This article discusses the impact negative mortgage events have on an individual™s Fair Isaac Company (FICO) credit score, and discusses the harm of lender over-reliance on scores in determining creditworthiness.

A brief overview of the FICO

The Fair Isaac Company (FICO) score is the predominant tool presently used by lenders to determine a homebuyer™s likelihood of paying (or defaulting) on a mortgage loan, a measure referred to as creditworthiness. Along with other factors considered in a loan application (such as job history, cash reserves, etc.), a homebuyer™s creditworthiness sets the bar for whether and how much a lender is willing to lend and at what rate.

The FICO score was developed so lenders could defer to an out-sourced standard to determine credit and avoid the expense and vicissitudes of an independent staff evaluation of a homebuyer™s credit history. Simplified, it is an equation which mathematically weights selected components of a homebuyer™s credit history and present financial circumstances to arrive at a number ” the score ” which is meant to gauge the homebuyer™s likelihood of repaying debt.

Before a FICO score can be established, a homebuyer must have:

• one reportable account (credit card, loan, bank account, etc.) at least six months old; or
• one reportable account which has been reported to FICO in the last six months; and
• no report on record that the homebuyer is deceased.

Editor™s note ” A homebuyer gets no credit for making timely payments on rent, utilities or cell phone bills, but he is penalized for failing to make payments on them. FICO scores do not reflect a homebuyer™s positive payment history of such accounts, nor are they alone sufficient to establish a FICO score. However, when such bills are delinquent, they may be reported to the bureaus by those creditors as delinquencies. If the accounts go into collection or become so delinquent a judgment is recorded against the homebuyer, they have an adverse effect on a homebuyer™s credit score.

After the six-month credit building period to establish a score has passed, the homebuyer™s credit behavior is further assessed, and a score is assigned according to his credit behavior known to FICO. The FICO score range is from 300-850. Theoretically, the higher the score, the more likely a homebuyer is to repay his debts. As credit scores are based on a homebuyer™s history of credit use, no use of credit means no score exists.

A FICO score consists of five components based on debts reported to FICO, weighted as follows:

• 35% is payment history, including public records such as bankruptcies, judgments and liens and payment history including delinquencies, how severe the delinquencies are, and how long ago they occurred;
• 30% is amounts owed, including the number of accounts with balances, and the proportion of credit lines used or installment loan balances outstanding;
• 15% is length of credit history, including time since an account was opened and time since there was activity on the account;
• 10% is new credit opened, including the number of recently opened accounts in proportion to the existing accounts, the number and timing of recent inquiries and the re-establishment of positive credit history following payment problems; and
• 10% is type of credit used, including the percentage difference in types of accounts, e.g. credit cards, retail accounts, installment loans, mortgages, etc.

FICO provides the scoring formula in a œblack box (meaning the bureaus do not have access to the proprietary algorithm) to the three credit bureaus ” Experian, Transunion and Equifax. The three bureaus in turn subject an individual™s credit history to the encoded formula which determines the credit score. The bureaus then market and sell the resulting scores as a service to lenders (FICO receives a royalty each time a credit score is calculated).

A FICO score does not reflect timely rental payments, but it may be negatively affected by the failure to pay rent on time.

A FICO score does not reflect timely rental payments, but it may be negatively affected by the failure to pay rent on time.

Thus, scores vary across the three bureaus, depending on the debt information each has on file for an individual. Lenders buying the score then use this information to the extent they wish in their mortgage underwriting decisions. Typically, lenders pull credit scores from all three bureaus then average them or use the middle score to set the score they will consider for use in analyzing the individual seeking a loan.

The real costs of FICO scoring during the Great Recession

Media reports often overstate the FICO score impact of a homeowner™s decision to walk away and other negative aftershocks of the Great Recession, the inclusive housing bust and the accompanying financial crisis. All sorts of would-be pundits bandy about numbers as high as 200-300 points off for a foreclosure.  Self-proclaimed œexperts are dragged into the mix to give their opinions on how a homeowner might fare credit-wise when facing foreclosure or contemplating his enforceable walkaway option.

