Bankruptcy Can Save Your House from Foreclosure
Article from CNNMoney.com. Linke below
http://money.cnn.com/2010/07/21/real_estate/bankruptcy_and_foreclosure/index.htm
NEW YORK (CNNMoney.com) -- Slick TV commercials and online ads tell delinquent borrowers that they can save their homes by filing for personal bankruptcy. But is it true -- or just too good to be true?
Bankruptcy can bring foreclosure proceedings to a halt, end harassment from debt collectors, and give borrowers time to make up missed payments and reorganize their finances. In some cases, bankruptcy can also help mortgage borrowers save their homes permanently.
It's not, however, going to help every troubled homeowner. If, for example, the homeowner's biggest problem is not enough money, bankruptcy is not going to solve that.
"It's the best tool there is for people behind in payments but who have ongoing income," according to Binghamton, N.Y., attorney Peter Orville, "those who had been making payments and who could be making payments again."
Halting the process
The first thing a bankruptcy filing accomplishes is to stop the foreclosure process. Lenders can't foreclose or even try to collect debt until permitted to do so by the court.
But first, you have to decide what type of bankruptcy to file for. There are, basically, two types to choose from: Chapter 7 and Chapter 13.
A Chapter 7 bankruptcy delays foreclosure. but eventually it usually results in the liquidation of most assets, according to attorney Stephen Elias, author of "The Foreclosure Survival Guide." Borrowers almost always lose their homes in a Chapter 7.
Some bankruptcy attorneys, like New York-based David Pankin, prefer Chapter 7 because it gets rid of all unsecured debt, leaving only secured debt, such as mortgages, exempt. In this scenario, borrowers still owe their mortgage payments but they can likely afford to make them because all the other debts have been discharged.
But for most experts, Chapter 13 is usually more effective at helping people keep their homes. It gives them time to repair their finances, usually three to five years, during which the court agrees to an income-based budget with monthly payments made to trustees.
The trustees pay the bills, first paying off the secured debt. After that, the trustee pays off unsecured debt, starting with back income taxes.
Next in line comes unsecured debt like credit cards and medical bills. By then, there's usually little cash left and these bills are paid at less than the full rate, often as little as five cents on the dollar.
Borrowers, if they kept up on their payments, can emerge from bankruptcy with their homes still in their possessions.
One thing courts cannot do is "cram down" loan balances on primary residences. That is, reduce mortgage debt to what the home is worth. Neither can they lower interest rates, in most cases, nor lengthen the term of the loans.
They can, however, "strip off" second mortgages, like home equity loans or lines of credit, when home values fall below the first mortgage balances, according to Elias.
"This allows the judge to get rid of the second mortgage," he said. "If there's not enough equity to secure the second, it becomes unsecured debt."
That can be a huge advantage for borrowers. Homeowners may have, for example, a $200,000 first mortgage balance and another $50,000 on a home equity loan. If the home value has dropped to less than $200,000, the judge could rule that all $50,000 of the second is unsecured. Then, it can be paid off at the same pennies-on-the dollar as other unsecured debt.
But there are other downsides. Bankruptcy can lop as much as 240 points off credit scores. And bankruptcies can remain on credit reports for 10 years, said Pamela Simmons, a California real estate attorney, while all other black marks disappear after seven years or less.
Fending off deficiencies
There is also a potential tax advantage to filing for bankruptcy rather than going to foreclosure, according to Simmons. When a home is repossessed and the lender forgives the portion of the mortgage balance above its market value, a tax liability can be triggered. Any difference between what people borrow and what they repay is considered income.
Congress is temporarily allowing that unpaid debt to be forgiven -- but only for money specifically spent on the home purchase or on home improvement.
Foreclosed? Here comes the tax man
Millions of people, however, refinanced mortgages or took out home equity loans and used the money to fund vacations, pay college tuition, buy cars or boats or simply to live the good life. That money is taxable.
Simmons had a recent client who was allowing his lender to foreclose on him and called her about the timing, asking whether he had to vacate by the day of the auction.
In passing, she asked him how much he owed on the house. He said he bought it for a million but had taken out another $2 million, most of which had not been spent on the house. When she told him he would owe taxes on it both to Uncle Sam and the State of California, he was dismayed
She rushed him into her office and they did the paperwork so he could file for bankruptcy.
"If they discharge that deficiency in bankruptcy, you don't owe tax on it," said Simmons.
If you questions regarding this article call the San Diego Bankruptcy Law firm at at 619-260-1800 or visit us at www.gobksandiego.com
This blog is updated by the San Diego Bankruptcy Law Firm. The blog is designed to illuminate, update and educate consumers about their bankruptcy rights. Our staff of Bankruptcy Attorneys help consumers file for bankruptcy protection under Chapter 7 and 13 of the Bankruptcy Code. Feel free to contact our Bankruptcy Lawyers for a free consultation at 619-260-1800 or visit us at www.gobksandiego.com
Thursday, November 8, 2012
Friday, July 20, 2012
Gov. Brown signs Homeowner Bill of Rights
By Nannette Miranda
SAN FRANCISCO (KFSN) -- California homeowners now have some of the best foreclosure protection in the nation. Governor Brown came to San Francisco Wednesday to sign a bill ending what he calls "abusive home lending tactics."
California has one of the highest foreclosure rates in the country and this new law is supposed to slow down that rate, but critics say that might slow down the markets' recovery as well.
"We're done. We're done with robo-signing. We're done with false promises. We're done with the runaround," Attorney General Kamala Harris, D-California, said.
Governor Brown signed into law the nation's toughest protections for homeowners facing foreclosure. Much of the national mortgage settlement agreed to by five banks earlier this year now apply to all mortgage providers doing business in California and make the terms permanent. "I find it almost incomprehensible that so many smart people and so many rich people could screw things up so profoundly and cause so much suffering and get off in many cases," Brown said.
Beginning January 1, the Homeowner Bill of Rights will:
--Ban "dual-tracking" (which is when banks pursued foreclosure even though the homeowner was seeking a loan modification)
--Require one contact person per customer
--Increase penalties for robo-signing (which automatically approves foreclosure without anyone reading documents)
--Let homeowners sue for violations
Read the full article here
SAN FRANCISCO (KFSN) -- California homeowners now have some of the best foreclosure protection in the nation. Governor Brown came to San Francisco Wednesday to sign a bill ending what he calls "abusive home lending tactics."
