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Does the Mortgage Modification Program Lower Credit Scores?

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The HAMP Backstory

lowering credit scoresEarlier this month, the Obama Administration sent “swat teams” into mortgage servicers’ offices to investigate the problem of loans under the Home Affordable Mortgage Program (a $75 billion taxpayer-financed program put in place to curb foreclosure rates) as servicers are blamed for frequently losing paperwork, missing details and failing to complete applications.

With mortgage delinquencies rising, 375,000 borrowers are eligible for permanent loan modifications by the end of December and the Administration wants to make sure the banks make good on granting these modifications. Proof of reluctance to move past trial offer periods is that only 1,711 permanent mortgage modifications had been offered by September.

In response, the House Finance Committee called on the Administration to take action but I think everyone’s busy on a Hawaiian vacation…

That takes us to today…

Today, CNNMoney published a good old fashioned expose on the HAMP recipients noting that their credit scores are mysteriously dropping. It makes sense that creditors may look at HAMP recipients and make a judgment call that they are not currently eligible for their line of credit, but it does not make sense at all for credit scores to be falling, especially given that many HAMP recipients have been told that their credit score would not be impacted.

This creates a serious problem for what some call a failing program and I anticipate that the program will not be scrapped in the next 60 days out of sheer stubbornness on the part of the Administration, but when it does fold, you better bet some serious investigations will be performed.

What does this mean for the real estate and mortgage professionals on the ground? Can our industry in good conscience direct homeowners to the HAMP program?

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25 Comments

25 Comments

  1. Sasha Farmer

    December 29, 2009 at 8:08 am

    Uh oh.. that is not good! Thanks for pointing out this article! Was just taking a great CRS class about a month ago that was giving us general ranges for the amounts credit scores were dropping for different distressed situations- short sale, foreclosure, strategic default, mortgage modification, etc, and those instructors may have still been behind this information, as they were discussing how so few people had taken advantage of this program, and how it should not impact your credit score.

    Bummer- have some updating to do on some posts now!

  2. Jason Sandquist

    December 29, 2009 at 8:57 am

    why wouldn’t it? they’re debtors… 😉

    • bficker

      December 29, 2009 at 11:44 am

      Why should it? The debt is already on their credit report. If the bank agrees to change the terms of the loan, and the homeowner is current, nothing has happened that should lower the score.

  3. Benn Rosales

    December 29, 2009 at 10:56 am

    Technically it should ding you, but it shouldn’t drag on your score if you’re maintaining the agreement, in fact, I would imagine on further study longterm, these same borrowers may see an actual bump (small) from participation based on current scoring realities. You see it a lot in first home borrowers that may ding while undertaking a mortgage, but while paying the mortgage they actually do receive the benefits of higher scoring if payments are received on time or within the contractual guidelines.

    • bficker

      December 29, 2009 at 11:43 am

      I’m not sure why it should “technically” ding you… Unless of course the bank told them they have to be late on their mortgage before they will do a modification. If a homeowner is current, and the bank agrees to take less, nothing negative has occurred. The problem is that we have been having banks tell clients (for a HAMP program or In-House modification) that they have to be 60 days late. We know that is not necessarily true, but by the time they contact us, they’ve already gone late.

      • Benn Rosales

        December 29, 2009 at 2:20 pm

        Your comment contains emotions and intangibles, and these are two things the bank nor the credit scoring industries take into account. In other words, yes, it is tragic that grandma died, but we’re taking the house because no one made the mortgage payments, it’s really quite logical.

        I’m not saying it’s right, I’m saying that logically, it make sense. More sense than the banks noting your shopping at Wal-Mart means you’re having financial problems, thus reducing your credit availability.

        • bficker

          December 29, 2009 at 5:42 pm

          I’m not sure where I had emotions and intangibles. It’s black and white: The homeowner is current, the bank agrees to a loan mod, there shouldn’t be a credit ding. Nothing emotional about that.

          The bank has, many times, told my clients they will not do a loan mod unless they are at least 60 days late. So the homeowner goes late. The only thing that should affect the credit score is the 60 day lates.

