop Foreclosure

How it works: According to the FTC, you may get a personalized letter from a firm that found you by looking through foreclosure notices. Or maybe you saw an ad saying, “We guarantee to stop your foreclosure.” 

Once you’re on the hook, the firm uses various schemes to steal your money. One method is by phony negotiations on your behalf. They tell you that they can work a deal with your lender to stop foreclosure if you pay an upfront fee. They also may tell you to stop contacting your lender and to make your mortgage payments to them.  There are real foreclosure prevention companies that are attorney backed organizations who offer loan modification plans and there are companies that look good on paper but perform no backend fulfillment that is required to modify mortgage loans with revised interest rate and amortization schedules.  Make sure you get everything in writing.  Check with the FTC if you are unclear about shopping for a foreclosure prevention company.

“The attorney general says (consumers) should avoid these rescue schemes that ask for money upfront, because they’re just looking to swindle your cash,” said Natalie Bauer, spokeswoman for Illinois Attorney General Lisa Madigan. Another method is the bait-and-switch rescue loan. You are told you are signing papers for a new loan to get your mortgage up to date. But you’re really signing over the title of your home in exchange for the loan. Then there’s the rent-to-buy con, in which you surrender your title in a deal to stay in your home as a renter, with the goal of buying it back later. Tactics vary, but the result is the same: You lose your home.  How to avoid it: The FTC advises that you not use any firm that guarantees to stop foreclosures, tells you to stop talking to your mortgage lender, collects a fee before services or accepts payment only by cashier’s check or wire transfer. You also should see red flags if the firm persuades you to lease your home and buy it back later, or tells you to make your home loan payments to them instead of your lender.

Make Bad Credit Go Away

How it works: The companies claim to be able to erase your bad credit or, in some cases, create a new credit identity. You pay them and, you guessed it, you get nothing.

How to avoid it: The FTC warns not to use any company that wants you to pay upfront for credit repair. Under the Credit Repair Organizations Act, companies can’t require you to pay until they have performed the promised services. Other red flags: If a company doesn’t tell you what your free options are, recommends that you not contact the three major credit reporting agencies, tells you they can eliminate bad information on your report or suggests you create a new identity by applying for an employer identification number to use instead of your Social Security number.  Check with the FTC or visit the Credit Repair Blog for the latest news and insight.

Bottom line, there’s no quick fix to repairing your credit. It takes time and requires repayment of debts. Anything a credit repair company can do legally, you can do by yourself, the FTC says.

Read the complete article >