California has one of the highest foreclosure rates in the country and this new law is supposed to slow down that rate, but critics say that might slow down the markets' recovery as well.
"We're done. We're done with robo-signing. We're done with false promises. We're done with the runaround," Attorney General Kamala Harris, D-California, said.
Governor Brown signed into law the nation's toughest protections for homeowners facing foreclosure. Much of the national mortgage settlement agreed to by five banks earlier this year now apply to all mortgage providers doing business in California and make the terms permanent. "I find it almost incomprehensible that so many smart people and so many rich people could screw things up so profoundly and cause so much suffering and get off in many cases," Brown said.
Beginning January 1, the Homeowner Bill of Rights will:
--Ban "dual-tracking" (which is when banks pursued foreclosure even though the homeowner was seeking a loan modification)
--Require one contact person per customer
--Increase penalties for robo-signing (which automatically approves foreclosure without anyone reading documents)
--Let homeowners sue for violations
Read the full article here
Tuesday, July 17, 2012
California's foreclosure rate leads nation in June
By Rachel McGrath
Posted July 11, 2012 at 9:02 p.m.
For the first time since 2005, California's foreclosure rate in June was the highest in the nation, pushed up by an 18 percent year-on-year increase in the number of properties entering the foreclosure process.
Irvine-based RealtyTrac said there were foreclosure filings on one in 288 housing units in California in June, or 47,490 filings total. There were 197,834 foreclosure filings on properties in the U.S. in June
Filings include default notices, auction sale notices and bank repossessions.
In the first six months of 2012, there were just over 1 million foreclosure filings in the U.S., according to RealtyTrac. The number represents an 11 percent decrease in activity compared with the first six months of 2011.
June also marked the 21st consecutive month of a decline in U.S. foreclosure rates, RealtyTrac said.
While national foreclosures dropped by 3.96 percent in June compared with May, California foreclosures rose by 12.42 percent, according to RealtyTrac. Read the full article here
Monday, July 16, 2012
As Foreclosures Ramp Up, New Roadblocks Ahead
CNBC.com | July 09, 2012 | 04:25 PM EDT
Fraudulent foreclosure practices, a.k.a. “robo-signing,” uncovered now nearly two years ago, opened a new wound in the foreclosure crisis that was in the process of healing.
At big bank mortgage servicers and in courts in many states, the foreclosure process ground to a halt, and the pipeline of delinquent loans swelled to historic levels. Lawsuits abounded and lengthy settlement negotiations on all levels of government began.
Nearly two years later, the foreclosure mechanism is just starting to move again.
Foreclosure starts, the first phase of the process, rose nearly 12 percent in May month-to-month, according to a new report from Lender Processing Services. Foreclosures sales, when the property goes back to the bank or to a bidder at the courthouse steps, rose 10 percent. Read the full article here
Wednesday, July 11, 2012
Southern California city of San Bernardino votes to declare bankruptcy
SAN BERNARDINO, Calif. – As recently as last month, no city in California had opted for bankruptcy since 2008, and no U.S. city of more than 200,000 people had ever chosen bankruptcy.
The past two weeks have changed all that, in a big way, as the fiscal struggles faced by so many American cities became too much for some to bear.
San Bernardino became the third California city in that small span to choose Chapter 9 bankruptcy protection with a City Council vote on Tuesday night. Read the full article here
Monday, July 2, 2012
Key provisions in California foreclosure bill
SACRAMENTO, Calif. — Here are key provisions in California's homeowner protection bill, which writes into state law the national mortgage settlement reached with five top lenders, and expands it to all mortgages:
- Lets homeowners sue mortgage providers if they violate state law, but only if there is a significant violation. Homeowners could ask judges to halt pending foreclosures but could collect monetary damages only if the foreclosure took place.
- Requires lenders to provide a single point of contact for borrowers who want to discuss foreclosures or refinancing, with an exemption for lenders that process fewer than 175 foreclosures per year. Read the full article here
Wednesday, June 20, 2012
UCLA: Housing recovery will not come in '12
Home sales are hot and the labor market continues to see steady gains, but could positive indicators like these be too good to be true, possibly a mirage?
That's what economists at UCLA concluded in their 2012 economic forecast for California and the nation, which was released Wednesday. After poring over facts and figures, they found that while key numbers appear encouraging, a housing recovery in California likely won't come in 2012. It'll be more like 2013 or 2014. Read full article here
Tuesday, June 19, 2012
Foreclosures spike 9% in May
Foreclosure filings in May spiked 9% compared with a month earlier, according to an industry group.
RealtyTrac reported that 205,990 U.S. properties received filings last month, including default notices, scheduled auctions and bank repossessions, marking the first monthly increase since January. Read full article here
Thursday, June 14, 2012
U.S. unemployment aid applications rise
More Americans sought unemployment aid last week, suggesting hiring remains sluggish.
The Labor Department said Thursday that weekly unemployment benefit applications rose 6,000 to a seasonally adjusted 386,000, an increase from an upwardly revised 380,000 the previous week.
The four-week average, a less volatile measure, rose for the third straight week to 382,000. That's the highest in six weeks.
Weekly applications are a measure of the pace of layoffs. When they drop below 375,000, it typically suggests hiring is strong enough to reduce the unemployment rate.
"The trend in jobless claims suggests … that the underlying pace of employment growth has softened," said Bricklin Dwyer, an economist at BNP Paribas. Read full article here
Wednesday, June 13, 2012
Foreclosure sales jump in California
Foreclosure sales were up 6.1 percent in May in California compared to April, driven by sales to third parties that were up 14.0 percent, according to a new report from foreclosure information company ForeclosureRadar Inc., of Discovery Bay. Read the full article here
Thursday, May 31, 2012
Prepare For The Coming Housing Collapse
Editor’s Note: Keith Jurow has been posting articles regularly for the past two years on BUSINESS INSIDER. He is the author of Minyanville.com’s Housing Market Report.
After being one of the few analysts who was correct in stating for the past two years that there is no housing bottom in sight, it’s time for me to tell you what I see ahead.
Housing pundits are nearly unanimous in declaring that housing markets are showing signs of bottoming. This is nonsense! Read the full article here
Wednesday, May 16, 2012
Is Now the Time to Buy Your First House?
