As part of the bank bailout, TARP infused Citigroup with $45 million. In December, Citigroup paid the government back $20 million, leaving a balance of $25 million. TARP exchanged the debt for 7.7 billion shares of stock.
Today, the Treasury announced that it will sell these shares over the course of 2010. The Treasury paid $3.25 per share. This morning, Citigroup was trading at $4.23. That means if the shares were all sold today, the government would get a net profit of about $7.5 billion. That is in addition to the approximately $8.1 billion the Treasury has already collected from Citigroup in interest and fees.
Not a bad return on YOUR investment!
Monday, March 29, 2010
Friday, March 26, 2010
Treasury Plans Expansion in Aid to Homeowners
Press release from the Treasury Department
March 26, 2010
TG-614
Housing Program Enhancements Offer Additional Options for Struggling Homeowners
Refinements to Existing Administration Programs Designed to Help Unemployed, Underwater Borrowers While Helping Administration Meet its Goals
WASHINGTON – Today, as part of its ongoing commitment to continuously improve housing relief efforts, the Administration announced adjustments to the Home Affordable Modification Program (HAMP) and to the Federal Housing Administration (FHA) programs. These program adjustments will better assist responsible homeowners who have been affected by the economic crisis through no fault of their own. The program modifications will expand flexibility for mortgage servicers and originators to assist more unemployed homeowners and to help more people who owe more on their mortgage than their home is worth because their local markets saw large declines in home values. These changes will help the Administration meet its goal of stabilizing housing markets by offering a second chance to up to 3 to 4 million struggling homeowners through the end of 2012. Costs will be shared between the private sector and the Federal Government; the Federal cost of these changes will be funded through the $50 billion allocation for housing programs under the Troubled Asset Relief Program (TARP).
Housing Policy Overview
The Administration's goal is to promote stability for both the housing market and homeowners. To meet these objectives, the Administration has developed a comprehensive approach using state and local housing agency initiatives, tax credits for homebuyers, neighborhood stabilization and community development programs, mortgage modifications and refinancing, and support for Fannie Mae and Freddie Mac. The Administration's efforts for homeowners have focused on giving responsible households an opportunity to remain in their homes when possible while they get back up on their feet, or to relocate to a more sustainable living situation. Today, mortgage rates are at record lows and, thanks in large part to these programs, more than four million homeowners have refinanced their mortgages to more affordable levels helping to save more than $7 billion annually, more than one million are saving an average of over $500 per month through the Administration's modification program, home equity increased by more than $12,000 for the average homeowner in the last three quarters last year and the economy is growing.
Even with this success, we continue to see challenges. Servicers were slow to implement HAMP, resulting in a slow start for the program. Recent improvements in the program have accelerated the pace of modifications, and the adjustments announced today will improve performance. But our strategy to address the crisis must evolve because our challenges have also evolved.
Our housing initiatives must balance the need to help responsible homeowners struggling to stay in their homes, with the recognition that we cannot and should not help everyone. The President has said: "We can't stop every foreclosure." And in fact, we can't maintain the balance described above if we assist every borrower. For example, investors and speculators should not be protected under our efforts, nor should Americans living in million dollar homes or defaulters on vacation homes. Some people simply will not be able to afford to stay in their homes because they bought more than they could afford. Instead, the Administration must focus on providing responsible homeowners opportunities to obtain a modification or to refinance and prevent avoidable foreclosures and, when necessary, must facilitate the transition to a more sustainable housing situation. The adjustments announced today are tailored to accomplish these goals by helping a targeted group of borrowers.
Eligible homeowners for modifications under HAMP must, for example: live in an owner occupied principal residence, have a mortgage balance less than $729,750, owe monthly mortgage payments that are not affordable (greater than 31 percent of their income) and demonstrate a financial hardship. The new flexibilities for the modification initiative announced today continue to target this group of homeowners.
The FHA refinance options being announced today will provide more opportunities for lenders to restructure loans for some families who owe more than their home is worth. This is a voluntary program for lenders and homeowners. The population eligible for a FHA refinance must be current on their mortgage. This rewards responsible homeowners and creates stabilizing incentives in the housing market.
Taken together, the Administration's broad housing initiatives and the new flexibilities announced today will offer a second chance to millions of responsible, middle-class American families struggling to stay in their homes and will help to stabilize our households, neighborhoods and communities.
Background on Housing Program Initiatives to Date
The Administration has taken a broad set of actions to stabilize the housing market and help American homeowners. These efforts are having an impact on our housing markets – we are seeing signs of stabilization. Looking back to over a year ago - stress in the financial system had severely reduced the supply of mortgage credit, limiting the ability of Americans to buy homes or refinance mortgages. Millions of responsible families who had made their monthly payments had fulfilled their obligations saw their property values fall, and found themselves unable to refinance at lower mortgage rates.
In February 2009, less than one month after taking office, President Obama announced the Homeowner Affordability and Stability Plan. As part of this plan and through other housing initiatives, the Administration has taken the following actions to strengthen the housing market:
Actions Supporting Market Stability and Access to Affordable Mortgage Credit
· Provided strong support to Fannie Mae and Freddie Mac to ensure continued access to affordable mortgage credit across the market;
· Together, Treasury and the Federal Reserve have purchased more than $1.4 trillion in agency mortgage backed securities, which have helped keep mortgage rates at historic lows, allowing homeowners to access credit to purchase new homes and refinance into more affordable monthly payments; and
· The FHA has played an important counter-cyclical role, providing liquidity for housing purchases at a time when private lending has declined.
Actions Helping Homeowners Purchase Homes, Refinance and Modify Mortgages to More Affordable Payments, Prevent Foreclosures and Stabilize Communities
· Launched a modification initiative to help homeowners reduce mortgage payments to affordable levels and to prevent avoidable foreclosures;
· Supported expanding the limits for loans guaranteed by Fannie Mae, Freddie Mac, and FHA from previous limits up to $625,500 per loan to $729,750;
· Expanded refinancing flexibilities for the Fannie Mae and Freddie Mac loans, particularly for borrowers with negative equity, to allow more Americans to refinance;
· Launched a $23.5 billion Housing Finance Agencies Initiative which is helping more than 90 state and local housing finance agencies across 49 states provide sustainable homeownership and rental resources for American families;
· Supported the First Time Homebuyer Tax Credit, which has helped hundreds of thousands of responsible Americans purchase homes.
· Through the Recovery Act is providing over $5 billion in support for affordable rental housing through low income housing tax credit programs and $2 billion in support for the Neighborhood Stabilization Program to restore neighborhoods hardest hit by concentrated foreclosures; and
· On February 19, 2010, the Administration announced the $1.5 billion HFA Hardest Hit Fund for housing finance agencies in the nation's hardest hit housing markets to design innovative, locally targeted foreclosure prevention programs.
Historically low mortgage rates along with expanded refinancing flexibilities for Fannie Mae and Freddie Mac loans have helped more than four million American homeowners with Fannie Mae and Freddie Mac loans to refinance, saving an estimated $150 per month on average and more than $7 billion in total. HAMP has provided more than 1 million struggling homeowners a second chance to stay in their homes – with each homeowner in a modification saving more than $500 per month on average.
Together, these initiatives are having an impact – strengthening the housing market, helping responsible homeowners prevent avoidable foreclosures and rebuilding communities and neighborhoods. Today mortgage rates remain at historic lows – the primary interest rate is now about 5 percent, lower than at any time in the three decades before the crisis. We are also seeing encouraging signs in housing indicators – home prices and the pace of home sales have stabilized in recent months.
March 26, 2010
TG-614
Housing Program Enhancements Offer Additional Options for Struggling Homeowners
Refinements to Existing Administration Programs Designed to Help Unemployed, Underwater Borrowers While Helping Administration Meet its Goals
WASHINGTON – Today, as part of its ongoing commitment to continuously improve housing relief efforts, the Administration announced adjustments to the Home Affordable Modification Program (HAMP) and to the Federal Housing Administration (FHA) programs. These program adjustments will better assist responsible homeowners who have been affected by the economic crisis through no fault of their own. The program modifications will expand flexibility for mortgage servicers and originators to assist more unemployed homeowners and to help more people who owe more on their mortgage than their home is worth because their local markets saw large declines in home values. These changes will help the Administration meet its goal of stabilizing housing markets by offering a second chance to up to 3 to 4 million struggling homeowners through the end of 2012. Costs will be shared between the private sector and the Federal Government; the Federal cost of these changes will be funded through the $50 billion allocation for housing programs under the Troubled Asset Relief Program (TARP).
