November 15, 2024
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Flood-damaged cars lure unwary buyers, an auto loan that went haywire, avoiding loan modification hoaxes and other consumer-focused news from The New York Times.
Article source: http://bucks.blogs.nytimes.com/2013/01/14/monday-reading-flooded-cars-lure-unwary-buyers/?partner=rss&emc=rss
Freddie Mac and Fannie Mae, the government-sponsored housing finance companies that represent approximately half of all mortgages, have announced plans to extend their existing programs so that unemployed borrowers can defer part or all of their monthly payments for up to 12 months while they are out of work.
The moves come after the Obama administration announced last July a similar program for loans backed by Federal Housing Administration insurance, as well as mortgages serviced by lenders that are participating in the government’s loan modification program.
Fannie Mae sent guidance to lenders on Wednesday saying that banks could offer unemployed borrowers up to six months of lowered or skipped payments without seeking Fannie’s prior approval, and that banks could extend that forbearance up to 12 months with approval. This guidance modified a policy from September 2010, when Fannie expanded its existing forbearance option for other hardships like natural disasters to include unemployment.
Wednesday’s announcement also said that unemployed homeowners who apply for an official forbearance after already missing some payments can skip only up to a maximum of 12 months. After that, if homeowners are still unemployed or unable to make payments, lenders and borrowers would have to consider other options, including a permanent loan modification or a short sale.
Freddie Mac announced last Friday that it would permit jobless borrowers to skip or reduce payments for up to 12 months as well. Previously, borrowers whose loans were owned by Freddie were eligible for up to only three months of suspended or reduced payments. In most cases, the homeowners must pay back the lower or skipped payments over a longer loan period.
“These expanded forbearance periods will provide families facing prolonged periods of unemployment with a greater measure of security by giving them more time to find new employment and resolve their delinquencies,” Tracy Mooney, a senior vice president at Freddie Mac, said.
The financial firms and banks do not report exactly how many jobless people have used the programs.
Under the new rules, lenders are required to consider a forbearance plan among a number of options to prevent foreclosure. Most of the government programs intended to forestall or prevent foreclosure have not lived up to expectations, and many homeowners have lost their homes. Last year, foreclosures were filed against about two million properties, down from 2.9 million in 2010, according to RealtyTrac, a real estate data provider.
Neither Fannie nor Freddie could specify how many borrowers might be eligible for the forbearance options, but it would be up to lenders to administer them.
Bank of America said it was “currently assessing operational aspects of implementing” the extensions. GMAC Mortgage said it was already participating in forbearance programs and would continue to follow Fannie and Freddie guidelines. Wells Fargo said it would review the details of Freddie and Fannie’s updated options.
Some analysts were skeptical of the programs’ effects. “It’s a humane and not at all unreasonable policy, but I wouldn’t expect it to do much to the housing problem,” said Joseph Gyourko, professor of real estate at the Wharton School at the University of Pennsylvania. “This will save some of them,” Professor Gyourko said. “But some of them shouldn’t be in the homes they are in and some of them won’t end up finding jobs that will enable them to pay for their mortgages, so there could be some downside because it could slow the foreclosure pipeline.”
And it is not clear that many borrowers who are eligible for delayed or suspended payments have been granted the option. Only 16,633 homeowners have been granted forbearances under the Treasury’s program for lenders who are participating in the government’s loan modification program. Only 3,000 homeowners whose loans are backed by F.H.A. insurance have been granted a forbearance since July.
Housing advocates said Fannie and Freddie’s options should help more struggling borrowers. Forbearance “is a real life saver,” said Lewis Finfer, a community organizer at the PICO National Network, a coalition of faith-based organizations. Jobless borrowers will have more time “to hopefully get more hours or get re-employed, and they can save their home during that period.”
Article source: http://feeds.nytimes.com/click.phdo?i=6e4fb9e147637b49f078036d9975f556
Lenders use credit scores to measure how you handle debt. The number you’ll see most often is your FICO score. It runs from 300 to 850. The major credit reporting bureaus developed a rival, VantageScore, with scores from 501 to 990.
Missed mortgage payments, serious loan delinquencies, loan modifications, short sales, foreclosures and bankruptcies all drag down credit scores. Because a mortgage is such a big slice of anyone’s credit profile, it carries more weight than other loans. Both FICO and VantageScore have studied and quantified those impacts.
They reached similar conclusions: for people with near-perfect records, a single mortgage payment that’s 30 days late reduces a credit score enough to hurt. For anyone, a short sale — selling a home for less than the amount owed — can be almost as destructive as a foreclosure.
In contrast, a loan modification — when the lender approves new loan terms — can have a “very, very minimal” effect, said Sarah Davies, the senior vice president for analytics at VantageScore. In some cases, the borrower’s score might drop 10 or 15 points.
With a loan modification, said Joanne Gaskin, the director of global scoring solutions at FICO, “the consumer does not have to go delinquent to get assistance.”
Modification horror stories abound; some borrowers have been told they can’t be helped unless they’ve already missed payments. That doesn’t have to be the case, said Josh Zinner, the co-director of the Neighborhood Economic Development Advocacy Project, a New York City nonprofit company active in foreclosure prevention.
The government-backed Home Affordable Modification Program, known as HAMP, specifically permits modifications for borrowers who can document hardship like a job loss, Mr. Zinner said. “What we advise people in New York to do” he said, “is reach out to a nonprofit loan counselor or to Legal Services in order to get a modification with a servicer.”
It’s not a perfect solution — HAMP has been criticized for not helping enough borrowers. There are plenty of paperwork hassles, and points in the process where credit scores are in peril.
Still, because of “some really profound consequences” to bad credit, modification is worth pursuing, he said. Employers increasingly check credit. Housing options may be limited. “Virtually all landlords look at credit,” he said, adding that getting a mortgage can be difficult. Car loan and credit card costs jump.
In a study last month, FICO looked at how choices would affect three hypothetical mortgage holders: One with a spotless 780 score; another with a good 720, who may have missed a couple of credit card payments three years ago; a third with a not-great, not-toxic 680, who has sometimes fallen seriously behind on credit cards or a car loan. (Most lenders consider poor credit about 650 and below, Ms. Gaskin said.)
¶30 days late: The gold-plated 780 drops to 670-690, the middling 720 becomes 630-650, and 680 is now 600-620. Effects are most significant for the strongest borrower. “A continued progression is going to have less and less impact on a score,” Ms. Gaskin said.
¶90 days late: This is seriously delinquent, and brings the onetime best borrower down to 650-670, the midlevel one to 610-630, and the weakest to 600-620.
¶Short sale, deed in lieu of foreclosure, or settlement, assuming the balance has been wiped out: The result is just a bit less serious. The 780 score deteriorates to 655-675; 720 to 605-625; 680 to 610-630.
¶Foreclosure, or short sale with a deficiency balance owed: For either, 780 is 620-640; 720 is 570-590; and 680 is 575-595.
At a certain point it might seem as if there was not much difference between bad and worse, but remember that the lower the score, the longer it takes to climb back.
Article source: http://feeds.nytimes.com/click.phdo?i=79a71e31f04c8b3ff79cba33902418e6
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