Then you’re the sucker. (Assuming you haven’t already figured that out.)
SF Chronicle: “Bill Would Shield Homeowners’ Credit Ratings”
From the article:
A bill introduced on Thursday by U.S. Rep. Jackie Speier, D-Hillsborough, would shield homeowner credit ratings after a loan modification.
“To play by the rules, modify your loan and then have it as a blemish on your credit report is just flabbergasting; it adds insult to injury,” said Speier. “The credit system should not punish responsible homeowners who modify their mortgage payments to keep their homes.”
There are lots of things I’d like to say to Speier, but none of them are nice. So, in the interest of keeping this a family show, I will refrain.
I will just state here that, in my opinion, the only freedom this country strives for any longer is the freedom from responsibility.
Denise wrote:
Wow. Seems to me that a loan modification *should* hurt the credit score. If you aren’t capable of meeting your obligations in full, the credit score should be able to reflect that. I can see having it be less of a ding than an unpreapproved partial payment, but still, a ding seems fair to me.
finance4youth.com wrote:
In the truest sense of the term, loan modification doesn’t need to hurt the score. If a borrower has been paying as agreed and wants to modify the loan for a shorter term, or even a longer term with smaller payments, it doesn’t HAVE to hurt. But we now live in a world where modification has taken a darker meaning. One can only hope that the next generation is smarter than we were.
Michael wrote:
If a borrower has been paying as agreed and wants to modify the loan for a shorter term, or even a longer term with smaller payments, it doesn’t HAVE to hurt.
Yes, it does.
If a borrower has paid as agreed, and for whatever reason wants different loan terms, there’s a process for that: It’s called refinancing. However, it generally requires (1) upfront money and costs, and (2) some amount of equity in the collateral.
Unfortunately, because by modifying the payments or principal of a loan, you are also modifying loan risk in one way or another, then the nonexistence of either (1) or (2) above creates a problem.
What “loan modification” means these days, as you say, is that someone (usually the buyer) wants a change in mortgage contract terms, but they’re lacking (1), (2), or payment capacity, or some combination thereof. Thus the aforementioned “refi” process isn’t available to them. Pity. All parties to the mortgage transaction might have been better served had they paid attention to some “what ifs” when they signed the papers. (“Whaddya mean, rates might rise and home prices might drop? Since when?”)
But wait — in steps Uncle Sam! The banks and/or taxpayers should — nay, must — assume the inherent [cost/risk adjustment] for said “modifications” because, we’re told, it’s in everyone’s best interest to do so. (The same way it’s in everyone’s best interest to legislatively promote something called “affordable housing,” which ironically would come about much faster if those who purchased homes they couldn’t truly afford were, uh, expedited into other forms of residential domicile. This would present problems for holders of mortgage-backed assets, however. And certainly we can’t have that.)
So, in this new world of “loan modification,” the poor decisions of banks and/or borrowers have created costs in price and/or risk which must be transferred to parties other than those directly involved in the transaction. Buyer and lender, we’re told, cannot afford those costs. So the nebulous “U.S. taxpayer,” as well as savers and anyone who was prudently waiting to purchase a home, get to pony up.
You’re suggesting that borrower credit scores shouldn’t be hurt by participating in this — by not living up to the terms of a contract as stated and agreed. How exactly does that work?
finance4youth.com wrote:
No, what I’m saying is that in the strictest term of “modification”, it is, as you say refinancing. This is a modifiction of the loan. Modifications have turned into what they are now, but they don’t have to be that way.
Also, if someone takes good care of their credit, the modification process will affect their score, but won’t “hurt” their score. It’s all about degree.
In general I’m saying that those who are prudent and frugal will not be hurt by following the established process of modifying loans in their benefit.
headnspace wrote:
What if I want to sell my house after refinancing? With housing markets depressed, there is no way I can sell it for what I owe on it. I’ve never been late, never missed a payment, and refinanced to save a hundred bucks a month.
Now, when I sell it for less than what it’s worth, why should that impact my credit score? (from what I can tell, it will affect my credit score, but not as bad as those who can’t afford the loan at all, who missed payments, etc)
Michael wrote:
Careful with the word games. You’re not selling for “less than what it’s worth.” You’re selling it for “less than what you owe on it.” There is a HUGE difference.
The house is worth what someone will pay you for it. Back when you bought the place, it was “worth” whatever you paid for it. Or at least you felt that was the case. Presumably, the contract has your signature on it.
Now, your credit score won’t be affected by you selling the house for what it’s now worth, which happens to be less than what you owe — so long as you pay the difference between [what it’s now worth] and [what you currently owe].
Therein lies the problem, yes? You’d rather not pay the difference.
Now, if you expect the lender to eat that difference, rather than you doing so, then yes, your credit score can (and should) get crushed.
But it’s certainly your prerogative to take that route. Just be prepared to take the bad (credit-score hit and a tax bill for the forgiven debt) with the good (lender writes off the loan balance and/or dumps it off on the taxpayer).
headnspace wrote:
It’s not that I’d “rather not” pay the difference, it’s that I can’t afford to write a big check at closing.
Will a lender let me roll that into a loan until I get a new mortgage (after we move) and include it into it?
Will a lender let me take a different foreclosed property off their hands (in the area we’re moving to) in exchange for taking some of this loss of my hands?
These are the kinds of options I have not heard anything about. All I hear about is “banks screw those in need” or “you ask for help, and they hike up your rates”, etc etc.
I’d love to hear about creative solutions that banks are willing to undertake, unfortunately, this is something that I have never heard about in the current economy.
Michael wrote:
You talk about “creative solutions.” From 2003 to 2006, the U.S. mortgage-market bubble was built, literally, on “creative solutions.” On “financial innovation.” On lending stupid amounts of money to people who had slim-to-none chances of paying it back, and on collateral that could ONLY maintain appraised values IF “creative solution” lending practices could not only extend, but RAMP UP, on and on, into eternity.
Call it what you want, but all “creative solutions” are ever based on comes down to this: “How do we get an already debt-gorged society to go out and take on more debt, since that’s the only way we can keep asset prices inflated and/or exhibit ‘growth’ any longer?”
You asked:
Will a lender let me roll that into a loan until I get a new mortgage (after we move) and include it into it?
Perhaps. Go find a lender whose predominant book of business was 125% LTV first or second mortgages, and ask them. Oh wait — they’re mostly gone. Hmm. Strange.
Okay. So perhaps your current lender will be receptive to taking some “small” loss on your current property, and then rolling the balance over into your new property, thereby REPEATING its mistake of loaning more on a property than a normal market will bear … and setting themselves up for another, larger loss later?
That’d sound promising, if only we could get back to 2005 lending standards.
Will a lender let me take a different foreclosed property off their hands (in the area we’re moving to) in exchange for taking some of this loss of my hands?
So you think a lender should gladly and knowingly allow you to be the beneficiary of their mortgage losses not once, but twice? You want them to loan you the current market value of the destination FC property (hooray for you; icky for them) and at the same time write off their losses on the previous loan they made to you (hooray for you; icky for them)?
Seriously?
I’d love to hear about creative solutions that banks are willing to undertake, unfortunately, this is something that I have never heard about in the current economy.
And hopefully, you never will. Your definition of “solution,” it appears, differs vastly from mine. My “solutions” tend to revolve around having the people who made the poor decisions (lenders and borrowers) actually pay for them. Yours revolves around having everyone else do so, to as large an extent as possible.
But buck up. The lengths to which The Powers That Be are willing to go to play this Ponzi-fied version of Kick the Can (Debt Saturation Version) are pretty stout, as we’ve seen.
Who knows what they’ll come up with next week!