Housing Policy Overview
The Administration's goal is to promote stability for both the housing market and homeowners. To meet these objectives, the Administration has developed a comprehensive approach using state and local housing agency initiatives, tax credits for homebuyers, neighborhood stabilization and community development programs, mortgage modifications and refinancing, and support for Fannie Mae and Freddie Mac. The Administration's efforts for homeowners have focused on giving responsible households an opportunity to remain in their homes when possible while they get back up on their feet, or to relocate to a more sustainable living situation. Today, mortgage rates are at record lows and, thanks in large part to these programs, more than four million homeowners have refinanced their mortgages to more affordable levels helping to save more than $7 billion annually, more than one million are saving an average of over $500 per month through the Administration's modification program, home equity increased by more than $12,000 for the average homeowner in the last three quarters last year and the economy is growing.
Even with this success, we continue to see challenges. Servicers were slow to implement HAMP, resulting in a slow start for the program. Recent improvements in the program have accelerated the pace of modifications, and the adjustments announced today will improve performance. But our strategy to address the crisis must evolve because our challenges have also evolved.
Our housing initiatives must balance the need to help responsible homeowners struggling to stay in their homes, with the recognition that we cannot and should not help everyone. The President has said: "We can't stop every foreclosure." And in fact, we can't maintain the balance described above if we assist every borrower. For example, investors and speculators should not be protected under our efforts, nor should Americans living in million dollar homes or defaulters on vacation homes. Some people simply will not be able to afford to stay in their homes because they bought more than they could afford. Instead, the Administration must focus on providing responsible homeowners opportunities to obtain a modification or to refinance and prevent avoidable foreclosures and, when necessary, must facilitate the transition to a more sustainable housing situation. The adjustments announced today are tailored to accomplish these goals by helping a targeted group of borrowers.
Eligible homeowners for modifications under HAMP must, for example: live in an owner occupied principal residence, have a mortgage balance less than $729,750, owe monthly mortgage payments that are not affordable (greater than 31 percent of their income) and demonstrate a financial hardship. The new flexibilities for the modification initiative announced today continue to target this group of homeowners.
The FHA refinance options being announced today will provide more opportunities for lenders to restructure loans for some families who owe more than their home is worth. This is a voluntary program for lenders and homeowners. The population eligible for a FHA refinance must be current on their mortgage. This rewards responsible homeowners and creates stabilizing incentives in the housing market.
Taken together, the Administration's broad housing initiatives and the new flexibilities announced today will offer a second chance to millions of responsible, middle-class American families struggling to stay in their homes and will help to stabilize our households, neighborhoods and communities.
Background on Housing Program Initiatives to Date
The Administration has taken a broad set of actions to stabilize the housing market and help American homeowners. These efforts are having an impact on our housing markets – we are seeing signs of stabilization. Looking back to over a year ago - stress in the financial system had severely reduced the supply of mortgage credit, limiting the ability of Americans to buy homes or refinance mortgages. Millions of responsible families who had made their monthly payments had fulfilled their obligations saw their property values fall, and found themselves unable to refinance at lower mortgage rates.
In February 2009, less than one month after taking office, President Obama announced the Homeowner Affordability and Stability Plan. As part of this plan and through other housing initiatives, the Administration has taken the following actions to strengthen the housing market:
Actions Supporting Market Stability and Access to Affordable Mortgage Credit
· Provided strong support to Fannie Mae and Freddie Mac to ensure continued access to affordable mortgage credit across the market;
· Together, Treasury and the Federal Reserve have purchased more than $1.4 trillion in agency mortgage backed securities, which have helped keep mortgage rates at historic lows, allowing homeowners to access credit to purchase new homes and refinance into more affordable monthly payments; and
· The FHA has played an important counter-cyclical role, providing liquidity for housing purchases at a time when private lending has declined.
Actions Helping Homeowners Purchase Homes, Refinance and Modify Mortgages to More Affordable Payments, Prevent Foreclosures and Stabilize Communities
· Launched a modification initiative to help homeowners reduce mortgage payments to affordable levels and to prevent avoidable foreclosures;
· Supported expanding the limits for loans guaranteed by Fannie Mae, Freddie Mac, and FHA from previous limits up to $625,500 per loan to $729,750;
· Expanded refinancing flexibilities for the Fannie Mae and Freddie Mac loans, particularly for borrowers with negative equity, to allow more Americans to refinance;
· Launched a $23.5 billion Housing Finance Agencies Initiative which is helping more than 90 state and local housing finance agencies across 49 states provide sustainable homeownership and rental resources for American families;
· Supported the First Time Homebuyer Tax Credit, which has helped hundreds of thousands of responsible Americans purchase homes.
· Through the Recovery Act is providing over $5 billion in support for affordable rental housing through low income housing tax credit programs and $2 billion in support for the Neighborhood Stabilization Program to restore neighborhoods hardest hit by concentrated foreclosures; and
· On February 19, 2010, the Administration announced the $1.5 billion HFA Hardest Hit Fund for housing finance agencies in the nation's hardest hit housing markets to design innovative, locally targeted foreclosure prevention programs.
Historically low mortgage rates along with expanded refinancing flexibilities for Fannie Mae and Freddie Mac loans have helped more than four million American homeowners with Fannie Mae and Freddie Mac loans to refinance, saving an estimated $150 per month on average and more than $7 billion in total. HAMP has provided more than 1 million struggling homeowners a second chance to stay in their homes – with each homeowner in a modification saving more than $500 per month on average.
Together, these initiatives are having an impact – strengthening the housing market, helping responsible homeowners prevent avoidable foreclosures and rebuilding communities and neighborhoods. Today mortgage rates remain at historic lows – the primary interest rate is now about 5 percent, lower than at any time in the three decades before the crisis. We are also seeing encouraging signs in housing indicators – home prices and the pace of home sales have stabilized in recent months.
Thursday, March 25, 2010
What Happens to Your Credit After Foreclosure, Bankruptcy, or Short Sale?
The following is an article from the California Assoc. of Realtors Legal Department.
One of the concerns a consumer has after experiencing a bankruptcy, foreclosure, or short sale (referred to as a "preforeclosure sale" by Fannie Mae) is the ability to obtain credit to purchase another home. Fannie Mae has updated its credit guidelines. This legal article summarizes those guidelines in Part I. In addition, since lenders use FICO scores in order to determine the creditworthiness of a borrower, this article covers the impact of a bankruptcy, foreclosure or short sale on FICO scores in Part II.
I. Fannie Mae Credit Guidelines
Q 1. How long is the time period after a foreclosure before a consumer can be eligible to obtain credit to purchase a home?
A Five years from the date the foreclosure sale was completed.
Additional requirements that apply after 5 years and up to 7 years following the completion date are as follows:
. The purchase of a principal residence is permitted with a minimum 10 percent down payment and minimum representative credit score of 680.
. Purchase of a second home or investment property is not permitted.
. Limited cash-out refinances are permitted for all occupancy types pursuant to the eligibility requirements in effect at that time.
. Cash-out refinances are not permitted for any occupancy type.
(Source: FNMA Announcement 08-16, 6-25-08 )
Q 2. Why do the additional requirements for foreclosures in Question 1 only apply from 5 to 7 years following the foreclosure completion date?
A According to Fannie Mae policy in Part X, Section 103 of the Selling Guide, Fannie Mae requires only a 7-year history to be reviewed for all credit and public record information. The 7-year timeframe also aligns with the information provided by the borrower on the loan application relative to disclosure of a past foreclosure action. (Source: FNMA Selling Guide, 4-1-09. )
Q 3. Does a shorter time period apply if the borrower has "extenuating circumstances" that led to the foreclosure?
A Yes. Three years from the date the foreclosure sale was completed. The same additional requirements apply as listed in Question 1 except the minimum credit score of 680 is not required. (Source: FNMA Announcement 08-16, 6-25-08. )
Q 4. What are"extenuating circumstances" ?
A Fannie Mae describes "extenuating circumstances" as follows:
Extenuating circumstances are nonrecurring events that are beyond the borrower's control that result in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations.