The cacophony of opinions from uninformed sources confuses homebuyers and keeps them in an uninformed state, a corruptive phenomenon referred to as asymmetry of information ” industry information that the buyer is not aware of and does not have access to, and if he did, would impact his mortgage decisions.   Thus, as gatekeepers of real estate, it™s up to brokers and agents to help prospective homebuyers and owners weed through the compounded misinformation to gain the knowledge they need to make their housing and mortgage decisions –   all part of a licensee™s obligation to a client.

On FICO™s consumer website, MyFICO.com, FICO discloses an example of how identified events in a person™s credit profile might affect their credit score, in essence, the numerical extent of the credit ding. These numbers are elusive since they are given in a range, and the ranges vary greatly as they are highly dependent on a homebuyer™s current credit score. FICO™s scoring method is thus numerically inconsistent as it penalizes homebuyers with higher credit scores more than those with lower credit scores for negative events.

Figure 1

FICO Starting Score	680	780
Inquiries	680-672*	780-772*
30-Day Delinquency	600-620	670-690
Loan Modification	Varies widely^	Varies widely^
Short Sales, Deeds-in-Lieu (same impact as foreclosure)	575-595	620-640
Foreclosure	575-595	620-640
Bankruptcy	530-550	540-560

_{Data Source:   MyFICO.com, the public consumer subsidiary of the Fair Isaac Company (FICO).}

_{*   Uncoordinated multiple inquiries have a greater negative impact than isolated single inquiries.   See below for discussion.
^   The drop for loan modification inquiries varies depending on how the lender reports the modification. See below for discussion.}

Editor™s note ” FICO scores look at a prospective homebuyer™s entire credit makeup to arrive at a FICO score, however, for the purpose of clarification, the discussion of FICO scores which follows treats each event as though all other events remain unchanged,  i.e., the impact of a foreclosure is only based on that event, and does not include the dings for the inherent delinquencies or loan modifications leading up to the foreclosure. This gives the clearest picture available to those considering their options for resolving their mortgage problems.

Also, the effect of a negative item on a credit score dissipates over the time after it first appears on the credit report. These negative-event credit hit ranges depict the initial impact of each event, not the impact that the event has, say six months or a year later. For more information on this dissipating-impact phenomenon, see œThe effects of foreclosure discussion below.

The effects of mortgage inquiriesTwo kinds of inquiries exist:

• soft inquiries, which include:
  • self-run credit inquiries;
  • inquiries run by credit card companies when offering promotional credit card offers; and
  • inquiries run by creditors with whom the prospective homebuyer has current relationships; and
• hard inquiries run in connection with applications for credit, including:
  • mortgage loans (including pre-approvals, or even pre-qualifications which entail a credit check);
  • auto loans; and
  • credit cards.

Only hard inquiries drop FICO credit scores, and do so in the range of anywhere from 0 to 8 points.

Hard inquiries stay on a credit score for two years. However, the homebuyer™s credit score is based on the number of inquiries in any 12-month period. Important to note is when a homebuyer applies for a mortgage with multiple lenders within a 45-day period, his credit score will only be œcharged “ dinged “ for one event and thus the FICO score drop (or a credit œding) of 0 to 8 points will only occur once.

Editor™s note ” In the 1990s, the FICO algorithm only allowed for a 14-day œshopping period, and later a 30-day shopping period, but the newest version which went into effect in the early 2000s allows for a 45-day shopping period, more consistent with the Department of Housing and Urban Development (HUD) and Department of Real Estate (DRE) encouragement for homeowners to shop several lenders for a mortgage. According to FICO, most lenders who choose to pull credit scores are choosing to pull those using the new algorithm which recognizes a 45-day shopping period, but some may still be using older equations, and thus give homebuyers less time to complete loan applications before reporting a new, separate inquiry (and the resultant 0 to 8 point credit ding).

When a homebuyer applies for a mortgage with multiple lenders within a 45-day period, his credit score will only be charged for one event.

When a homebuyer applies for a mortgage with multiple lenders within a 45-day period, his credit score will only be charged for one event.