          Am I missing something? What is emotional or intangible about that?

  4. Cleg

    December 29, 2009 at 11:12 pm

    I had this exact situation happen to me. I was NOT thirty days late on my mortgage.. sliding in around 27 days and reached out to my mortgage company to see if I could do a one month payment deferrment. I was told I was the EXACT person that this modification was supposed to help. I had a $500 a month reduced payment for three months and now it will be lower $50 a month. I asked the specific question as to how my credit score would be affected and was told numerous times that my score would remain intact becuase I was not late at the time I entered the modification. This is NOT the case. My credit score has plummetted 150 points and I have been trying to get this finalized for 6 months now!! This program was not rolled out properly. No one knew the guidelines of the program and now I feel very misled. I would have rather struggled through it. I am now employed and have six months of slow pay vice a month or two 30 days late on my credit. I was unemployed and savings had run out. I have a job now which is great. Before you call me irresponsible how many of you can pay your mortgage, feed your family and keep the lights on living off of an unemployment check? I had savings and for five months I struggled through. I just feel misled and that this program was supposed to help me and now six months later I am just trying to get the thing finalized!

    • bficker

      December 30, 2009 at 12:10 am

      “Before you call me irresponsible…”
      This is happening to so many people, responsible or not. There are so many things out of our control. Besides, the banks were just as “irresponsible” when making many loans they shouldn’t have. For the most part, the blame can’t be placed on (most of) the homeowners.

  5. Cleg

    December 29, 2009 at 11:15 pm

    My real question is what can I do about it now?

    • bficker

      December 30, 2009 at 12:08 am

      Well unfortunately, it is an uphill battle from here. We have had (modest) success with clients going through a credit repair firm. Basically, your creditors have a set amount of time to respond to disputes on the credit report, otherwise they come off. So the company keeps submitting disputes until the bank fails to respond in time. It’s kind of a gray area, but the banks are screwing people over when they lie to them like this. Also, if you have any sort of email or anything in writing about the credit score stuff then you can submit that to the credit agencies and see if they will remove it. Anyway, good luck. Its gonna be a tough fight.

  6. Lead closer

    December 31, 2009 at 1:48 am

    After the recession had been triggered, I think nothing has been set right by the government.

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Economic News

Is the real estate industry endorsing Carson’s nomination to HUD?

(BUSINESS NEWS) Ben Carson’s initial appointment to HUD was controversial given his lack of experience in housing, but what is the pulse now?

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NAR strongly backs Dr. Carson’s nomination

When President-Elect Donald Trump put forth Dr. Ben Carson’s name as the nominee for Secretary of Housing and Urban Development, NAR President William E. Brown said, “While we’ve made great strides in recent years, far more can be done to put the dream of homeownership in reach for more Americans.”

At the time of nomination, the National Association of Realtors (the largest trade organization in the nation) offered a positive tone regarding Dr. Carson and said the industry looks forward to working with him. But does that hold true today?

The confirmation hearings yesterday were far less controversial than one would expect, especially in light of how many initially reacted to his nomination. Given his lack of experience in housing, questions seemed to often center around protecting the LGBT community and veterans, both of which he pledged to support.

In fact, Dr. Carson said the Fair Housing Act is “one of the best pieces of legislation we’ve ever had in this country,” promising to issue a “world-class plan” for housing upon his confirmation…

>>>>>Click to continue reading…<<<<<

#CarsonHUD

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Economic News

Job openings hit 14-year high, signaling economic improvement

The volume of job openings is improving, but not across all industries. The overall economy is improving, but not evenly across all career paths.

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Job openings hit a high point

To understand the overall business climate, the U.S. Labor Department studies employment, today releasing data specific to job vacancies. According to the department’s Job Openings and Labor Turnover Survey (JOLT) for April, job openings rose to 5.38 million, the highest seen since December 2000, and a significant jump from March’s 5.11 million vacancies. Although a lagging indicator, it shows strength in the labor market.