If a borrower claims that derogatory information is the result of extenuating circumstances, the lender must substantiate the borrower's claim. Examples of documentation that can be used to support extenuating circumstances include documents that confirm the event (such as a copy of a divorce decree, medical bills, notice of job layoff, job severance papers, etc.) and documents that illustrate factors that contributed to the borrower's inability to resolve the problems that resulted from the event (such as a copy of insurance papers or claim settlements, listing agreements, lease agreements, tax returns (e.g., covering the periods prior to, during, and after a loss of employment).
The lender must obtain a letter from the borrower explaining the relevance of the documentation. The letter must support the claims of extenuating circumstances, confirm the nature of the event that led to the bankruptcy or foreclosure-related action, and illustrate the borrower had no reasonable options other than to default on his or her financial obligations.
(Source: FNMA Selling Guide, 4-1-09 at 391. )
Q 5. How long is the time period after a deed-in-lieu of foreclosure before a consumer can be eligible to obtain credit to purchase a property?
A Four years from the date the deed-in-lieu was executed.
Additional requirements that apply after 4 years and up to 7 years following the completion date are as follows:
. Borrower may purchase a property secured by a principal residence, second home, or investment property with the greater of 10 percent minimum down payment or the minimum down payment required for the transaction.
. Limited-cash-out and cash-out refinance transactions secured by a principal residence, second home, or investment property are permitted pursuant to the eligibility requirements in effect at that time.
(Source: FNMA Announcement 08-16, 6-25-08. )
Q 6. Does a shorter time period apply if the borrower has "extenuating circumstances" that led to the deed-in-lieu of foreclosure?
A Yes. Two years from the date the deed-in-lieu was executed. The same additional requirements apply as listed in Question 4 after 2 years up to 7 years. (Source: FNMA Announcement 08-16, 6-25-08. )
See Question 4 for the definition of "extenuating circumstances."
Q 7. How long is the time period after a "preforeclosure sale" before a consumer can be eligible to obtain credit to purchase a property?
A Two years from the completion date. No exceptions are permitted to the 2-year period due to extenuating circumstances. (Source: FNMA Announcement 08-16, 6-25-08. )
Q 8. What is a "preforeclosure sale" mentioned in Question 6 and is that the same as a short sale?
A "A preforeclosure sale involves the sale of the property by the borrower to a third party for less than the amount owed to satify the delinquent mortgage, as agreed to by the lender, investor, and mortgage insurer" (Source: FNMA Announcement 08-16, 6-25-08 ).
Although the terms preforeclosure sale and short sale have been used interchangeably, there is a significant difference for purposes of obtaining credit. For Fannie Mae purposes, a preforeclosure assumes that the borrower has been delinquent in paying his or her mortgage and the lender agrees to accept a lesser amount to avoid the time and expense of a foreclousre action. A short-sale, however, can also refer to situations in which the lender of the mortgage agrees to a payoff of a lesser amount than is actually owed, even on a current mortgage, to facilitate the sale of the property to a third party. (Source: FNMA Announcement 08-16 Q&A, 8-13-08. )
Q 9. Does a shorter time period apply if the borrower has "extenuating circumstances" that led to the preforeclosure (short) sale?
A No. There are no exceptions to the 2-year time period. (Source: FNMA Announcement 08-16, 6-25-08. )
Q 10. If a borrower sold his or her property as a short sale but was never delinquent on that mortgage and is now attempting to purchase a new primary residence, will Fannie Mae purchase the loan?
A The loan will be eligible for delivery to Fannie Mae provided that the borrower's previous mortgage history complies with Fannie Mae's excessive prior mortgage delinquency policy--that is the borrower does not have one or more 60-, 90-, 120-, or 150-day delinquencies reported within the 12 months prior to the credit report date--and the borrower has not entered into any agreement with the short sale lender to repay any amounts associated with the short sale, including a deficiency judgment. (Source: FNMA Announcement 08-16 Q&A, 8-13-08 ; FNMA Selling Guide, Part X, Chapter 3, Section 302.09. .)
Q 11. Are preforeclosure (short) sales and deed-in-lieu of foreclosure actions identified on a credit report?
A Preforeclosure sales may be reported as "paid in full" with a "settled for less than owed" remarks code, and the mortgage tradeline would indicate any recent delinquency. A deed-in-lieu may be reported by a remarks code indicating a deed-in-lieu. (Source: FNMA Announcement 08-16 Q&A, 8-13-08. )
Q 12. How long is the time period after a bankruptcy (all except Chapter 13) before a consumer can be eligible to obtain credit to purchase a property?
A Four years from the discharge or dismissal date of the bankruptcy action (Source: FNMA Announcement 08-16, 6-25-08 ).
Q 13. How long is the time period after a Chapter 13 bankruptcy before a consumer can be eligible to obtain credit to purchase a property?
A Two years from the discharge date and four years from the dismissal date (Source: FNMA Announcement 08-16, 6-25-08 ).
Q 14. Does a shorter time period apply if the borrower has "extenuating circumstances" that led to the bankruptcy (all actions)?
A Yes. Two years from the discharge or dismissal; however, no exceptions are permitted to the 2-year time period after a Chapter 13 discharge (Source: FNMA Announcement 08-16, 6-25-08 ).
See Question 4 for the definition of "extenuating circumstances."
Q 15. How long is the time period after multiple bankruptcy filings before a consumer can be eligible to obtain credit to purchase a property?
A Five years from the most recent dismissal or discharge date for borrowers with more than one bankruptcy filing within the past 7 years (Source: FNMA Announcement 08-16, 6-25-08 ).
Q 16. Does a shorter time period apply if the borrower has "extenuating circumstances" that led to the multiple bankruptcies?
A Yes. Three years from the most recent discharge or dismissal date. The most recent bankruptcy filing must have been the result of extenuating circumstances. (Source: FNMA Announcement 08-16, 6-25-08. )
See Question 4 for the definition of "extenuating circumstances."
Q 17. What is the difference between a Chapter 13 bankruptcy and a Chapter 7 bankruptcy?
A Chapter 13 permits a borrower with a regular income to propose a plan to repay some or all of his or her obligations over a period of up to five years. A borrower who files a Chapter 7 is permitted to retain exempt assets and receive a discharge of the borrower's debts. Chapter 7 is a relatively quick liquidation process that is generally completed within 120 days. Chapter 7 cases are rarely dismissed. (Source: FNMA Announcement 08-16 Q&A, 8-13-08. )
Q 18. What is the difference between a Chapter 13 dismissal and a Chapter 13 discharge?
A A borrower who files a Chapter 13 can dismiss the case at any time (voluntary dismissal) or the case may be dismissed by the court based on the borrower's failure to comply with the requirements of the Bankruptcy Code or to make the required payments. If the borrower who files a Chapter 13 case makes all of the payments required by the plan, the borrower receives a discharge at the end of the plan. A borrower who doesn't make all the payment required by the plan may still receive a discharge if the court finds, among other things, that the borrower made a certain amount of the payments and the borrower's failure to make all of the payments was due to circumstances beyond the borrower's control. (Source: FNMA Announcement 08-16 Q&A, 8-13-08. )
Q 19. What are the requirements to re-establish a credit history?
A After a bankruptcy or foreclosure-related action, a credit history must meet the following rquirements to be considered re-established:
. It must meet the requirements for elapsed time (as discussed in this article).
. It must reflect that all accounts are current as of the date of the mortgage application.
. it must include a minimum of four credit references. At least one of the references must be a traditional credit reference, and one of the references must be housing-related.
(1) A housing-related reference must cover the period following the bankruptcy discharge or dismissal, foreclosure, or deed-in-lieu, and can be in the form of mortgage payments or rental payments.
(2) If rental payments wre not reported to the credit repositories, the lender must obtain copies of bank statements, money orders, or canceled checks for the most recent 12-month period as a supplement to the rent verification.
. It must reflect three of the four credit references, including rental housing references, as active in the 24 months preceding the date of the mortgage application.
. It must include no more than two installment or revolving debt payments 30 days past due in the last 24 months.
. It must include no installment or revolving debt payments 60 or more days past due since the discharge or dismissal of the bankruptcy or the completion of the foreclosure-related action.
. It must include no housing debt payments past due since the discharge or dismissal of the bankruptcy or the completion of the foreclosure-related action.