Mortgage inquiries completed over a longer period of time or outside the 45 day multiple loan application period usually take less than five points off a FICO score. However, this is also dependant on a homebuyer™s specific credit position; homebuyers with less credit available (called thin credit) and a higher number of inquiries within the 12-month reporting period will experience an uncertain but greater negative impact for inquiries than those with more available credit and fewer overall inquiries. This is a reverse order of weighting on the credit score than FICO uses for foreclosure related events.

FICO™s reasoning is based on research finding that people with six inquiries or more on their credit report can be up to eight times more likely to declare bankruptcy than people with no inquiries. Inquiries right after delinquencies or defaults also purportedly raise a red flag with the FICO formula, and result in unknown (read, undisclosed) greater point drops ” dings ” to the credit score. Individuals exhibiting these types of activity are classified as high risk and can experience FICO score dings ranging from 10-24 points per inquiry.

The effects of mortgage delinquencies

30-day mortgage delinquencies, like other credit delinquencies, stay on a homeowner™s file for seven years, and might reduce a score by between 60-110 points. For 60-day or 90-day delinquencies, the credit ding migrates to a range closer to that of foreclosure detailed below.

Strangely, timely rental and utility payments are not counted as positives in the FICO score calculation. Conversely, delinquent payments on either rent or utility payments may be reported to credit bureaus (at the landlord or utility company™s discretion). They then appear as delinquencies and are reflected by a drop in FICO score. Landlords and utilities can also obtain judgments for delinquent payments, or send payments to collection agencies. Both judgments and accounts in collections cause a drop in credit scores in the range of 85-160 points, similar to the point drop for a mortgage foreclosure.

The effects of a loan modification

A loan modification reduces credit scores, but a pre-established point drop is impossible to determine as the calculation of the ding depends on the manner in which the lender reports the modification to the credit bureaus.

Loan modification encouraged by government-sponsored programs was especially damaging for those seeking help when they were first implemented. In May of 2009, the Consumer Data Industry Association (CDIA) released guidelines encouraging lenders to use comment code œAC when reporting loan modifications. Code AC indicates that the account is being paid under a partial or modified payment plan. In FICO score language, this translates into a possible reduction of over 100 points off a credit score.

Editor™s note ” CDIA guidelines are not law; their use is optional for lenders when reporting loan modifications.

In November of 2009, a new credit scoring comment code of œCN was added specifically for designating a loan modification was performed under a federal government plan. FICO does not give any weight to this designation as FICO has not yet determined what, if any, predictive power these government loan modifications have on a homeowner™s future proclivity to pay his debts. Since loan modification programs are abject failures with roughly 65% modification recipients re-defaulting after permanent modification (with few initial modifications becoming permanent), this CN designation for modifications will likely go nowhere.

Editor™s note ” This does not mean that a homeowner who enters into a loan modification arrangement does not experience credit score impacts.  Lenders require a mortgage be delinquent for 60 to 90 days before they will even consider a modification. Thus, by the time a lender has deigned to speak with or enter into a modification with a homeowner, the homeowner™s credit score has already been damaged by his lender requiring a mortgage delinquency ding.

The effects of short sales, deeds-in-lieu and other foreclosure alternatives

Short sales, deeds-in-lieu and other foreclosure alternatives (separate from the loan modifications, as discussed above) are treated similarly to foreclosures when it comes to the corresponding point drop in FICO scores.  Today, the FICO formula has no way to differentiate any of these non-foreclosure events from an actual foreclosure sale ” they are merely reported to bureaus by lenders as œnot paid as agreed, inspite of the fact they have been and are now being paid as agreed under default conditions required by the lender.

Thus, an underwater homeowner considering his options and concerned for his FICO score does not need to agonize.  Whether he attempts a short sale or other workout with his lender or simply lets the property go by way of foreclosure, the FICO score damage will be the same.

More importantly for defaulting homeowners in the future is the fact lenders must lend to stay in business. Thus, a negative equity homeowner who carefully arranges his future credit needs before intentionally (strategically) defaulting on his mortgage and walking away from (vacating) the property at the time of the foreclosure sale will not incur an overly harsh credit score ding for his rational behavior in walking away. [For more information on the future of underwater homeowners, see the April 2010 first tuesday article, The underwater homeowner, his future and his agent ” a balance sheet reality check, Part II.]

