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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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.

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There are concerns that things may not be improving as much as hoped for the housing market. Sure, home prices seem to be stabilizing and the first time home buyer tax credit resulted in the sale of hundreds of thousands of homes. But another real estate collapse may be on the way — and we aren’t even recovered from this one. Here is what CNN Money points out about what could announce the run up to another housing market collapse:

“There is a lack of new debt,” says Michael Haas, a real estate attorney at Jones Day. “There is a hesitancy to extend credit when there is a real possibility that the real estate may be worth less than it was a few years ago.”

Now, in a situation eerily similar to the subprime crisis, the result is likely to be a wave of foreclosures and loan defaults that could, in turn, trigger a collapse in the market of the structured bonds backed by commercial real estate and construction debt.

There could be some indicators that another real estate collapse — and the accompanying mortgage crisis — could be imminent. Here are some signs to be on the watch for:

1. Big Projects: Look out for what is happening with big commercial and residential projects that are starting to default. These projects may have gotten financing during the last bubble, but they may be struggling now. And if big projects default, that means that securities based on these loans will plunge.
2. Special Servicers: These are mortgage lender firms and special servicers that take over loans that are heading for trouble in an effort to salvage the situation. When more loans are heading to special servicers, that means that it is likely that things are troubled in the mortgage market in general. That could be a sign that more defaults are coming.
3. Regional Banks: So far, many local and regional banks have been fairly well shielded from the effects of the subprime mortgage crisis. Many of them did not take on risky loans and other debt. However, as the economy continues to remain sluggish, the regional projects financed by local banks may begin to falter, and that could cause another, more severe credit squeeze.

We’re not out of the woods yet, and it is important to be on the look out for signs that things may head into another wave of foreclosures. Although, if things do start improving markedly, none of these problems may surface.