. It must include no new public records since the discharge or dismissal of the bankruptcy or the completion of the foreclousre-related action. Public records include bankruptcies, foreclosures, deeds-in-lieu, preforeclosure sales, unpaid judgments or collections, garnishments, liens, etc.
(Source: FNMA Selling Guide, 4-1-09 at 392. )
II. Bankruptcy, Foreclosure, and Short Sale and the Impact on a FICO® Score
Q 20. What is a FICO® Score?
A A FICO® score is a number representing the creditworthiness of a person or the likelihood that person will pay his or her debts. The three credit reporting agencies, Equifax, Experian, and TransUnion, collect data about consumers in order to compile credit reports. The credit agencies use FICO® software to generate FICO® scores, which are then sold to lenders. Actually FICO® is just one of the several credit scoring systems available. The Fair Isaac Corporation (known as FICO®) created the first credit scoring system in 1958. Others are NextGen, VantageScore, and the CE Score. They all evaluate the creditworthiness of a borrower. However, FICO appears to be the most-used credit scoring system. A FICO® score is between 300 and 850. The higher the better the credit.
Each consumer has three credit scores at any given time for any given scoring model because the three credit agencies have their own databases, gather reports from different creditors, and receive information from creditors at different times.
Q 21. What factors go into determining a FICO® score?
A Credit scores are designed to measure the risk of default by taking into account various factors in a person's financial history. Although the exact formulas for calculating credit scores are closely-guarded secrets, FICO® has disclosed the following components and the approximate weighted contribution of each:
35% — Payment History – Late payments on bills, such as a mortgage, credit card or automobile loan, can cause a consumer’s FICO® score to drop. Paying bills as agreed over time will improve a consumer’s FICO® score.
30% — Credit Utilization - The ratio of current revolving debt (such as credit card balances) to the total available revolving credit (credit limits). Consumers can improve their FICO® scores by paying off debt and lowering their utilization ratio. The closing of existing revolving accounts will typically adversely affect this ratio and therefore have a negative impact on the FICO® score.
15% — Length of Credit History – As a consumer's credit history ages, assuming the consumer pays his or her bills, it can have a positive impact on the FICO® score.
10% — Types of Credit Used (installment, revolving, consumer finance) – Consumers can benefit by having a history of managing different types of credit.
10% — Recent search for credit and/or amount of credit obtained recently - Multiple credit inquiries for a consumer seeking to open new credit, such as credit cards, retail store accounts, and personal loans, can hurt an individual’s score. Applying for lots of new credit in a short period of time is also viewed as risky and can cause a drop in an individual’s score. However, individuals shopping for a mortgage or auto loan over a short period will likely not experience a decrease in their scores as a result of these types of inquiries.
(Source: http://www.myfico.com/CreditEducation/WhatsInYourScore.aspx)
Q 22. How does a mortgage modification affect my FICO® score?
A FICO® credit scores are calculated from the information in consumer credit reports. Whether a loan modification affects the borrower's FICO® score depends on whether and how the lender chooses to report the event to the credit bureau, as well as on the person's overall credit profile. If a lender indicates to a credit bureau that the consumer has not made payments on a mortgage as originally agreed, that information on the consumer's credit report could cause the consumer's FICO® score to decrease or it could have little to no impact on the score.
(Source: http://www.myfico.com/crediteducation/questions/Mortgage_Modification.aspx)
Q 23. How does a bankruptcy affect my FICO® score?
A A bankruptcy is considered a very negative event regardless of the type. A bankruptcy is factored into your FICO® score until it is removed from your credit report. As long as the bankruptcy is listed on your credit report, it will be factored into your score. If you are considering bankruptcy as an alternative to foreclosure, keep in mind that it may have a greater impact on your FICO® score.
Typically, you can expect bankruptcies to remain on your credit report, from the date filed, as follows:
(1) Chapter 11 and Chapter 7 bankruptcies up to 10 years.
(2) Completed Chapter 13 bankruptcies up to 7 years.
These time periods refer to the public record item associated with filing for bankruptcy. All of the individual accounts included in the bankruptcy should be removed from your credit report after 7 years. (Source: http://www.myfico.com/crediteducation/Questions/Bankruptcy-Types.aspx)
If you plan to file a bankruptcy, here are some things you should do to make sure your creditors are accurately reporting the bankruptcy filing:
(1) Check your credit report to ensure that accounts that were not part of the bankruptcy filing are not being reported with a bankruptcy status.
(2) Make sure your bankruptcy is removed as soon as it is eligible to be "purged" from your credit report.
After a bankruptcy has been filed, the sooner you begin re-establishing credit in good standing, the sooner you can expect your FICO® score to rebound. A good practice is to obtain a secured credit card and continually make all of your payments on time. As time passes and the impact of the bankruptcy lessens, you might apply for a traditional credit card and also continually make all of your payments on time.
(Source: http://www.myfico.com/crediteducation/questions/Bankruptcy-Reach.aspx)
Q 24. How does a short sale, deed-in-lieu-of foreclosure. or a foreclosure affect my FICO® score?
A The alternatives to foreclosure, such as a deed-in-lieu of foreclosure or a short sale, aren’t any better as far as a FICO® score is concerned.
The common alternatives to foreclosure, such as short sales, and deeds-in-lieu of foreclosure are all "not paid as agreed" accounts, and considered the same by your FICO® score. This is not to say that these may not be better options for you from a financial or tax perspective, just that they will be considered no better or worse for your FICO® score.
If you are considering bankruptcy as an alternative to foreclosure, that may have a greater impact on your FICO® score. While a foreclosure is a single account that you default on, declaring bankruptcy has the opportunity to affect multiple accounts and therefore has potential to have a greater negative impact on your FICO® score.
(Source: http://www.myfico.com/CreditEducation/Questions/foreclosure-alternatives-fico-score.aspx)
Q 25. What won't affect my FICO® score?
A The following information is not considered by the FICO® scoring formula:
. Your race, color, religion, national origin, sex, or marital status
. Your age
. Your salary, occupation, title, employer, date employed, or employment history
. Where you live
. Any interest rate being charged on a particular credit card or other account
. Certain types of inquiries (such as promotional, account review, insurance or employment-related inquiries)
. Credit counseling
. Any information not found in your credit report
. Any information that is not proven to be predictive of future credit performance
(Source: http://myfico.custhelp.com/cgi-bin/myfico.cfg/php/enduser/std_adp.php?p_faqid=55)
Q 26. Where can I get more information?
A For a credit missteps comparison (i.e., affect on credit scores after certain events), go to http://www.myfico.com/crediteducation/questions/Credit_Problem_Comparison.aspx.
--------------------------------------------------------------------------------
The information contained herein is believed accurate as of December 1, 2009. It is intended to provide general answers to general questions and is not intended as a substitute for individual legal advice. Advice in specific situations may differ depending upon a wide variety of factors. Therefore, readers with specific legal questions should seek the advice of an attorney.
One of the concerns a consumer has after experiencing a bankruptcy, foreclosure, or short sale (referred to as a "preforeclosure sale" by Fannie Mae) is the ability to obtain credit to purchase another home. Fannie Mae has updated its credit guidelines. This legal article summarizes those guidelines in Part I. In addition, since lenders use FICO scores in order to determine the creditworthiness of a borrower, this article covers the impact of a bankruptcy, foreclosure or short sale on FICO scores in Part II.
I. Fannie Mae Credit Guidelines
Q 1. How long is the time period after a foreclosure before a consumer can be eligible to obtain credit to purchase a home?
A Five years from the date the foreclosure sale was completed.
Additional requirements that apply after 5 years and up to 7 years following the completion date are as follows:
. The purchase of a principal residence is permitted with a minimum 10 percent down payment and minimum representative credit score of 680.
. Purchase of a second home or investment property is not permitted.
. Limited cash-out refinances are permitted for all occupancy types pursuant to the eligibility requirements in effect at that time.
. Cash-out refinances are not permitted for any occupancy type.
(Source: FNMA Announcement 08-16, 6-25-08 )
Q 2. Why do the additional requirements for foreclosures in Question 1 only apply from 5 to 7 years following the foreclosure completion date?
A According to Fannie Mae policy in Part X, Section 103 of the Selling Guide, Fannie Mae requires only a 7-year history to be reviewed for all credit and public record information. The 7-year timeframe also aligns with the information provided by the borrower on the loan application relative to disclosure of a past foreclosure action. (Source: FNMA Selling Guide, 4-1-09. )
Q 3. Does a shorter time period apply if the borrower has "extenuating circumstances" that led to the foreclosure?