Short sales, deeds-in-lieu and other foreclosure alternatives are given the same FICO score treatment as foreclosures.

Additionally, Fannie Mae has recently announced its willingness to lend to homebuyers within two years of a short sale or deed-in-lieu arrangement, an action which mitigates the ding to the credit score. [For more information on Fannie Mae™s relaxed penalty period, see the May 2010 first tuesday article, Penalty period after default on Fannie Mae loan shortened.]

The effects of foreclosure

Foreclosures stay on a homeowner™s file for seven years, and can negatively impact a score between 85-160 points. However, if a homebuyer keeps his credit clean but for the mortgage default and foreclosure (as typically happens in a strategic default), his credit score will begin to rebound after as little as two years if timely payments are made on his other obligations, such as auto loans and credit cards, and he keeps his use of additional credit in check. He will then be eligible for a Federal Housing Administration (FHA)-insured mortgage, which is available within two to three years after a foreclosure.

The effects of bankruptcies

Regardless of the type of bankruptcy petition filed, the reduction in the FICO score is the same “ around 130-240 points. Chapter 13 bankruptcies stay on file for seven years, and Chapter 7 bankruptcies stay on file for ten years.

Bankruptcies do the most damaging to FICO scores since they typically encompass the restructuring or charging-off of multiple credit accounts as opposed to one debt on a mortgage loan foreclosure. From a homeowner™s perspective, there is no need for a federal bankruptcy petition if his home is the only debt he is in need of discharging; bankruptcy would have a far more damaging effect than necessary since foreclosure will discharge his purchase-assist home loan as a matter of California law.

Provided the homebuyer keeps his credit in line, the FHA is willing to insure a mortgage for him within two to three years of his declaration of bankruptcy. [For more information on the decreased penalty period between foreclosure and acquisition of an FHA-insured loan, see the September 2009 first tuesday article, Mortgage workouts take a toll on credit scores.]

The asymmetry of information

The FICO score was created to allow lenders to outsource much of the analysis which goes into their loan decisions.   Instead of having employees track down and consider each individual homebuyer™s creditworthiness, lenders had the credit arrangement in a FICO score do much of the hard work for them. Unfortunately, as lenders™ reliance on these credit scores grew, potential homebuyers (and other borrowers) began responding to the effects of this reliance.

As a proprietary formula created by FICO for the bureaus (and thus, for constituent lenders), many workings of the FICO scoring system are deliberately kept undisclosed; thus, homeowners cannot make informed decisions as to whether to default since they don™t know the consequences if they do. Amazingly, these deliberately undisclosed conditions exist in spite of the impact they have over an individual™s financial future. The operators behind these credit scores are secret judges, with lenders as the juries, of a homebuyer™s finances.

FICO is a private company, and is not regulated by the government. It merely provides a œpredictive scoring service to bureaus and eventually to lenders who then use the scores to make financial decisions impacting every aspect of consumer borrowing and thus the national economy, including the nation™s housing policies. A great deal of a prospective homebuyer™s financial information is in the collective hands of a patently misused and defective formula, three credit bureaus and all the nation™s creditors as they report ” correctly or not ” an individual™s financial activities.

The individual homebuyer must then pull his credit report (which is free once a year, but to see the actual credit score he must always pay), check for any erroneous items on the report and request the creditor (or lender) to re-report the item correctly. Then, he must check his credit report again (which is free if there was an error that impacts scoring) to make sure the item has been re-reported correctly.

After that has been completed, the homeowner must again pay if he wishes to see his actual credit score, even though the lender is the party who benefits from having a number to fall back on so they can avoid an independent analysis of a homeowner™s ability to repay a mortgage.

While FICO provides these numbers to lenders, lenders are far from powerless about the fate of the homebuyer who is looking for a mortgage loan. Lenders create internal lending structures to follow FICO score tiers. There are several iterations of the FICO score available to lenders, depending on what the lender judges will be most useful in rating their borrower base. Thus, lenders can choose the kind of FICO score they want to pull.