It's been a scary few years for the housing market. But at some point, the nightmare has to end (please?). Is now the time? Should first-time home buyers consider jumping into the market?
After all, home prices have fallen 34% from their 2006 peak and mortgage rates are hovering at or near record lows.
On one side are those who argue that homes are more affordable than they have been in decades, based on how much monthly income a mortgage consumes and whether owning is less costly than renting.
An uptick in home buying by investors already is under way, they say—an indication that those who wait may miss out on a good buying opportunity.
On the other side, Read the full article here
Wednesday, May 9, 2012
Americans: Too broke to go bankrupt
NEW YORK (CNNMoney) -- This year, hundreds of thousands of Americans are expected to be too broke to file for bankruptcy.
The average cost to file for Chapter 7 bankruptcy protection, the most common form of consumer bankruptcy, is more than $1,500, according to recent research submitted to the National Bureau of Economic Research. Read full article here
Friday, April 27, 2012
Case-Shiller Shows U.S. Home Prices Hit Fresh Lows In February
A closely-watched gauge of U.S. home prices stumbled again in February, with the S&P/Case-Shiller home price indices making fresh cycle lows in its 10- and 20-city measures.
Nine of the major metropolitan areas in the report were down again in February, according to the data out Tuesday morning – Atlanta, Charlotte, Chicago, Cleveland, Las Vegas, New York, Portland, Seattle and Tampa – dropping to their lowest levels of the post-crisis era.
On a year-over-year basis Atlanta was by far the worst-performing market, with home prices diving 17.3%, the city’s worst decline in the 20-year history of the index. Read the full article here
Monday, April 23, 2012
Inside the foreclosure factory, they're working overtime
In a quiet office in downtown Charlotte, N.C., dozens of Wells Fargo’s foreclosure foot soldiers sit in cubicles cranking out documents the bank relies on to seize its share of the thousands of homes lost to foreclosure every week.
They stare at computer screens and prepare sworn affidavits that are used by lenders in courts across the country to seize homes. Paid $30,700 to start, these legal process specialists, the title that goes with the job, swear an oath under penalty of perjury that they're corporate vice presidents. They're peppered with e-mails from managers to meet daily quotas of at least 10 or 11 files day.
If they fall short, they face Read the full article here
Monday, April 16, 2012
Flood of foreclosures to hit the housing market
NEW YORK (CNNMoney) -- The golden age for foreclosure squatters may soon be coming to an end now that the $26 billion mortgage settlement has been approved.
The settlement, agreed to by the nation's five largest mortgage lenders, is expected to speed up the foreclosure process by providing stricter guidelines for the banks to follow when repossessing homes.
The banks involved include Read the full article here
Wednesday, April 11, 2012
Court Halts Alleged Fake Debt Collector Calls from India, Grants FTC Request to Stop Defendants Who Posed as Law Enforcers
WASHINGTON, April 11, 2012 /PRNewswire via COMTEX/ -- California-based Defendant Ran Phantom Debt Collection Scheme from His Home, FTC Alleges
In response to charges from the Federal Trade Commission, a U.S. district court has halted an operation that the agency alleges collected phantom payday loan debts that consumers either didn't owe to the defendants or didn't owe at all. The defendants' scheme involved more than 2.7 million calls to at least 600,000 different phone numbers nationwide, according to the FTC. In less than two years, they fraudulently collected more than $5.2 million from consumers, many of whom were strapped for cash and thought the money they were paying would be applied to loans they owed, according to FTC documents filed with the court. Read the full article here
New Site to Calculate Potential Student Loan Debt
By KIMBERLY HEFLING and KRISTI EATON Associated Press
Link to article: http://abcnews.go.com/US/wireStory/site-calculate-potential-student-loan-debt-16117001#.T4X1kFFYvWc
Want to calculate how much you could owe in student loans after graduating from a particular college? A new government website provides tools to help with the math.
The site, by the Consumer Financial Protection Bureau, is in the testing phase, but already includes information from 7,500 colleges and universities.
Users can plug in details such as grant and scholarship offers to compare what they might owe after attending different schools. The site also offers information on graduation and student loan default rates.
A "military benefit calculator" function allows the nation's more than 2 million Iraq and Afghanistan veterans to determine what they could owe after using their GI Bill benefits.
It can be found at http://www.consumerfinance.gov/payingforcollege/costcomparison.
The site is the latest effort by the federal government to make colleges and universities more open about costs.
A separate Education Department web site — http://collegecost.ed.gov — also addresses college cost, with information such as the rate of tuition increases at colleges.
"Choosing a school is a big responsibility — one that is too often made difficult by an inability to determine the impact of student loan debt," said Richard Cordray, director of the Consumer Financial Protection Bureau, at a news conference in Sioux Falls, S.D., with Sen. Tim Johnson, D-S.D., and a gathering of local high school students.
The bureau says student loan debt has reached $1 trillion, surpassing credit card and auto-loan debt. Graduates owe on average about $25,000.
———————
Hefling reported from Washington.
Link to article: http://abcnews.go.com/US/wireStory/site-calculate-potential-student-loan-debt-16117001#.T4X1kFFYvWc
Want to calculate how much you could owe in student loans after graduating from a particular college? A new government website provides tools to help with the math.
The site, by the Consumer Financial Protection Bureau, is in the testing phase, but already includes information from 7,500 colleges and universities.
Users can plug in details such as grant and scholarship offers to compare what they might owe after attending different schools. The site also offers information on graduation and student loan default rates.
A "military benefit calculator" function allows the nation's more than 2 million Iraq and Afghanistan veterans to determine what they could owe after using their GI Bill benefits.
It can be found at http://www.consumerfinance.gov/payingforcollege/costcomparison.
The site is the latest effort by the federal government to make colleges and universities more open about costs.
A separate Education Department web site — http://collegecost.ed.gov — also addresses college cost, with information such as the rate of tuition increases at colleges.
"Choosing a school is a big responsibility — one that is too often made difficult by an inability to determine the impact of student loan debt," said Richard Cordray, director of the Consumer Financial Protection Bureau, at a news conference in Sioux Falls, S.D., with Sen. Tim Johnson, D-S.D., and a gathering of local high school students.