A Yes. Three years from the date the foreclosure sale was completed. The same additional requirements apply as listed in Question 1 except the minimum credit score of 680 is not required. (Source: FNMA Announcement 08-16, 6-25-08. )
Q 4. What are"extenuating circumstances" ?
A Fannie Mae describes "extenuating circumstances" as follows:
Extenuating circumstances are nonrecurring events that are beyond the borrower's control that result in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations.
If a borrower claims that derogatory information is the result of extenuating circumstances, the lender must substantiate the borrower's claim. Examples of documentation that can be used to support extenuating circumstances include documents that confirm the event (such as a copy of a divorce decree, medical bills, notice of job layoff, job severance papers, etc.) and documents that illustrate factors that contributed to the borrower's inability to resolve the problems that resulted from the event (such as a copy of insurance papers or claim settlements, listing agreements, lease agreements, tax returns (e.g., covering the periods prior to, during, and after a loss of employment).
The lender must obtain a letter from the borrower explaining the relevance of the documentation. The letter must support the claims of extenuating circumstances, confirm the nature of the event that led to the bankruptcy or foreclosure-related action, and illustrate the borrower had no reasonable options other than to default on his or her financial obligations.
(Source: FNMA Selling Guide, 4-1-09 at 391. )
Q 5. How long is the time period after a deed-in-lieu of foreclosure before a consumer can be eligible to obtain credit to purchase a property?
A Four years from the date the deed-in-lieu was executed.
Additional requirements that apply after 4 years and up to 7 years following the completion date are as follows:
. Borrower may purchase a property secured by a principal residence, second home, or investment property with the greater of 10 percent minimum down payment or the minimum down payment required for the transaction.
. Limited-cash-out and cash-out refinance transactions secured by a principal residence, second home, or investment property are permitted pursuant to the eligibility requirements in effect at that time.
(Source: FNMA Announcement 08-16, 6-25-08. )
Q 6. Does a shorter time period apply if the borrower has "extenuating circumstances" that led to the deed-in-lieu of foreclosure?
A Yes. Two years from the date the deed-in-lieu was executed. The same additional requirements apply as listed in Question 4 after 2 years up to 7 years. (Source: FNMA Announcement 08-16, 6-25-08. )
See Question 4 for the definition of "extenuating circumstances."
Q 7. How long is the time period after a "preforeclosure sale" before a consumer can be eligible to obtain credit to purchase a property?
A Two years from the completion date. No exceptions are permitted to the 2-year period due to extenuating circumstances. (Source: FNMA Announcement 08-16, 6-25-08. )
Q 8. What is a "preforeclosure sale" mentioned in Question 6 and is that the same as a short sale?
A "A preforeclosure sale involves the sale of the property by the borrower to a third party for less than the amount owed to satify the delinquent mortgage, as agreed to by the lender, investor, and mortgage insurer" (Source: FNMA Announcement 08-16, 6-25-08 ).
Although the terms preforeclosure sale and short sale have been used interchangeably, there is a significant difference for purposes of obtaining credit. For Fannie Mae purposes, a preforeclosure assumes that the borrower has been delinquent in paying his or her mortgage and the lender agrees to accept a lesser amount to avoid the time and expense of a foreclousre action. A short-sale, however, can also refer to situations in which the lender of the mortgage agrees to a payoff of a lesser amount than is actually owed, even on a current mortgage, to facilitate the sale of the property to a third party. (Source: FNMA Announcement 08-16 Q&A, 8-13-08. )
Q 9. Does a shorter time period apply if the borrower has "extenuating circumstances" that led to the preforeclosure (short) sale?
A No. There are no exceptions to the 2-year time period. (Source: FNMA Announcement 08-16, 6-25-08. )
Q 10. If a borrower sold his or her property as a short sale but was never delinquent on that mortgage and is now attempting to purchase a new primary residence, will Fannie Mae purchase the loan?
A The loan will be eligible for delivery to Fannie Mae provided that the borrower's previous mortgage history complies with Fannie Mae's excessive prior mortgage delinquency policy--that is the borrower does not have one or more 60-, 90-, 120-, or 150-day delinquencies reported within the 12 months prior to the credit report date--and the borrower has not entered into any agreement with the short sale lender to repay any amounts associated with the short sale, including a deficiency judgment. (Source: FNMA Announcement 08-16 Q&A, 8-13-08 ; FNMA Selling Guide, Part X, Chapter 3, Section 302.09. .)
Q 11. Are preforeclosure (short) sales and deed-in-lieu of foreclosure actions identified on a credit report?
A Preforeclosure sales may be reported as "paid in full" with a "settled for less than owed" remarks code, and the mortgage tradeline would indicate any recent delinquency. A deed-in-lieu may be reported by a remarks code indicating a deed-in-lieu. (Source: FNMA Announcement 08-16 Q&A, 8-13-08. )
Q 12. How long is the time period after a bankruptcy (all except Chapter 13) before a consumer can be eligible to obtain credit to purchase a property?
A Four years from the discharge or dismissal date of the bankruptcy action (Source: FNMA Announcement 08-16, 6-25-08 ).
Q 13. How long is the time period after a Chapter 13 bankruptcy before a consumer can be eligible to obtain credit to purchase a property?
A Two years from the discharge date and four years from the dismissal date (Source: FNMA Announcement 08-16, 6-25-08 ).
Q 14. Does a shorter time period apply if the borrower has "extenuating circumstances" that led to the bankruptcy (all actions)?
A Yes. Two years from the discharge or dismissal; however, no exceptions are permitted to the 2-year time period after a Chapter 13 discharge (Source: FNMA Announcement 08-16, 6-25-08 ).
See Question 4 for the definition of "extenuating circumstances."
Q 15. How long is the time period after multiple bankruptcy filings before a consumer can be eligible to obtain credit to purchase a property?
A Five years from the most recent dismissal or discharge date for borrowers with more than one bankruptcy filing within the past 7 years (Source: FNMA Announcement 08-16, 6-25-08 ).
Q 16. Does a shorter time period apply if the borrower has "extenuating circumstances" that led to the multiple bankruptcies?
A Yes. Three years from the most recent discharge or dismissal date. The most recent bankruptcy filing must have been the result of extenuating circumstances. (Source: FNMA Announcement 08-16, 6-25-08. )
See Question 4 for the definition of "extenuating circumstances."
Q 17. What is the difference between a Chapter 13 bankruptcy and a Chapter 7 bankruptcy?
A Chapter 13 permits a borrower with a regular income to propose a plan to repay some or all of his or her obligations over a period of up to five years. A borrower who files a Chapter 7 is permitted to retain exempt assets and receive a discharge of the borrower's debts. Chapter 7 is a relatively quick liquidation process that is generally completed within 120 days. Chapter 7 cases are rarely dismissed. (Source: FNMA Announcement 08-16 Q&A, 8-13-08. )
Q 18. What is the difference between a Chapter 13 dismissal and a Chapter 13 discharge?
A A borrower who files a Chapter 13 can dismiss the case at any time (voluntary dismissal) or the case may be dismissed by the court based on the borrower's failure to comply with the requirements of the Bankruptcy Code or to make the required payments. If the borrower who files a Chapter 13 case makes all of the payments required by the plan, the borrower receives a discharge at the end of the plan. A borrower who doesn't make all the payment required by the plan may still receive a discharge if the court finds, among other things, that the borrower made a certain amount of the payments and the borrower's failure to make all of the payments was due to circumstances beyond the borrower's control. (Source: FNMA Announcement 08-16 Q&A, 8-13-08. )
Q 19. What are the requirements to re-establish a credit history?
A After a bankruptcy or foreclosure-related action, a credit history must meet the following rquirements to be considered re-established:
. It must meet the requirements for elapsed time (as discussed in this article).
. It must reflect that all accounts are current as of the date of the mortgage application.
. it must include a minimum of four credit references. At least one of the references must be a traditional credit reference, and one of the references must be housing-related.
(1) A housing-related reference must cover the period following the bankruptcy discharge or dismissal, foreclosure, or deed-in-lieu, and can be in the form of mortgage payments or rental payments.
