Mortgage Rate News

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One of the issues surrounding loan modification is how it could affect a credit score. Many have been concerned about how deciding to go through a loan modification could possibly damage a credit score. This is because there haven’t been a lot guidelines about how to handle credit reporting with regard to loan modification. Here is what what Attorney Loan Modification News Blog offers about how credit scores should be affected by loan modification going forward:

Thanks to new guidelines set forth by the Consumer Data Industry Association, loan modifications under federal programs Making Homes Affordable and the Home Affordable Modification Program are to be listed on credit reports as, “loan modified under a federal plan”. This notification on the credit report will not have the same negative impact previous entries such as “partial payment” have had. In many instances, a report of a partial payment during the trial loan modification period could drop a borrower’s credit score as much as 100 points.

For the time being, FICO has agreed to take no action on these new entries… yet. Instead the credit reporting agency plans on studying the long term outcome of these loans and then making an appropriate score assessment based on the success rate of modified loans. As it stands now, banks are supposed to report the loan as current if the borrower is current on their normal mortgage payment and is current through their trial. However, if a homeowner is behind on their payments as they begin the trial process, their late entries on their credit report will not be expunged.  When the permanent loan modification is approved and implemented that is when their loan will be brought current, but the late that are currently on the credit report will continue to report on the credit report.

It is important to note that many of the things that are going on right now in the credit world are in flux. New formulas for figuring credit scores, as well as deciding on how different things should be valued, are changing right now, and some will see improvement and some people will find that their scores drop.

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So often, when we look at the purchase price of a home, that is all we see. We look at a home that costs $187,000, and think: “Not bad.” We talk about how much the home cost, and we use that number. However, the total cost of your home is more than just the purchase price. It includes a number of items from closing costs to homeowner’s insurance, to the monthly maintenance and utilities you are responsible for. But the biggest cost that is associated with your home is the interest you pay.

Interest is an awe-inspiring thing. It is a fee you pay for the privilege of borrowing money. You don’t get any sort of direct benefit in exchange for paying interest. It is a sum that you pay, just for the privilege of getting access to the funds you want in order to buy something. So, after paying interest for 30 years, you might find that the total cost of your home is something that is considerably more than $187,000. It could be as much as $300,000 — or more.

This very reason is why what interest rate you get is so important. Just a 1% difference in interest rate can mean tens of thousands of dollars over the life of your home mortgage loan. Interest is very powerful. The higher your interest rate, the more you pay. And the longer you are paying interest, the more you will pay in the long run. Your best weapon, of course, is to avoid paying interest altogether. In terms of buying a home, though, this is probably not practical. As a result, you should carefully consider the size of the mortgage you are getting, as well as try to get the lowest mortgage rate possible (by having good financial habits and a good credit score). You should also see if you can handle a shorter term. This may mean that you make larger payments on a monthly basis, but you will pay less in the long run as far as interest is concerned. In the end, it’s a trade off between what you can handle, and what will ultimately save you more over time.

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After holding relatively steady for months, housing starts fell in October. One of the main reasons for the drop, say many analysts, is the fact that the fate of the first time home buyer tax credit was in doubt. As a result, builders slowed their projects. However, with the extension and expansion of the home buyer tax credit, there is a good chance that things will pick up again — at least until the end of April 2010, which marks the new deadline. MarketWatch reports on the expectations going forward:

“We believe housing starts’ strong decline to be only temporary, and should resume modest growth and stabilization over the next several months, as the tax credit extension should support market demand and perhaps offset some of the seasonal slowness in the winter months,” said Michael Rehaut, economist at JP Morgan Chase in a note to clients.

The tax credit, though, can’t protect the housing market from the economic realities of a weak labor market and slow economic recovery. Indeed, this morning President Barack Obama warned that conditions may be setting up for a double-dip recession. He did say that his administration was working on programs and ideas to prevent such a thing from happening, but he has put everyone on the alert.

Economic recovery has been slowed due to problems with joblessness. Companies are reluctant to hire, and that is causing some concern. Without jobs, people can’t buy new homes and help the housing market.  Additionally, lack of employment makes consumer spending – which accounts for approximately 2/3 of the U.S. economy — difficult to boost.

It will be interesting to see how things play out going forward. Will Obama’s honesty about the possibility of a double-dip recession help people prepare for an eventuality? Or will his early warnings be heeded and a back slide completely averted? Only time will tell.