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The Labor Department reports that the number of hires in April fell to 5 million, which indicates a weak point in the strong report, and although the volume remains near recent highs, this indicates a talent gap and highlights the number of people who have left the labor market and given up on looking for a job.

Good news, bad news, depending on your profession

That said, another recent Department report notes that employers added 221,000 jobs in April and 280,000 in May, but the additions are not evenly spread across industries. Construction jobs rose in April, but dipped in professional and business services, hospitality, trade, and transportation utilities. In other words, white collar jobs are down, blue collar jobs are up, which is good or bad news depending on your profession.

Additionally, the volume of people quitting their jobs was 2.7 million in April compared to the seven-year high of 2.8 million in March. Economists follow this number as a metric for gauging employee confidence in finding their next job.

What’s next

If you’re in the market for a job, there are an increasing number of openings, so your chance of getting hired is improving, but there is a caveat – not all industries are enjoying improvement.

If you’re hiring talent, you’ll still get endless resumes, but there appears to be a growing talent gap for non-labor jobs, so you’re not alone in struggling to find the right candidate.

Economists suspect the jobs market will continue to improve as a whole, but this data does not pertain to every industry.

#JobOpenings

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Economic News

Gas prices are down, so are gas taxes about to go up?

Do low gas prices mean higher gas taxes are on the way? Budgeting for 2015 just got a bit more complicated, if some politicians have their way.

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Gas taxes and your bottom line

Many industries rely heavily on time in their vehicle, not just truck drivers and delivery trucks. Sales professionals hop in their vehicles throughout the day, as do many other types of professionals (service providers like plumbers, and so forth). For that reason, gas prices and taxes are a relevant line item that must be budgeted for 2015, but with politicians making the rounds to push for higher gas taxes, budgeting becomes more complicated.

Gas prices are down roughly 50 cents per gallon compared to a year ago, which some analysts say have contributed to more money in consumers’ pockets. Some believe that this will improve holiday sales, but others believe the timing is just right to increase federal taxes on gas. The current tax on gas is 18.40 cents per gallon, and on diesel are 24.40 cents per gallon.

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Supporters and opponents are polar opposites

Supporters argue as follows: gas prices are low, so it won’t hurt to increase federal gas taxes, in fact, those funds must go toward improving our infrastructure, which in the long run, saves Americans money because smoother roads mean better gas mileage and less congestion.

Gas taxes have long been a polarizing concept, and despite lowered gas prices, the controversial nature of the taxes have not diminished.

While some are pushing for complete abolition of federal gas taxes, others, like former Pennsylvania Governor, Ed Rendell (D) tell CNBC, “Say that cost the average driver $130 a year. They would get a return on that investment” in safer roads and increased quality of life, he added.

The Washington Post‘s Chris Mooney points out that federal gas taxes have been “stuck” at 18 cents for over 20 years, last raised when gas was barely a dollar a gallon and that the tax must increase not only to improve the infrastructure, but to “green” our behavior, and help our nation find tax reform compromise.

Is a gas tax politically plausible?

Mooney writes, “So, this is not an argument that a gas tax raise is politically plausible — any more than a economically efficient tax on carbon would be. It’s merely a suggestion that — ignoring politics — it might be a pretty good idea.”

Rendell noted, “The World Economic Forum, 10 years ago, rated us the best infrastructure in the world,” adding that we “need to do something for our infrastructure, not in a one or two year period, but over a decade.”

Others would note that this rating has not crumbled in just a few years, that despite many bridges and roads in need of repair, our infrastructure is still superior to even the most civilized nations.

Regardless of the reasons, most believe that Congress won’t touch this issue with a ten-foot pole, especially leading up to another Presidential campaign season starting next year.

“I think it’s too toxic and continues to be too toxic,” Steve LaTourette (the former Republican congressman best known for his close friendship with his fellow Ohioan, Speaker John Boehner) tells The Atlantic. “I see no political will to get this done.”

Whether the time is fortuitous or not, and regardless of the positive side effects, many point to a fear of voters’ retaliation against any politician siding with a gas hike, so this matter going any further than the proposal stage is unlikely.

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