(2) If rental payments wre not reported to the credit repositories, the lender must obtain copies of bank statements, money orders, or canceled checks for the most recent 12-month period as a supplement to the rent verification.
. It must reflect three of the four credit references, including rental housing references, as active in the 24 months preceding the date of the mortgage application.
. It must include no more than two installment or revolving debt payments 30 days past due in the last 24 months.
. It must include no installment or revolving debt payments 60 or more days past due since the discharge or dismissal of the bankruptcy or the completion of the foreclosure-related action.
. It must include no housing debt payments past due since the discharge or dismissal of the bankruptcy or the completion of the foreclosure-related action.
. It must include no new public records since the discharge or dismissal of the bankruptcy or the completion of the foreclousre-related action. Public records include bankruptcies, foreclosures, deeds-in-lieu, preforeclosure sales, unpaid judgments or collections, garnishments, liens, etc.
(Source: FNMA Selling Guide, 4-1-09 at 392. )
II. Bankruptcy, Foreclosure, and Short Sale and the Impact on a FICO® Score
Q 20. What is a FICO® Score?
A A FICO® score is a number representing the creditworthiness of a person or the likelihood that person will pay his or her debts. The three credit reporting agencies, Equifax, Experian, and TransUnion, collect data about consumers in order to compile credit reports. The credit agencies use FICO® software to generate FICO® scores, which are then sold to lenders. Actually FICO® is just one of the several credit scoring systems available. The Fair Isaac Corporation (known as FICO®) created the first credit scoring system in 1958. Others are NextGen, VantageScore, and the CE Score. They all evaluate the creditworthiness of a borrower. However, FICO appears to be the most-used credit scoring system. A FICO® score is between 300 and 850. The higher the better the credit.
Each consumer has three credit scores at any given time for any given scoring model because the three credit agencies have their own databases, gather reports from different creditors, and receive information from creditors at different times.
Q 21. What factors go into determining a FICO® score?
A Credit scores are designed to measure the risk of default by taking into account various factors in a person's financial history. Although the exact formulas for calculating credit scores are closely-guarded secrets, FICO® has disclosed the following components and the approximate weighted contribution of each:
35% — Payment History – Late payments on bills, such as a mortgage, credit card or automobile loan, can cause a consumer’s FICO® score to drop. Paying bills as agreed over time will improve a consumer’s FICO® score.
30% — Credit Utilization - The ratio of current revolving debt (such as credit card balances) to the total available revolving credit (credit limits). Consumers can improve their FICO® scores by paying off debt and lowering their utilization ratio. The closing of existing revolving accounts will typically adversely affect this ratio and therefore have a negative impact on the FICO® score.
15% — Length of Credit History – As a consumer's credit history ages, assuming the consumer pays his or her bills, it can have a positive impact on the FICO® score.
10% — Types of Credit Used (installment, revolving, consumer finance) – Consumers can benefit by having a history of managing different types of credit.
10% — Recent search for credit and/or amount of credit obtained recently - Multiple credit inquiries for a consumer seeking to open new credit, such as credit cards, retail store accounts, and personal loans, can hurt an individual’s score. Applying for lots of new credit in a short period of time is also viewed as risky and can cause a drop in an individual’s score. However, individuals shopping for a mortgage or auto loan over a short period will likely not experience a decrease in their scores as a result of these types of inquiries.
(Source: http://www.myfico.com/CreditEducation/WhatsInYourScore.aspx)
Q 22. How does a mortgage modification affect my FICO® score?
A FICO® credit scores are calculated from the information in consumer credit reports. Whether a loan modification affects the borrower's FICO® score depends on whether and how the lender chooses to report the event to the credit bureau, as well as on the person's overall credit profile. If a lender indicates to a credit bureau that the consumer has not made payments on a mortgage as originally agreed, that information on the consumer's credit report could cause the consumer's FICO® score to decrease or it could have little to no impact on the score.
(Source: http://www.myfico.com/crediteducation/questions/Mortgage_Modification.aspx)
Q 23. How does a bankruptcy affect my FICO® score?
A A bankruptcy is considered a very negative event regardless of the type. A bankruptcy is factored into your FICO® score until it is removed from your credit report. As long as the bankruptcy is listed on your credit report, it will be factored into your score. If you are considering bankruptcy as an alternative to foreclosure, keep in mind that it may have a greater impact on your FICO® score.
Typically, you can expect bankruptcies to remain on your credit report, from the date filed, as follows:
(1) Chapter 11 and Chapter 7 bankruptcies up to 10 years.
(2) Completed Chapter 13 bankruptcies up to 7 years.
These time periods refer to the public record item associated with filing for bankruptcy. All of the individual accounts included in the bankruptcy should be removed from your credit report after 7 years. (Source: http://www.myfico.com/crediteducation/Questions/Bankruptcy-Types.aspx)
If you plan to file a bankruptcy, here are some things you should do to make sure your creditors are accurately reporting the bankruptcy filing:
(1) Check your credit report to ensure that accounts that were not part of the bankruptcy filing are not being reported with a bankruptcy status.
(2) Make sure your bankruptcy is removed as soon as it is eligible to be "purged" from your credit report.
After a bankruptcy has been filed, the sooner you begin re-establishing credit in good standing, the sooner you can expect your FICO® score to rebound. A good practice is to obtain a secured credit card and continually make all of your payments on time. As time passes and the impact of the bankruptcy lessens, you might apply for a traditional credit card and also continually make all of your payments on time.
(Source: http://www.myfico.com/crediteducation/questions/Bankruptcy-Reach.aspx)
Q 24. How does a short sale, deed-in-lieu-of foreclosure. or a foreclosure affect my FICO® score?
A The alternatives to foreclosure, such as a deed-in-lieu of foreclosure or a short sale, aren’t any better as far as a FICO® score is concerned.
The common alternatives to foreclosure, such as short sales, and deeds-in-lieu of foreclosure are all "not paid as agreed" accounts, and considered the same by your FICO® score. This is not to say that these may not be better options for you from a financial or tax perspective, just that they will be considered no better or worse for your FICO® score.
If you are considering bankruptcy as an alternative to foreclosure, that may have a greater impact on your FICO® score. While a foreclosure is a single account that you default on, declaring bankruptcy has the opportunity to affect multiple accounts and therefore has potential to have a greater negative impact on your FICO® score.
(Source: http://www.myfico.com/CreditEducation/Questions/foreclosure-alternatives-fico-score.aspx)
Q 25. What won't affect my FICO® score?
A The following information is not considered by the FICO® scoring formula:
. Your race, color, religion, national origin, sex, or marital status
. Your age
. Your salary, occupation, title, employer, date employed, or employment history
. Where you live
. Any interest rate being charged on a particular credit card or other account
. Certain types of inquiries (such as promotional, account review, insurance or employment-related inquiries)
. Credit counseling
. Any information not found in your credit report
. Any information that is not proven to be predictive of future credit performance
(Source: http://myfico.custhelp.com/cgi-bin/myfico.cfg/php/enduser/std_adp.php?p_faqid=55)
Q 26. Where can I get more information?
A For a credit missteps comparison (i.e., affect on credit scores after certain events), go to http://www.myfico.com/crediteducation/questions/Credit_Problem_Comparison.aspx.
--------------------------------------------------------------------------------
The information contained herein is believed accurate as of December 1, 2009. It is intended to provide general answers to general questions and is not intended as a substitute for individual legal advice. Advice in specific situations may differ depending upon a wide variety of factors. Therefore, readers with specific legal questions should seek the advice of an attorney.
Wednesday, March 24, 2010
Bank of America Expands Its Loan Modification Program
Here is part of a press release from Bank of America:
CALABASAS, Calif., March 24 /PRNewswire/ -- Bank of America announced it will look first at principal forgiveness – ahead of an interest rate reduction – when modifying certain subprime, Pay-Option and prime two-year hybrid mortgages qualifying for its National Homeownership Retention Program (NHRP). Several enhancements are being made to the program, including the introduction of an earned principal forgiveness approach to modifying mortgages that are severely underwater. The program changes are designed to encourage greater customer participation in the company's aggressive homeownership retention programs, including our continued strong commitment to the federal government's Home Affordable Modification Program (HAMP).
If you have a loan from Bank of America or Countrywide you may want to read the entire release. You can find it here.
