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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One of the things that has many people steamed right now is the fact that, while personal bankruptcy is on the rise, big banks have been getting special help staying afloat from the taxpayers via the government. These policies started in the Bush Administration, and have continued in the present Obama Administration. However, Congress is trying to do something to prevent so much help going to prop up the financial system in the future. President Obama has been pushing Congress to engage in bank reform, but the deal is far from done — even as the House and the Senate wrangle about what should be done.

CNN Money offers three major points of controversy that could serve to derail bank reform:

1. Role played by the Federal Reserve: Here is what CNN Money reports about the difference in how the Fed is regarded:The House proposes stripping away the Fed’s consumer protection powers, leaving in place its banking regulatory powers. In fact, the House would make the Fed the principal overseer of financial firms tied to the global economy.

   The Senate, by contrast, would limit the Fed’s powers to mostly monetary policy. Sen. Chris Dodd, D-Conn., is proposing stripping the Fed of its banking regulatory authority and giving that power to a new consolidated agency.

2. What to do with companies that are “too big to fail”: This issue is an important one, since large companies found that they could avoid true accountability for their actions for being so large that their failure could bring down everything. Here is what CNN Money reports on how this might be handled:
   The White House and congressional Democrats want to create a mechanism for monitoring large financial firms, like American International Group (AIG, Fortune 500), and unwinding them with a new power called “resolution authority.”

   Both chambers would charge the Federal Deposit of Insurance Corp. with such unwinding. But some lawmakers from both parties are worried about giving such broad powers to the executive branch.

   A related - and contentious - debate is emerging over whether a government agency should have the power to break up companies that could threaten the economy before they do damage.

3. Consumer protection agency for finances: The White House wants an agency that oversees financial consumer protection in the case of financial products and services. Here is CNN Money’s take on this issue:
   The agency faces a more familiar problem for financial-related legislation in Congress: opposition from the minority party and big business. That push-back could be a deal breaker in the Senate.

   The agency would put new regulators in charge of keeping an eye out for consumers, while requiring more disclosure and scrutiny over some of the financial products, like mortgages, credit cards and auto loans, that contributed to last year’s crisis.

   A wave of populism propelled credit card legislation earlier this year. But Republicans are mostly united against the creation of the consumer agency, calling it an added layer of bureaucracy that could threaten bank soundness.

Clearly, there is going to need to be a delicate balancing act in order to make effective regulation that halts problems, but doesn’t cross the line of being overly restrictive to the markets.

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Freddie Mac saw a 3rd quarter loss of $5 billion as foreclosures continue to cause problems and the economic climate makes things difficult for individuals. Freddie Mac also expects, at some point, to request more funds from the U.S. Treasury. HousingWire reports on the state of the housing market and the mortgage market:

“We continued to see some positive housing market developments, including higher volumes of home sales and modest increases in house prices in certain areas of the country,” said CEO Charles Haldeman. “However, we believe that factors like high unemployment, excess inventory and rising foreclosures will continue to impede a full recovery for some time and put further downward pressure on house prices. We expect to request additional funds from Treasury as this prolonged deterioration of market conditions continues to negatively impact our financial results.”

Guaranty programs continue to see government support as the Obama Administration moves to help guaranty loans and provide insurance so that people can refinance their homes or get loan modification. However, it may not be enough. Foreclosure continue to mount, and these programs are still largely voluntary on the part of mortgage lenders. Additionally, loans need to be serviced by Fannie or Freddie in order for borrowers  to take advantage of many of the programs.

In the end, there is still a long way to go. Freddie Mac is likely to see more quarters of loss. Fannie Mae is also expected to continue to struggle. Fannie is also looking into more help from the Treasury Department’s senior preferred stock purchase program. It will be a long road ahead, but with Congress extending the first time home buyer credit, and other programs continuing, it is likely that the government will attempt to support the housing market for quite some time. The only question is whether or not the housing market will be able to survive without government help down the road.