A lender also has power over how it reports the behavior of a borrower. As discussed above, these reporting judgments can range from how a lender decides to report an inquiry, how they report a loan modification, to how they correctly or incorrectly report a homeowner™s payment history. Reported correctly or not, these variations affect credit scores differently for the same event.

Thus, homeowners are kept in the dark about their own financial standing while lenders take their advantage to do what is in the best interests of their bottom lines.

Editor™s note ” We have first-hand evidence of lenders wielding this œfear of the unknown to get borrowers to bend to their will. A first tuesday editor recently received a notice that one of his personal credit card companies would be instituting an annual fee. When he called to cancel the card (which was perhaps not incidentally geared towards college students/recent graduates), he was politely told that if he cancelled, his FICO credit score would be damaged. As a first tuesday editor, he had enough knowledge to understand the ramifications of cancelling, and thus did not allow the thinly-veiled threat to sway him. But consider the impact of these fear tactics on that huge segment of our California population who do not know and are not in a position of understanding ” such as most homeowners and/or credit card holders.

FICO scoring as a substitute for responsible lending

The dominance of the FICO score during the Millennium Boom taken in conjunction with the ensuing real estate bust casts a long and dark shadow on lenders™ overdependence on FICO scores to predict homebuyer behavior; homebuyers with high credit scores are defaulting in droves because their properties simply are not worth the price they paid. A rational homebuyer acts in his own best financial interests, regardless of impact to a credit score. [For more information on the Fed™s discussion of the FICO score, see the May 2009 first tuesday article, Credit after NOD: the lender™s motivation to re-lend.]

Lending decisions must be based on the homebuyer™s gross income, downpayment and the property value, not simply the FICO score.

FICO itself even issued a report of the shift in defaults across credit score ratings.   According to that report, in 2005 homebuyers in the western US (including California) with high FICO scores (760-850) were 6.4 times more likely to default on credit cards than they were on their mortgage.   In 2009, this risk ratio had shrunk to only 1.3. Thus, homeowners were learning more and reacting more rationally. [For more information on walking away, see the March 2010 first tuesday article, The underwater homeowner, his future and his agent: a balance sheet reality check.]

Editor™s note ” Each of the three credit bureaus ”Experian, Transunion and Equifax ” use a version of the FICO scoring model to report credit scores. In 2006, the three credit bureaus created their own credit scoring model, the VantageScore, in order to sever their reliance on the FICO model.   Thus far, VantageScore is only sparsely used in the lending community, as it does not have a long enough track record to justify its reliability to most lenders. FICO now faces two uncertainties: reliability and competition.

The lender™s ability to control a homebuyer™s credit history by different types of reporting gives lenders yet another asymmetrical advantage over a homebuyer. This is especially true in light of the fact a homebuyer does not have the same industry insider knowledge to make a decision about the issue, be it delinquency, negative equity or foreclosure.

Regardless of the model of credit score, the prior trend of basing a lending decision mainly on a credit score without properly considering the homebuyer™s information (as was prevalent with no-doc/low-doc loans during the Millenium Boom) has been conclusively shown to be bad business. Instead of relying on a number ” the FICO score ” to set the bar for real estate transactions, the soundest footing for making a real estate loan should again focus on:

• the homebuyer™s gross annual income to set the amount of the fixed rate loan;
• the size of the downpayment as a percentage of the property™s price; and
• the historical valuation details that demonstrate the property actually qualifies as collateral.

Relying on a credit score alone does not achieve the purpose of leveling the playing field from lender to lender if these aspects and other individual details are not given their due and serious weight.

In a few years when the homeowners who walked away from their underwater mortgages begin to apply for mortgages again, lenders will see a spate of letters of explanation explaining the necessity of making the rational decision to walk away. Lenders will need this set of past homeowners to again become homebuyers to remain in the business of lending money, and the letters of explanation for their defaults will begin to cast a telling shadow on the wisdom of leaning so heavily on a loosely policed and mathematically abstract credit score instead of sound regulated lending criteria. This new responsible lender will not only do better for its loan portfolio yields, but also for the homebuyer, as they again will have the transparency of a loan transaction they need to make good long-term financial decisions.