CALABASAS, Calif., March 24 /PRNewswire/ -- Bank of America announced it will look first at principal forgiveness – ahead of an interest rate reduction – when modifying certain subprime, Pay-Option and prime two-year hybrid mortgages qualifying for its National Homeownership Retention Program (NHRP). Several enhancements are being made to the program, including the introduction of an earned principal forgiveness approach to modifying mortgages that are severely underwater. The program changes are designed to encourage greater customer participation in the company's aggressive homeownership retention programs, including our continued strong commitment to the federal government's Home Affordable Modification Program (HAMP).
If you have a loan from Bank of America or Countrywide you may want to read the entire release. You can find it here.
Monday, March 22, 2010
HAFA Begins April 5
If you are considering getting involved in a short sale, either as a seller or a buyer, you should be aware that the Home Affordable Foreclosure Alternatives (HAFA) program starts on April 5.
HAFA provides additional options to avoid costly foreclosures and offers incentives to borrowers, servicers and investors who utilize a short sale or deed-in-lieu (DIL) to avoid foreclosures. HAFA alternatives are available to all HAMP-eligible borrowers who: 1) do not qualify for a Trial Period Plan; 2) do not successfully complete a Trial Period Plan; 3) miss at least two consecutive payment during a HAMP modification; or, 4) request a short sale or deed-in-lieu.
In a short sale, the servicer allows the borrower to list and sell the mortgaged property with the understanding that the net proceeds from the sale may be less than the total amount due on the first mortgage. Generally, if the borrower makes a good faith effort to sell the property but is not successful, a servicer may consider a DIL. With a DIL, the borrower voluntarily transfers ownership of the property to the servicer - provided title is free and clear of mortgages, liens and encumbrances. With either the HAFA short sale or DIL, the servicer may not require a cash contribution or promissory note from the borrower and must forfeit the ability to pursue a deficiency judgment against the borrower.
HAFA simplifies and streamlines the short sale and DIL process by providing a standard process flow, minimum performance timeframes and standard documentation.
Quoted from Making Home Affordable website
It's this last paragraph the will be most directly addressed come April 5. Here are the major changes that will take effect:
Complements HAMP by providing a viable alternative for borrowers (the current homeowners) who are HAMP eligible but nevertheless unable to keep their home;
Uses borrower financial and hardship information already collected under HAMP;
Allows borrowers to receive pre-approved short sales terms before listing the property (including the minimum acceptable net proceeds);
Prohibits the servicers from requiring a reduction in the real estate commission agreed upon in the listing agreement (up to 6%);
Requires borrowers to be fully released from future liability for the first mortgage debt and, if the subordinate lien holder receives an incentive under HAFA, that debt as well (no cash contribution, promissory note, or deficiency judgment is allowed);
Uses a standard process, uniform documents, and timeframes/deadlines;
Provides financial incentives: $1,500 for borrower relocation assistance; $1,000 for servicers to cover administrative and processing costs; and up to a $1,000 match for investors for allowing a total of up to $3,000 in short sale proceeds to be distributed to subordinate lien holders; and
Requires all servicers participating in HAMP to implement HAFA in accordance with their own written policy, consistent with investor guidelines. The policy may include factors such as the severity of the potential loss, local markets, timing of pending foreclosure actions, and borrower motivation and cooperation.
To help you better understand HAFA and its guidelines, The National Association of Realtors has released a brochure about the Home Affordable Foreclosure Alternatives Program.
You can see a text version of this brochure here.
HAFA provides additional options to avoid costly foreclosures and offers incentives to borrowers, servicers and investors who utilize a short sale or deed-in-lieu (DIL) to avoid foreclosures. HAFA alternatives are available to all HAMP-eligible borrowers who: 1) do not qualify for a Trial Period Plan; 2) do not successfully complete a Trial Period Plan; 3) miss at least two consecutive payment during a HAMP modification; or, 4) request a short sale or deed-in-lieu.
In a short sale, the servicer allows the borrower to list and sell the mortgaged property with the understanding that the net proceeds from the sale may be less than the total amount due on the first mortgage. Generally, if the borrower makes a good faith effort to sell the property but is not successful, a servicer may consider a DIL. With a DIL, the borrower voluntarily transfers ownership of the property to the servicer - provided title is free and clear of mortgages, liens and encumbrances. With either the HAFA short sale or DIL, the servicer may not require a cash contribution or promissory note from the borrower and must forfeit the ability to pursue a deficiency judgment against the borrower.
HAFA simplifies and streamlines the short sale and DIL process by providing a standard process flow, minimum performance timeframes and standard documentation.
Quoted from Making Home Affordable website
It's this last paragraph the will be most directly addressed come April 5. Here are the major changes that will take effect:
Complements HAMP by providing a viable alternative for borrowers (the current homeowners) who are HAMP eligible but nevertheless unable to keep their home;
Uses borrower financial and hardship information already collected under HAMP;
Allows borrowers to receive pre-approved short sales terms before listing the property (including the minimum acceptable net proceeds);
Prohibits the servicers from requiring a reduction in the real estate commission agreed upon in the listing agreement (up to 6%);
Requires borrowers to be fully released from future liability for the first mortgage debt and, if the subordinate lien holder receives an incentive under HAFA, that debt as well (no cash contribution, promissory note, or deficiency judgment is allowed);
Uses a standard process, uniform documents, and timeframes/deadlines;
Provides financial incentives: $1,500 for borrower relocation assistance; $1,000 for servicers to cover administrative and processing costs; and up to a $1,000 match for investors for allowing a total of up to $3,000 in short sale proceeds to be distributed to subordinate lien holders; and
Requires all servicers participating in HAMP to implement HAFA in accordance with their own written policy, consistent with investor guidelines. The policy may include factors such as the severity of the potential loss, local markets, timing of pending foreclosure actions, and borrower motivation and cooperation.
To help you better understand HAFA and its guidelines, The National Association of Realtors has released a brochure about the Home Affordable Foreclosure Alternatives Program.
You can see a text version of this brochure here.
Thursday, March 11, 2010
To Some Banks, Nothing Is Better Than Something
The homeowner has not paid her loan payments in months and the bank agrees to a "short-sale" (where the home is sold for less than the amount of the loan). An offer comes in close to the short-sale asking price. Yet the bank refuses to approve the sale. Months go by. The owner is still in the home. She is still not paying on her loan, and the bank still refuses to approve the sale.
It doesn't make sense! After all, something is better than nothing, right? Why doesn't the bank approve the sale, take whatever cash they can get, and move on?
It all comes down to accounting. If the bank accepts the short-sale, they have agreed to settle the owner's debt for less than the full loan amount. And this loss has to be recorded in the bank's balance sheet.
But if they never agree to the sale, then there is no loss. In fact, the full loan amount still shows as an asset on their books, making the bank look financially very strong.
It doesn't make sense! After all, something is better than nothing, right? Why doesn't the bank approve the sale, take whatever cash they can get, and move on?
It all comes down to accounting. If the bank accepts the short-sale, they have agreed to settle the owner's debt for less than the full loan amount. And this loss has to be recorded in the bank's balance sheet.
But if they never agree to the sale, then there is no loss. In fact, the full loan amount still shows as an asset on their books, making the bank look financially very strong.
Wednesday, March 3, 2010
HUD Advances Fight Against Loan Modification Scams
National Coalition Launches Online Scam Reporting Tool
WASHINGTON -- The U.S. Department of Housing and Urban Development, in partnership with the Loan Modification Scam Prevention Network, today announced the launch of PreventLoanScams.org.
“ Homeowners at risk of foreclosure can be easy prey for home loan modification scammers. Often, dishonest individuals lure vulnerable homeowners into foreclosure rescue scams by making false promises. Scammers frequently claim they can lower mortgage payments or stop the foreclosure process. ”
“Troubled homeowners lose time and money when they are tricked by con artists who promise to help but never do,” said John Trasviña, HUD Assistant Secretary for Fair Housing and Equal Opportunity. “This initiative combines the collective energies of public and private enterprises to strengthen the ability of law enforcement to prosecute scammers and protect homeowners.”
The Loan Modification Scam Prevention Network, a national coalition of public and private enterprises, is led by the Lawyers’ Committee for Civil Rights Under Law. Fannie Mae, Freddie Mac, the Homeownership Preservation Foundation, and NeighborWorks America assist the Lawyers’ Committee in leading the coalition’s fight against loan modification scams.