The bureau says student loan debt has reached $1 trillion, surpassing credit card and auto-loan debt. Graduates owe on average about $25,000.
———————
Hefling reported from Washington.
Wednesday, March 28, 2012
San Diego foreclosures fall in February
Written by Lily Leung
Link to article: http://www.utsandiego.com/news/2012/mar/28/san-diego-foreclosures-fall-feb/
The number of San Diego County homes that were foreclosed upon in February fell to its lowest level in more than four years, while mortgage defaults remain higher than the pre-recession norm, Wednesday's DataQuick report shows.
The county recorded 634 foreclosures in February, the lowest it's been since November 2007. The latest tally of foreclosures is 12.7 percent lower than in January and 29.2 percent lower than a year ago. Foreclosures peaked at 2,004 in July 2008.
Notices of default -- the first formal step in the foreclosure process -- totaled 1,278, down 9.2 percent from January and down 6.9 percent from a year ago. Mortgage defaults peaked at 3,832 in March 2009.
Monthly and year-over-year changes in both indicators are constantly volatile because they're heavily dependent on lender activity.
By comparing current foreclosure and mortgage-default figures to 1-year to 5-year averages, we can see decreases across the board.
It's important to note not all homeowners who receive notices of default, again, the first step in a foreclosure, will be foreclosed upon.
The percentage of California homeowners who start the foreclosure process and avert foreclosure is roughly 57 percent, based on data for the past five years from RealtyTrac. Homeowners can turn to other options from short sales to loan modifications.
Here's another analysis: DataQuick analyst Andrew LePage looked at San Diego County default notices in the second quarter of 2010 and figured out which percentage had ended up being a foreclosure or was resold.
What he found:
•41 percent had been foreclosed upon
•21 percent were not foreclosed upon and were sold on the open market.
•38 percent's status to be unclear. Among the explanations: these homes may be in the process of being foreclosed upon or the mortgage default was resolved.
"Big caveat is, you don’t know the exact status of the properties that got (default notices,) but for which we have no subsequent filings," LePage said. "Was it cured? Is it in a temporary loan mod? On the market as a short sale? Just in limbo, still, with the outcome uncertain?"
Link to article: http://www.utsandiego.com/news/2012/mar/28/san-diego-foreclosures-fall-feb/
The number of San Diego County homes that were foreclosed upon in February fell to its lowest level in more than four years, while mortgage defaults remain higher than the pre-recession norm, Wednesday's DataQuick report shows.
The county recorded 634 foreclosures in February, the lowest it's been since November 2007. The latest tally of foreclosures is 12.7 percent lower than in January and 29.2 percent lower than a year ago. Foreclosures peaked at 2,004 in July 2008.
Notices of default -- the first formal step in the foreclosure process -- totaled 1,278, down 9.2 percent from January and down 6.9 percent from a year ago. Mortgage defaults peaked at 3,832 in March 2009.
Monthly and year-over-year changes in both indicators are constantly volatile because they're heavily dependent on lender activity.
By comparing current foreclosure and mortgage-default figures to 1-year to 5-year averages, we can see decreases across the board.
It's important to note not all homeowners who receive notices of default, again, the first step in a foreclosure, will be foreclosed upon.
The percentage of California homeowners who start the foreclosure process and avert foreclosure is roughly 57 percent, based on data for the past five years from RealtyTrac. Homeowners can turn to other options from short sales to loan modifications.
Here's another analysis: DataQuick analyst Andrew LePage looked at San Diego County default notices in the second quarter of 2010 and figured out which percentage had ended up being a foreclosure or was resold.
What he found:
•41 percent had been foreclosed upon
•21 percent were not foreclosed upon and were sold on the open market.
•38 percent's status to be unclear. Among the explanations: these homes may be in the process of being foreclosed upon or the mortgage default was resolved.
"Big caveat is, you don’t know the exact status of the properties that got (default notices,) but for which we have no subsequent filings," LePage said. "Was it cured? Is it in a temporary loan mod? On the market as a short sale? Just in limbo, still, with the outcome uncertain?"
Don't Micromanage Your Credit Score
By JENNIFER WATERS
Link to article: http://online.wsj.com/article/SB10001424052970203753704577253750464639524.html?link=SM_bor_ds_res
Your credit score is like a movie: constantly changing until you decide to freeze a frame.
Your score, which lenders use to assess your bill-paying ability, is in a constant state of flux and will vary from one credit company to the next. In other words, you don't have one credit score, but many.
"Your score can be updated every time there's a new piece of information," says Sarah Davies, senior vice president of analytics at VantageScore Solutions.
VantageScore is a credit-score model created by the three major credit-reporting companies, Equifax, Experian and TransUnion. There's also the FICO credit-score model created by Fair Isaac, which is the score most commonly used by lenders to determine your credit worthiness.
Roughly 70% of credit scores change by up to 20 points in a 90-day window, according to VantageScore. Consider it a reflection of your credit behavior at a particular moment in time.
"You could do something every other day, like pay a bill or miss a payment, and it might change every other day," Ms. Davies says. "The reality is a lot of those updates are insignificant."
A score is determined mainly by how promptly you pay your bills and what kind of debt you carry, though other factors also feed into it. For example, a mortgage and a car loan hold more weight in the scoring system than a handful of retail credit-card accounts. So timely mortgage and car-loan payments are more important.
Your credit score may be as important as your education and your job skills because it helps you navigate your lifestyle. It's taken into account when you buy a house, a car or insurance, and when you seek credit for a small business, try to rent an apartment or get utility service. People with higher scores enjoy lower interest rates and bigger loan amounts. Poor scores can mean high interest rates and less favorable terms.
But mining your score on a monthly or daily basis won't improve it. "Consumers should be credit managers, not credit-score managers," Ms. Davies says.
What's important is that your "range of risk"—what lenders consider key to determine whether you'll make timely payments—is acceptable. But that risk assessment isn't consistent from lender to lender. Auto lenders, for instance, use a different algorithm than a mortgage lender or retailer might.
Scores also vary because the three credit-reporting companies don't have the same information. "Lenders don't report all the same things to all the [credit-reporting companies], which is why scores will vary," says Beverly Harzog, a credit-card analyst with Credit.com.
The two main scoring systems use different point ranges: FICO, which has been around since the late 1950s, scores in a range of 300 to 850. VantageScore, introduced in 2006, goes from 501 to 990.
