Loan Mdifications, Sort Sales, Foreclosures and Bankruptcies

Consumers, lenders, real estate agents and regulators alike are wondering how mortgage-related actions such as loan modifications, short sales, foreclosures and/or bankruptcies will impact consumers' credit profiles and, especially, their credit scores going forward. To get the answers there have been several studies made by the credit bureaus and here are some of those answers.


Loan modifications: Consumers should proactively seek out loan modifications before they experience severe delinquency in their credit file. Late payments have a far greater impact on a credit score than loan modifications.

Several types of loan modifications are:

1. Forbearance-the borrower is permitted to make substantially reduced or postpone making monthly payments.
2. Principal forgiveness-the lender forgives part of the original principal
3. Recapitalization-the loan terms are often extended and/or interest rates are reduced.

Short sale, foreclosure and bankruptcy: In some cases, consumers face extreme financial situations (job loss or severe income restriction) and simply cannot afford to continue paying their mortgage. This can lead to a short sale, foreclosure (including all variations, such as a deed-in-lieu of foreclosure) or bankruptcy, and these events have significant impact on consumers' credit scores.

Here is an average range of reduction in scores per each event:

• Loan modification: -30 to -40 points
• Short sale: -115 to -125 points
• Foreclosure: -130 to -140 points
• Bankruptcy: -365 to -355 points

A derogatory event such as a bankruptcy significantly reduces a consumers' credit score. Raising the credit score is extremely challenging until the public record identifying the bankruptcy is removed from the credit file. This currently takes a minimum of seven years for Chapter 12 and Chapter 13 bankruptcy, and ten years for Chapter 7.

The bottom line is the difference between a consumer with no delinquencies and a consumer with delinquency and defaults on primary accounts (mortgage, auto and credit card) represented an average of 243 points.

For additional information please consult Mark or Tim.

Tim Lorenz

Instant MLS Listings & Free Market Analysis

"We have actually closed many short sales!"

http://www.markandtim.com/

949-282-2521

Tim Lorenz . Over 40 Years Experience Representing South Orange County Home Buyers, Sellers, Investors and Relocations!