The Network developed PreventLoanScams.org to provide homeowners with a single destination to report alleged scammers. Complaints filed online are added to a national complaint database and forwarded to the appropriate law enforcement agencies for review. The Network estimates that the website will assist approximately 50,000 homeowners affected by scams. Additionally, HUD has directed its local fair housing and housing counseling grantees to begin reporting alleged loan modification scams via the website.
The creation of a national complaint database is a major step in the fight against loan modification scams. Prior to the launch of PreventLoanScams.org, federal, state, and local government agencies could not share complaint data with non-profit organizations. The new system allows for better analysis of trends across jurisdictional lines and will likely lead to an increase in private enforcement action filings.
WASHINGTON -- The U.S. Department of Housing and Urban Development, in partnership with the Loan Modification Scam Prevention Network, today announced the launch of PreventLoanScams.org.
“ Homeowners at risk of foreclosure can be easy prey for home loan modification scammers. Often, dishonest individuals lure vulnerable homeowners into foreclosure rescue scams by making false promises. Scammers frequently claim they can lower mortgage payments or stop the foreclosure process. ”
“Troubled homeowners lose time and money when they are tricked by con artists who promise to help but never do,” said John Trasviña, HUD Assistant Secretary for Fair Housing and Equal Opportunity. “This initiative combines the collective energies of public and private enterprises to strengthen the ability of law enforcement to prosecute scammers and protect homeowners.”
The Loan Modification Scam Prevention Network, a national coalition of public and private enterprises, is led by the Lawyers’ Committee for Civil Rights Under Law. Fannie Mae, Freddie Mac, the Homeownership Preservation Foundation, and NeighborWorks America assist the Lawyers’ Committee in leading the coalition’s fight against loan modification scams.
The Network developed PreventLoanScams.org to provide homeowners with a single destination to report alleged scammers. Complaints filed online are added to a national complaint database and forwarded to the appropriate law enforcement agencies for review. The Network estimates that the website will assist approximately 50,000 homeowners affected by scams. Additionally, HUD has directed its local fair housing and housing counseling grantees to begin reporting alleged loan modification scams via the website.
The creation of a national complaint database is a major step in the fight against loan modification scams. Prior to the launch of PreventLoanScams.org, federal, state, and local government agencies could not share complaint data with non-profit organizations. The new system allows for better analysis of trends across jurisdictional lines and will likely lead to an increase in private enforcement action filings.
Monday, March 1, 2010
Making "Free" Credit Reports Really Free
FTC Amends Free Credit Reports Rule To Help Consumers Steer Clear of ‘Free’ Offers that Cost Money
Starting April 1, advertising for “free credit reports” will require new disclosures to help consumers avoid confusing “free” offers – which often require consumers to spend money on credit monitoring or other products or services – with the no-strings-attached credit reports available at AnnualCreditReport.com, or 877-322-8228.
The Federal Trade Commission’s Free Credit Reports Rule will require new prominent disclosures in advertisements for “free credit reports.” For example, any Web site offering free credit reports must include a disclosure, across the top of each page that mentions free credit reports, which states:
THIS NOTICE IS REQUIRED BY LAW. Read more at FTC.GOV.
You have the right to a free credit report from AnnualCreditReport.com
or 877-322-8228, the ONLY authorized source under federal law.
The Web site disclosure must include a clickable button to “Take me to the authorized source” and clickable links to AnnualCreditReport.com and FTC.GOV.
The Credit CARD Act of 2009 requires the Commission to issue a rule by February 22, 2010, to prevent deceptive marketing of “free credit reports.” Specifically, the Act requires that certain advertisements for “free credit reports” include prominent disclosures designed to prevent consumers from confusing these “free” offers with the federally mandated free annual credit reports available through the “centralized source,” which is AnnualCreditReport.com, or 877-322-8228. The Credit CARD Act of 2009 requires a slightly different disclosure between now until April 1: “Free credits reports are available under Federal law at: AnnualCreditReport.com.”
The FTC proposed amending the Rule in October 2009 and received more than one thousand comments from consumers, consumer reporting agencies, consumer report resellers, business and trade organizations, state attorneys general, consumer advocates, law firms, members of Congress, and academics.
The amended Rule also restricts practices that might confuse or mislead consumers as they try to get their federally mandated free annual credit reports. For example, the amended Rule requires nationwide consumer reporting agencies – Equifax, Experian, and TransUnion – to delay any advertising for products or services on AnnualCreditReport.com until after consumers get their free credit reports.
The amended Rule is effective April 1, 2010, except for the wording of the disclosures for television and radio advertisements, which takes effect on September 1, 2010. The FTC will monitor and evaluate the effectiveness of the amended Rule and the required disclosures, and will consider additional changes as necessary.
The amended Rule can be found on the Commission’s Web site as a link to this press release and will soon be published in the Federal Register. The Commission vote authorizing the publication of the Federal Register notice was 4-0.
Information in credit reports may affect whether consumers can get a loan or a job, so it is important that consumers check their credit reports and correct any information that is inaccurate. Each of the nationwide credit reporting companies is required to provide consumers with a free copy of their credit reports once every 12 months upon request. Consumers can learn more about their right to a free credit report under federal law at http://www.ftc.gov/freereports.
MEDIA CONTACT:
Frank Dorman,
Office of Public Affairs
202-326-2674
STAFF CONTACT:
Katherine Armstrong,
Bureau of Consumer Protection
202-326-2252
(FACTA - Free Credit Reports)
(FTC File No. R411004)
Starting April 1, advertising for “free credit reports” will require new disclosures to help consumers avoid confusing “free” offers – which often require consumers to spend money on credit monitoring or other products or services – with the no-strings-attached credit reports available at AnnualCreditReport.com, or 877-322-8228.
The Federal Trade Commission’s Free Credit Reports Rule will require new prominent disclosures in advertisements for “free credit reports.” For example, any Web site offering free credit reports must include a disclosure, across the top of each page that mentions free credit reports, which states:
THIS NOTICE IS REQUIRED BY LAW. Read more at FTC.GOV.
You have the right to a free credit report from AnnualCreditReport.com
or 877-322-8228, the ONLY authorized source under federal law.
The Web site disclosure must include a clickable button to “Take me to the authorized source” and clickable links to AnnualCreditReport.com and FTC.GOV.
The Credit CARD Act of 2009 requires the Commission to issue a rule by February 22, 2010, to prevent deceptive marketing of “free credit reports.” Specifically, the Act requires that certain advertisements for “free credit reports” include prominent disclosures designed to prevent consumers from confusing these “free” offers with the federally mandated free annual credit reports available through the “centralized source,” which is AnnualCreditReport.com, or 877-322-8228. The Credit CARD Act of 2009 requires a slightly different disclosure between now until April 1: “Free credits reports are available under Federal law at: AnnualCreditReport.com.”
The FTC proposed amending the Rule in October 2009 and received more than one thousand comments from consumers, consumer reporting agencies, consumer report resellers, business and trade organizations, state attorneys general, consumer advocates, law firms, members of Congress, and academics.
The amended Rule also restricts practices that might confuse or mislead consumers as they try to get their federally mandated free annual credit reports. For example, the amended Rule requires nationwide consumer reporting agencies – Equifax, Experian, and TransUnion – to delay any advertising for products or services on AnnualCreditReport.com until after consumers get their free credit reports.
The amended Rule is effective April 1, 2010, except for the wording of the disclosures for television and radio advertisements, which takes effect on September 1, 2010. The FTC will monitor and evaluate the effectiveness of the amended Rule and the required disclosures, and will consider additional changes as necessary.
The amended Rule can be found on the Commission’s Web site as a link to this press release and will soon be published in the Federal Register. The Commission vote authorizing the publication of the Federal Register notice was 4-0.
Information in credit reports may affect whether consumers can get a loan or a job, so it is important that consumers check their credit reports and correct any information that is inaccurate. Each of the nationwide credit reporting companies is required to provide consumers with a free copy of their credit reports once every 12 months upon request. Consumers can learn more about their right to a free credit report under federal law at http://www.ftc.gov/freereports.
MEDIA CONTACT:
Frank Dorman,
Office of Public Affairs
202-326-2674
STAFF CONTACT:
Katherine Armstrong,
Bureau of Consumer Protection
202-326-2252
(FACTA - Free Credit Reports)
(FTC File No. R411004)
Subscribe to:
Posts (Atom)