New Credit Agency Guidelines to Penalize Borrowers for Loan Modifications
Posted Aug 20, 2009 @ 7:05 pm, Viewed by 615 Visitors, Read 694 Times.
I almost fell out of my chair today when I got notification of this new policy by the credit reporting agencies. Seems the government's financial regulators have given their blessing to the "Big Three" credit reporting bureaus – Equifax, Experian and TransUnion to enact new guidelines that will allow mortgage lenders to report mortgage loan modifications as a negative credit line item on the borrowers' credit report. The agencies will designate the loan modifications to show as "partial payment status," which in turn can lower an individual's credit score by 50 points or more.
With thousands of folks seeking payment relief by doing a loan modification, such a move will surely push many of these borrowers into the poor risk category pool. Just exactly how the government thinks this will help the worst housing crisis in our country's history is beyond us. Could it be that they have an ulterior motive? We wonder if it might have something to do with Barney Frank's House Financial Services Committee's recommendation and the Obama Administration's plan to use $4.25 billion of the economic stimulus money to create tens of thousands of federally subsidized rental units in American cities. With the millions of mortgage holders currently "upside down" on their mortgages, penalizing those who seek relief to try and stay in their homes by modifying their mortgages seems punitive and could eventually lead to even more foreclosures. Ah well, not to worry, at least they will be able to get into low rent government subsidized housing.
And the beat goes on!
Gulf Coast Associates, Realtors specializes in upscale Florida real estate in and around Bonita Springs and Naples. Our sister firm, Metro Mortgage Company, specializes in originating Florida home loans including Conventional, Jumbo and FHA/VA mortgages. Contact us today at 888-617-3674.
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Social Bookmarking4 Responses to “New Credit Agency Guidelines to Penalize Borrowers for Loan Modifications”
No doubt about that.
The whole thing is just insane.
It seems something had to be done for banks to just give up money. The loan mods are helpful to the people, but they also take a hit on the bank. I guess it's only fair to give a credit hit to the borrower. My 2 cents.
-Lisa
I'm right there with you, LisaUdy, what is the incentive for people to struggle through their current situation if their is no hit on their credit? There are plenty of people out there who can afford their homes but see everyone around them short selling and getting loan mods, look at their own negative equity and ask themselves why am I strugggling to make my payment?
What I think would be crazy is if banks look at loan mods, short sales and foreclosure or bankruptcy in the same way.
To me it seems like the hit to the credit should be a reflection of the the loss the bank took. If bank drops your payment by $100 but leaves your principal balance in tact because your hours got cut or you lost your job you are definitely not as much of a credit risk as someone who walked away from the property or did a short sale. And I think a homeowner that at least makes a conscientious effort to do a short sale and sell the property leaving it in good condition without forcing the bank to go through the time and expense of foreclosure proceedings is not as bad as someone who completely turned their back to the situation and allowed the property to foreclose.
I think that once the banks become less worrried about property values dropping (which according to the most recen Case Schiller reports is already happening), you are going to see some major relaxation of credit guidelines in terms of allowing people with loan mods, short sales and maybe even foreclosures to buy again. Remember banks are businesses and they are going to want to make money, that you can count on...
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Gulf Coast Associates is a private real estate firm specializing in SW Florida Real Estate. Benjamin Dona is the Broker-Owner. He and his wife Terry, an underwriter with 20 years experience, also own a federally-regulated mortgage banking firm, Metro Mortgage Company.
Originally from Saint Louis, Missouri we've lived and worked from our base in Bonita Springs since 1997. Read More
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Knew that was going to happen. Already, if you do a short sale you have to wait three years to buy a home, just like a foreclosure. It's just a matter of time before you have to wait three years to buy if you modify your loan. It's going to be tough to find buyers in the future that havent' had a foreclosure, short-sale or modification.