Still, experts say the range of risk will be about the same if your score is, say, 800 on FICO and 900 on VantageScore.
What matters is which scoring system your lender uses and where you fall on that. If your FICO is 700, don't confuse that with 700 on the VantageScore, which puts you in a lower credit category.
Scores will vary, too, based on when lenders report to the credit company. Some banks may report your payment behavior to Experian at the beginning of the month but give it to TransUnion mid-month.
A credit report from Experian, TransUnion and Equifax, which you can get free annually at AnnualCreditReport.com , will include details on your bill-payment history—but not your FICO score or VantageScore, which are what you should care most about. You'll have to pay for your scores, though it's generally under $20 for each.
Don't worry about your scores changing unless the moves are dramatic. If your score changes significantly, either you made a financial misstep, such as missed a payment or, worse, someone stole your identity.
Here's what you should worry about and how to fix it.
Don't try to manage your score on a daily or weekly basis. If you wait for the full 30-day cycle, all your information will have updated and will be the best representation.
If you want to purchase a home or car in the next year, look at your credit score now and make moves to improve it by paying off debt in a timely manner.
Your credit reports may contain errors. If you contest something in your report, it freezes that information until a decision has been made.
A foreclosure or bankruptcy filing will lower your score significantly and affect you for about seven to 10 years.
A missed mortgage payment will set off alarms, especially if your payment history has been pristine until then, but a late credit-card payment can be more easily fixed by consecutive months of good payment behavior.
Link to article: http://online.wsj.com/article/SB10001424052970203753704577253750464639524.html?link=SM_bor_ds_res
Your credit score is like a movie: constantly changing until you decide to freeze a frame.
Your score, which lenders use to assess your bill-paying ability, is in a constant state of flux and will vary from one credit company to the next. In other words, you don't have one credit score, but many.
"Your score can be updated every time there's a new piece of information," says Sarah Davies, senior vice president of analytics at VantageScore Solutions.
VantageScore is a credit-score model created by the three major credit-reporting companies, Equifax, Experian and TransUnion. There's also the FICO credit-score model created by Fair Isaac, which is the score most commonly used by lenders to determine your credit worthiness.
Roughly 70% of credit scores change by up to 20 points in a 90-day window, according to VantageScore. Consider it a reflection of your credit behavior at a particular moment in time.
"You could do something every other day, like pay a bill or miss a payment, and it might change every other day," Ms. Davies says. "The reality is a lot of those updates are insignificant."
A score is determined mainly by how promptly you pay your bills and what kind of debt you carry, though other factors also feed into it. For example, a mortgage and a car loan hold more weight in the scoring system than a handful of retail credit-card accounts. So timely mortgage and car-loan payments are more important.
Your credit score may be as important as your education and your job skills because it helps you navigate your lifestyle. It's taken into account when you buy a house, a car or insurance, and when you seek credit for a small business, try to rent an apartment or get utility service. People with higher scores enjoy lower interest rates and bigger loan amounts. Poor scores can mean high interest rates and less favorable terms.
But mining your score on a monthly or daily basis won't improve it. "Consumers should be credit managers, not credit-score managers," Ms. Davies says.
What's important is that your "range of risk"—what lenders consider key to determine whether you'll make timely payments—is acceptable. But that risk assessment isn't consistent from lender to lender. Auto lenders, for instance, use a different algorithm than a mortgage lender or retailer might.
Scores also vary because the three credit-reporting companies don't have the same information. "Lenders don't report all the same things to all the [credit-reporting companies], which is why scores will vary," says Beverly Harzog, a credit-card analyst with Credit.com.
The two main scoring systems use different point ranges: FICO, which has been around since the late 1950s, scores in a range of 300 to 850. VantageScore, introduced in 2006, goes from 501 to 990.
Still, experts say the range of risk will be about the same if your score is, say, 800 on FICO and 900 on VantageScore.
What matters is which scoring system your lender uses and where you fall on that. If your FICO is 700, don't confuse that with 700 on the VantageScore, which puts you in a lower credit category.
Scores will vary, too, based on when lenders report to the credit company. Some banks may report your payment behavior to Experian at the beginning of the month but give it to TransUnion mid-month.
A credit report from Experian, TransUnion and Equifax, which you can get free annually at AnnualCreditReport.com , will include details on your bill-payment history—but not your FICO score or VantageScore, which are what you should care most about. You'll have to pay for your scores, though it's generally under $20 for each.
Don't worry about your scores changing unless the moves are dramatic. If your score changes significantly, either you made a financial misstep, such as missed a payment or, worse, someone stole your identity.
Here's what you should worry about and how to fix it.
Don't try to manage your score on a daily or weekly basis. If you wait for the full 30-day cycle, all your information will have updated and will be the best representation.
If you want to purchase a home or car in the next year, look at your credit score now and make moves to improve it by paying off debt in a timely manner.
Your credit reports may contain errors. If you contest something in your report, it freezes that information until a decision has been made.
A foreclosure or bankruptcy filing will lower your score significantly and affect you for about seven to 10 years.
A missed mortgage payment will set off alarms, especially if your payment history has been pristine until then, but a late credit-card payment can be more easily fixed by consecutive months of good payment behavior.
Wednesday, February 29, 2012
Are foreclosures easing in San Diego County?
Both completed foreclosures and the number of San Diego property owners who started the foreclosure process increased in January from the end of 2011, but those numbers are down compared to figures from a year ago, real estate tracker DataQuick reported Tuesday.
San Diego County recorded 726 foreclosures in January, up 2.3 percent from December but down 24.3 percent from January 2011, the latest numbers show. The county's peak was 2,004 in July 2008.
The movement of foreclosures, which depend on the banks, have long been erratic. But by analyzing the average number of foreclosures in certain time increments, it appears that foreclosures may be easing. (Please refer to the first table.)
The same thing may be happening with notices of defaults, the document that signals the start of a foreclosure. (Please refer to the second table.)
There were 1,407 default filings in January, up 13 percent from December but down 9.1 percent from January 2011. The county is about 63 percent below its default-notice peak of 3,832 in March 2009.
DataQuick analyst Andrew LePage said the short- to mid-term view of the distressed market in San Diego is "cloudy."
The long-term picture, however, "continues to brighten slowly" alongside slight job growth and fewer mortgage delinquencies.