Lastly and of warning to those controlling credit scoring: transparency may not be in the best interests of the lenders and bureaus, but sooner or later the lack of it will likely bring down stricter and more rigorous regulation that may oust the credit scoring practice altogether.

Links to practical credit report information

While the credit score itself must always be purchased, an individual™s credit report is available free of charge once every year. To find out where to go to obtain the free annual credit report and the steps to take to remove erroneous information from a credit report, visit the Federal Trade Commission™s Facts for Consumers page.

The credit score itself can be purchased directly through FICO, or from any of the three credit bureaus: Experian, Transunion or Equifax ” although it must be kept in mind that each of the credit bureaus may reflect a different score based on their divergent information. Costs for credit scores vary depending on the number of bureaus consulted for the score. Single-bureau credit scores run around $15, while tri-bureau scores run around $40. All self-run credit inquiries are soft inquiries and do not affect credit scores.

In addition, all three of the bureaus, and several other third-party providers offer services which track an individual™s credit score for a monthly fee. These services can be useful to detect identity theft and help with keeping tabs on how a credit score changes based on credit use.

Sources: Myfico.com; FICO.com Reprinted from

the first tuesday Journal Online ” P.O. Box 20069, Riverside, CA 92516.

When you call your lender, be sure to have your account information handy and be ready to give a summary of the financial problems you are having. You should also have recent income statements and your household budget with you.

If you don’t have a budget, now is the time to know exactly what you are spending each month. If you can, have your budget information on hand before calling your lender.

Be prepared for more than one conversation. Your lender may require you to complete a loan workout package. It is important that you complete it as soon as you receive it because in some cases the lender cannot proceed to the next step without the completed and signed documents.

Questions to ask:

• How much time is the lender willing to give you to complete a work-out?
• What are your obligations under the work-out package?
• What are the specifics? Be sure to ask what is due and when.
• Will a foreclosure sale of your property be put on hold while your lender looks at the possibility of a workout package?

Visit the Mortgage Bankers Association’s Foreclosure Prevention Resource Center for advice on calling your lender for assistance.

Preparing for Your Conversation

Be ready to provide a short explanation of why you are unable to pay your mortgage payment. Did someone lose a job? Is there a medical emergency? Are you current on your loan but have not been able to refinance into better terms?

You’ll also need to provide your lender with important information about your property, income, and debt obligations.

Being prepared for this conversation will help your lender understand your case and see if you qualify for a loan modification or other mortgage workout.

If you need assistance and cannot reach your lender, you can contact one of the local HUD-approved counseling agencies in your area or call the Homeowner’s HOPE^TM Hotline at (888) 995-HOPE.

A reputable housing counseling agency can help a great deal but a disreputable one can cause more harm than good. Be sure to ask questions to make sure you are dealing with a reputable counseling agency.

Help is Free

Beware of anyone who asks you to pay a fee in exchange for housing counseling services or modification of a delinquent loan. Help is available for free.

If Freddie Mac owns your loan, we can help you get in contact with your mortgage servicer. Your servicer should be able to tell you if your mortgage is owned by Freddie Mac. You may also use our secured look-up tool: Does Freddie Mac Own Your Mortgage?

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Trabajando con su prestador para evitar la ejecución hipotecaria

Cuando llame a su prestador, asegúrese de tener la información de su cuenta a mano y estar listo para darle un resumen de los problemas financieros que está teniendo. También debe tener ante usted los estados de ingresos más recientes y el presupuesto de su familia.

Si no tiene un presupuesto, ahora es el momento para saber exactamente lo que está gastando cada mes. Asegúrese de tener esta información antes de llamar a su prestador. Prepárese para más de una conversación. Su prestador tal vez le pida llenar un paquete para “remediar un préstamo.”   Es importante que lo llene tan pronto como lo reciba, porque en algunos casos el prestador no puede seguir con el paso siguiente si los documentos no han sido llenados y firmados.

