Monthly Archives: April 2011

The costs of skipping a house payment








What kind of damage to your credit happens after 1 missed mortgage payment?

Oddly, it depends on if you have good or bad credit to start with. Those with good credit suffer more than those with bad credit.  (Answer: It’s about a 60-100 point drop in your FICO score for one missed payment.)

This great post talks about the effects of missed mortgage payments, short sales, foreclosure and bankruptcy on the owner’s FICO score. The post refers to a chart on the FICO blog that details how these events affect credit scores and how long it takes to recover from each one.

This is required reading for anyone weighing their options among foreclosure/short sale/bankruptcy.

Most interesting to me was that your credit suffers more if you have a deficiency balance after a short sale than if there is no deficiency balance. I find that deficiencies are NOT forgiven in most short sales, so the credit effect of a short sale with no release is the same as a foreclosure!

I review the credit of many clients and most of them are around 520 to 600 after they have missed three mortgage payments (much lower than indicated in the chart).

As far as recovery of credit after goes, one can get a new FHA mortgage with a 620 FICO score (after the required wait), and that’s not too much of a leap from even the lowest levels listed.






How many mortgages really get loan modifications?


The last three clients I spoke to were approved for loan modifications. About 20 before that were shot down.

The reductions  in their monthly payments (among those approved) were from $500 to $1300.

I am so overwhelmingly negative and cynical about loan modifications that I don’t like to even hear myself talk about them. I sound worse than some crabby, old guy on the SCORE complaining about the White Sox bullpen.

I do believe that loan modifications are too hard to get and that they lead many homeowners down the path to foreclosure, instead of helping them.

This cool graph that shows how many loan modifications are cancelled and how many become “permanent” and it shows the percentages for each at all of the major lenders. Of all of the trial modifications applied for, about half are cancelled. It was surprising to me that there are such differences between lenders in the number of modifications made permanent.

Considering that half of those who get loan modifications end up in default again (after the modification) I still consider loan modification a long shot.