Another new factor in the world of foreclosures is a recently announced settlement involving 49 state attorneys general and the country's Top 5 banks over questionable foreclosure practices, LePage added.
The $25 billion mortgage settlement, which still needs judge approval, could help about 466,000 Californians by reducing principal balances, refinancing mortgages and offering restitution in cash.
San Diego County recorded 726 foreclosures in January, up 2.3 percent from December but down 24.3 percent from January 2011, the latest numbers show. The county's peak was 2,004 in July 2008.
The movement of foreclosures, which depend on the banks, have long been erratic. But by analyzing the average number of foreclosures in certain time increments, it appears that foreclosures may be easing. (Please refer to the first table.)
The same thing may be happening with notices of defaults, the document that signals the start of a foreclosure. (Please refer to the second table.)
There were 1,407 default filings in January, up 13 percent from December but down 9.1 percent from January 2011. The county is about 63 percent below its default-notice peak of 3,832 in March 2009.
DataQuick analyst Andrew LePage said the short- to mid-term view of the distressed market in San Diego is "cloudy."
The long-term picture, however, "continues to brighten slowly" alongside slight job growth and fewer mortgage delinquencies.
Another new factor in the world of foreclosures is a recently announced settlement involving 49 state attorneys general and the country's Top 5 banks over questionable foreclosure practices, LePage added.
The $25 billion mortgage settlement, which still needs judge approval, could help about 466,000 Californians by reducing principal balances, refinancing mortgages and offering restitution in cash.
Halt to Fannie, Fredie Foreclosures Sought
From the San Diego Union Tribune February 29,2012
http://www.utsandiego.com/news/2012/feb/27/calif-ag-asks-freddie-fannie-stop-foreclosures/
California Attorney General Kamala Harris has asked the regulator of mortgage giants Fannie Mae and Freddie Mac to stop foreclosure sales in the state until it reviews whether principal reductions could help homeowners with Fannie- and Freddie-backed mortgages.
Harris made the request to Federal Housing Finance Agency Director Edward DeMarco in a Feb. 24 letter, roughly two weeks after Harris announced her involvement in a historic mortgage settlement between 49 attorneys general and the nation's largest lenders.
The settlement, which still needs judge approval, could help an estimated 466,000 borrowers in California. However, loans backed by Fannie Mae and Freddie Mac would not be affected by the attorney generals' mortgage deal.
"You have consistently declined to authorize principal reduction programs by those government-sponsored enterprises," said Harris in the letter to DeMarco.
Harris' office estimates more than 60 percent of home loans in the state are owned or held by Fannie and Freddie, a significant portion of borrowers who could benefit from having their principal balances reduced.
The Federal Housing Finance Agency could not immediately be reached for comment.
DeMarco, during an oversight committee hearing hearing on Nov. 16, said the FHFA has concluded that reducing principal balances is "not going to be the least-cost approach for the taxpayer" when compared to other alternative-foreclosure programs including principal forbearance, which "zeroes out the interest rate charged on the underwater portion of the mortgage."
http://www.utsandiego.com/news/2012/feb/27/calif-ag-asks-freddie-fannie-stop-foreclosures/
California Attorney General Kamala Harris has asked the regulator of mortgage giants Fannie Mae and Freddie Mac to stop foreclosure sales in the state until it reviews whether principal reductions could help homeowners with Fannie- and Freddie-backed mortgages.
Harris made the request to Federal Housing Finance Agency Director Edward DeMarco in a Feb. 24 letter, roughly two weeks after Harris announced her involvement in a historic mortgage settlement between 49 attorneys general and the nation's largest lenders.
The settlement, which still needs judge approval, could help an estimated 466,000 borrowers in California. However, loans backed by Fannie Mae and Freddie Mac would not be affected by the attorney generals' mortgage deal.
"You have consistently declined to authorize principal reduction programs by those government-sponsored enterprises," said Harris in the letter to DeMarco.
Harris' office estimates more than 60 percent of home loans in the state are owned or held by Fannie and Freddie, a significant portion of borrowers who could benefit from having their principal balances reduced.
The Federal Housing Finance Agency could not immediately be reached for comment.
DeMarco, during an oversight committee hearing hearing on Nov. 16, said the FHFA has concluded that reducing principal balances is "not going to be the least-cost approach for the taxpayer" when compared to other alternative-foreclosure programs including principal forbearance, which "zeroes out the interest rate charged on the underwater portion of the mortgage."
Wednesday, January 18, 2012
As home prices fall, more borrowers walk away
Link to article: http://bottomline.msnbc.msn.com/_news/2012/01/09/9614305-as-home-prices-fall-more-borrowers-walk-away
By John W. Schoen, Senior Producer
When David Martin and his wife bought their north Seattle condo five years ago, they figured they had plenty of time to downsize if they needed to before they retired.
Now, with the property worth roughly $60,000 less than the balance of their mortgage, Martin, 68, has been giving serious thought to just walking away, a process lenders call "strategic default."
"Guilt and morality are one side, and objective financial analysis are on the other side," Martin said. "They're coming to two opposite conclusions. I wonder how many other people are struggling with the same question."
Strategic defaults like the one contemplated by Martin are on the rise. A survey last year by two Chicago-area finance professors, Paola Sapienza at Northwestern University and Luigi Zingales at the University of Chicago, found that roughly three out of 10 mortgage defaults in 2010 were by homeowners who could afford to make their payments, up from 22 percent in 2009.
"It's a looming problem that's in the shadows," said Jason Kopcak, a mortgage trader at Cantor Fitzgerald who advises lenders on how to value the loans on their books. "It's very worrisome to mortgage lenders."
Researchers point to a number of forces that are driving borrowers to walk away from their mortgages. At the top of the list is the estimated 12 million homes that are underwater, meaning the owners owe more than they are worth.
Until recently, borrowers like Martin and many industry analysts held out hope that a housing recovery would reverse the rising tide of "negative equity." But after stabilizing this summer, home prices began falling again, dropping 7.5 percent in the third quarter alone and leaving more homeowners underwater.
Even if prices stabilize this year, millions of underwater borrowers face a long wait before they can sell their homes without having to write a big check to their lender to cover the shortfall. Economists at Goldman Sachs recently forecast that after bottoming in 2013 house prices won't recover their 2006 peak until 2023. (No, that's not a typo.)
Many homeowners simply can't wait that long.
In the early stages of the housing bust, the main causes of defaults included unemployment or other financial setbacks and adjustable mortgages that reset to unaffordable levels, according to researchers. Now, five years into the housing recession, strategic defaults are growing as financially healthy borrowers learn of friends or family who have decided to walk away.
A recent study commissioned by the Mortgage Bankers Association likens the rise in the rate of strategic defaults to the spread of a disease. The longer the crisis drags on, the more homeowners will be exposed to someone who has successfully walked away, making the decision easier, the study suggested. "As fundamentally social animals, humans consciously (and subconsciously) look to their peers when forming opinions, habits and behaviors," the report said.
"Most people who own a home know of someone -- a friend, a colleague a family member -- who has defaulted, especially in housing markets that have taken a big hit," said Jon Maddux, CEO and co-founder of youwalkaway.com, a service that advises homeowners on walking away from their mortgage. "They realize these are not bad people. They're not deadbeats. They're just like them."
Researchers say strategic default is also more common among borrowers who feel no personal connection to the party on the other end of the transaction. Gone are the days when you walked into a bank and met with a lender who shepherded your application and congratulated you when the loan was approved, said Michael Seiler, a finance professor at Old Dominion University and a co-author of the MBA study.
"If you defaulted, it was like you were defaulting on your friend," he said. "Your kids might go to the same school. You all might go to the same church. And you're constantly reminded of who you're defaulting on."
That scenario is a far cry from the modern system of mortgage finance, where loans are sold over the phone or online, chopped up into pieces and then sold to multiple, anonymous investors. Many underwater homeowners who try to negotiate with their lender can't even find out who owns their loan.
"We're finding that people are much more willing to walk away when the other party is unknown or what you might call a 'bad bank,'" said Seiler. "Those are the ones that received a lot of bailout funds or were active in the subprime market, giving loans to people who couldn't afford them and they knew that."
The mortgage lending industry's widespread reluctance to modify loan terms has also changed homeowner attitudes about walking away, according to Maddux.
"They feel much better about doing it if they've tried to contact the lender and the lender won't budge," he said. "They feel justified about it because they've tried to do their best to work it out."
Shifting attitudes about the causes of the housing bust are also playing a role, say researchers. In their surveys, Sapienza and Zingales found that 48 percent of Americans said they would be more likely to default if their bank was accused of predatory lending, even if they are morally opposed to strategic default. Some 11 percent said they’d be less likely to pay their mortgage, and more likely to walk away from their loan, if their lender was cited for using false foreclosure documentation.
The government's ineffective response to the housing crisis, even as it went to extraordinary lengths to backstop banks, has also propelled walkaways, say researchers. Since the housing bubble burst in 2006, some $7 trillion in home equity has evaporated, according to Federal Reserve data. Now, as home prices resume their fall, some homeowners believe lenders should bear at least a portion of the losses inflicted by a housing bust the industry helped create.
"The money didn't disappear," said Martin. "We still owe it to the bank, so the bank will end up getting all of its money back on a loan that no longer has its original value. They're taking no part in the loss."
Widespread reports of lenders' bad behavior, from filing defective paperwork to selling investors bad loans, have begun to erode one of the strongest deterrents to walking away: the sense that skipping out on a debt is morally wrong. University of Arizona finance professor Brent White interviewed hundreds of homeowners for his research on strategic default. He found that, in the eyes of many homeowners, mortgage bankers have lost the moral high ground.
"The reality is: for the bank it is simply an economic transaction," he said. "They have no moral qualm about taking your house, and they feel no moral obligation to modify your mortgage even if you're in a difficult financial situation."
Still, there are much more serious consequences to strategic default than pangs of guilt. Any loan default will damage a borrower's credit score. But some strategic defaulters are finding that the impact isn't as long-lasting as widely believed, according to Maddux.
"You don’t destroy your credit, you wound your credit," he said. "Just like a wound, it heals over time."
Maddux said surveys of the roughly 8,000 customers who have signed up for his service in the last four years found that some strategic defaulters are able to restore their credit in as little as a year and a half.
The bigger risk for walkaway borrowers is that their lender will pursue them in court and win a so-called "deficiency judgment," a court-ordered, full repayment of the mortgage balance. That process is governed by state laws; some so-called "non-recourse" states bar lenders from pursuing such judgments.
But the force of that deterrent is also weakening, according to Sapienza.
"(There's an) increasing perception that lenders are not going after borrowers who walk away," he said.
That perception may be dangerously misplaced, as many lenders continue to aggressively pursue judgments against homeowners who strategically default. That's why there's widespread agreement that homeowners considering it need to get solid legal advice from an experienced real estate attorney in their state.
"There's a process to strategic default and a lot of people don't know how to do it," said Kopcak. "They don't really know what their options are. People really need to talk to a lawyer who knows the process."
For now, Martin is electing to stay in his home and continue paying the mortgage.
"We intend to continue as we are on the basis that we gain nothing from acting at this point," he said in a note. "We think that the real estate market in Seattle will rise by 2013 enough to offer better alternatives. There is a small chance that the federal government will act to offer more rational choices. The real possibility is that the debt might be refinanced in 2013 at a level that might offer enough reduction in payments to allow us to hang on long enough to shore up our financial position."
In short, giving up at this point may be worst of all alternatives. Giving up seems to run counter to our value system, no matter how financially wise experts seem to believe it may be."
By John W. Schoen, Senior Producer
When David Martin and his wife bought their north Seattle condo five years ago, they figured they had plenty of time to downsize if they needed to before they retired.
Now, with the property worth roughly $60,000 less than the balance of their mortgage, Martin, 68, has been giving serious thought to just walking away, a process lenders call "strategic default."
"Guilt and morality are one side, and objective financial analysis are on the other side," Martin said. "They're coming to two opposite conclusions. I wonder how many other people are struggling with the same question."
Strategic defaults like the one contemplated by Martin are on the rise. A survey last year by two Chicago-area finance professors, Paola Sapienza at Northwestern University and Luigi Zingales at the University of Chicago, found that roughly three out of 10 mortgage defaults in 2010 were by homeowners who could afford to make their payments, up from 22 percent in 2009.
"It's a looming problem that's in the shadows," said Jason Kopcak, a mortgage trader at Cantor Fitzgerald who advises lenders on how to value the loans on their books. "It's very worrisome to mortgage lenders."
Researchers point to a number of forces that are driving borrowers to walk away from their mortgages. At the top of the list is the estimated 12 million homes that are underwater, meaning the owners owe more than they are worth.
Until recently, borrowers like Martin and many industry analysts held out hope that a housing recovery would reverse the rising tide of "negative equity." But after stabilizing this summer, home prices began falling again, dropping 7.5 percent in the third quarter alone and leaving more homeowners underwater.
Even if prices stabilize this year, millions of underwater borrowers face a long wait before they can sell their homes without having to write a big check to their lender to cover the shortfall. Economists at Goldman Sachs recently forecast that after bottoming in 2013 house prices won't recover their 2006 peak until 2023. (No, that's not a typo.)
Many homeowners simply can't wait that long.
In the early stages of the housing bust, the main causes of defaults included unemployment or other financial setbacks and adjustable mortgages that reset to unaffordable levels, according to researchers. Now, five years into the housing recession, strategic defaults are growing as financially healthy borrowers learn of friends or family who have decided to walk away.
A recent study commissioned by the Mortgage Bankers Association likens the rise in the rate of strategic defaults to the spread of a disease. The longer the crisis drags on, the more homeowners will be exposed to someone who has successfully walked away, making the decision easier, the study suggested. "As fundamentally social animals, humans consciously (and subconsciously) look to their peers when forming opinions, habits and behaviors," the report said.
"Most people who own a home know of someone -- a friend, a colleague a family member -- who has defaulted, especially in housing markets that have taken a big hit," said Jon Maddux, CEO and co-founder of youwalkaway.com, a service that advises homeowners on walking away from their mortgage. "They realize these are not bad people. They're not deadbeats. They're just like them."
Researchers say strategic default is also more common among borrowers who feel no personal connection to the party on the other end of the transaction. Gone are the days when you walked into a bank and met with a lender who shepherded your application and congratulated you when the loan was approved, said Michael Seiler, a finance professor at Old Dominion University and a co-author of the MBA study.
"If you defaulted, it was like you were defaulting on your friend," he said. "Your kids might go to the same school. You all might go to the same church. And you're constantly reminded of who you're defaulting on."
That scenario is a far cry from the modern system of mortgage finance, where loans are sold over the phone or online, chopped up into pieces and then sold to multiple, anonymous investors. Many underwater homeowners who try to negotiate with their lender can't even find out who owns their loan.
"We're finding that people are much more willing to walk away when the other party is unknown or what you might call a 'bad bank,'" said Seiler. "Those are the ones that received a lot of bailout funds or were active in the subprime market, giving loans to people who couldn't afford them and they knew that."
The mortgage lending industry's widespread reluctance to modify loan terms has also changed homeowner attitudes about walking away, according to Maddux.
"They feel much better about doing it if they've tried to contact the lender and the lender won't budge," he said. "They feel justified about it because they've tried to do their best to work it out."
Shifting attitudes about the causes of the housing bust are also playing a role, say researchers. In their surveys, Sapienza and Zingales found that 48 percent of Americans said they would be more likely to default if their bank was accused of predatory lending, even if they are morally opposed to strategic default. Some 11 percent said they’d be less likely to pay their mortgage, and more likely to walk away from their loan, if their lender was cited for using false foreclosure documentation.
The government's ineffective response to the housing crisis, even as it went to extraordinary lengths to backstop banks, has also propelled walkaways, say researchers. Since the housing bubble burst in 2006, some $7 trillion in home equity has evaporated, according to Federal Reserve data. Now, as home prices resume their fall, some homeowners believe lenders should bear at least a portion of the losses inflicted by a housing bust the industry helped create.
"The money didn't disappear," said Martin. "We still owe it to the bank, so the bank will end up getting all of its money back on a loan that no longer has its original value. They're taking no part in the loss."
Widespread reports of lenders' bad behavior, from filing defective paperwork to selling investors bad loans, have begun to erode one of the strongest deterrents to walking away: the sense that skipping out on a debt is morally wrong. University of Arizona finance professor Brent White interviewed hundreds of homeowners for his research on strategic default. He found that, in the eyes of many homeowners, mortgage bankers have lost the moral high ground.
"The reality is: for the bank it is simply an economic transaction," he said. "They have no moral qualm about taking your house, and they feel no moral obligation to modify your mortgage even if you're in a difficult financial situation."
Still, there are much more serious consequences to strategic default than pangs of guilt. Any loan default will damage a borrower's credit score. But some strategic defaulters are finding that the impact isn't as long-lasting as widely believed, according to Maddux.
"You don’t destroy your credit, you wound your credit," he said. "Just like a wound, it heals over time."
Maddux said surveys of the roughly 8,000 customers who have signed up for his service in the last four years found that some strategic defaulters are able to restore their credit in as little as a year and a half.
The bigger risk for walkaway borrowers is that their lender will pursue them in court and win a so-called "deficiency judgment," a court-ordered, full repayment of the mortgage balance. That process is governed by state laws; some so-called "non-recourse" states bar lenders from pursuing such judgments.
But the force of that deterrent is also weakening, according to Sapienza.
"(There's an) increasing perception that lenders are not going after borrowers who walk away," he said.
That perception may be dangerously misplaced, as many lenders continue to aggressively pursue judgments against homeowners who strategically default. That's why there's widespread agreement that homeowners considering it need to get solid legal advice from an experienced real estate attorney in their state.
"There's a process to strategic default and a lot of people don't know how to do it," said Kopcak. "They don't really know what their options are. People really need to talk to a lawyer who knows the process."
For now, Martin is electing to stay in his home and continue paying the mortgage.
"We intend to continue as we are on the basis that we gain nothing from acting at this point," he said in a note. "We think that the real estate market in Seattle will rise by 2013 enough to offer better alternatives. There is a small chance that the federal government will act to offer more rational choices. The real possibility is that the debt might be refinanced in 2013 at a level that might offer enough reduction in payments to allow us to hang on long enough to shore up our financial position."
In short, giving up at this point may be worst of all alternatives. Giving up seems to run counter to our value system, no matter how financially wise experts seem to believe it may be."
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