Preguntas que debe hacer:

• ¿Cuánto tiempo está dispuesto a darle el prestador para completar el paquete para “remediar el préstamo”?
• ¿Cuáles son sus obligaciones con el “paquete para remediar el préstamo”?
• ¿Cuáles son los puntos específicos? Asegúrese de preguntar cuánto debe y cuándo vence.
• ¿Se va a posponer la venta de su casa por causa de la ejecución hipotecaria mientras su prestatario estudia la posibilidad de un “paquete para remediar el préstamo”?

Visite el Centro de Recursos para la Prevención de Ejecución Hipotecaria para ver consejos sobre cómo llamar a su prestador para que le den ayuda.

Preparándose para su conversación

Esté preparado para dar una breve explicación de por qué no puede hacer sus pagos hipotecarios. ¿Perdió el empleo? ¿Tuvo una emergencia médica? ¿Está al día en su préstamo, pero no ha podido refinanciarlo para conseguir mejores términos?

También tendrá que dar al administrador de la hipoteca información importante sobre sus propiedades, ingreso y obligaciones de deudas.

Estar preparado para esta conversación ayudará a su administrador a comprender su caso y ver si califica para una modificación del préstamo u otro remedio hipotecario.

Si necesita ayuda y no puede localizar a su administrador, puede contactar a una de las agencias de asesoramiento locales aprobadas por HUD en su área , o llamar a la Línea Directa de Homeowner ´s HOPETM al (888) 995-HOPE. Una agencia de asesoramiento de confianza puede ayudarle mucho, pero una inescrupulosa puede hacerle más mal que bien. Asegúrese de hacer preguntas para cerciorarse de que está tratando con una agencia de asesoramiento de confianza.

La ayuda es gratis

Cuídese de cualquier persona que le pida un pago a cambio de prestarle servicios de asesoramiento sobre vivienda o modificarle un préstamo en mora. La ayuda disponible es gratuita.

Si Freddie Mac es dueño de su préstamo, nosotros podemos ayudarle a ponerse en contacto con el administrador de su hipoteca. Su prestador debiera poder ayudarle si Freddie Mac es dueño de su hipoteca. También puede usar nuestra herramienta de búsqueda protegida:   ¿Es Freddie Mac dueño de su hipoteca?

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Article from Freddie Mac

The road to homeownership can be exhilarating, but also complicated. For any successful real estate transaction to occur, several vital steps must be executed, which may include choosing a REALTOR ® who can help guide you through the process, to contacting a reputable lender to establish your borrowing power, to selecting a home, then closing escrow and preparing for the move into your new home!

Here™s a 10-step home buyer™s checklist to help you keep on track toward acquiring your new home:

• Select a REALTOR ®: Choose a REALTOR ® to assist you through the complex process of looking for the right home, conducting neighborhood research, analyzing home prices, negotiating with sellers, and signing documents, among other things.
• Get an Education: You may want to find out what first-time buyer incentive programs are available through your city and county municipalities.   Often these include financial assistance for those who complete home-buying educational courses, deferred loans, and other forms of support.
• Paint Your Financial Picture: You may want to obtain a copy of your credit report and credit score and attempt to resolve any errors or other credit issues that might impact your ability to obtain the best loan and interest rate possible.
• Get Pre-approved: Make an appointment to meet with a qualified mortgage lender to determine what price range you can afford and obtain a pre-approval letter, which demonstrates your buying power.
• Find a Home: Using the services, knowledge, and expertise of a REALTOR ®, establish your priorities for size, location, and style, and start shopping for a home that fits your lifestyle, budget, and long-term goals.
• Make the Offer: When you find the home that™s right for you, work with your REALTOR ® to write an offer and complete a purchase agreement, detailing all of the terms and conditions of the sale between you and the seller.
• Make a Deposit: When you write an offer, you may decide to provide a œgood-faith deposit showing the seller your intent to buy the home.
• Get Financing: Once you™ve selected a home and you and the seller have agreed upon a price, choose a lender who can help you obtain a loan that best suits your immediate and long-term needs.
• Hire an Inspector: A home inspection is recommended in order to reveal structural and other issues with the home that you may want to address before completing your purchase transaction.
• Close the Deal: Wrapping up your purchase transaction may include meeting with your REALTOR ® to conduct a final walk-through of the property, signing final documents, and getting the loan funded, among other things.
• Article from California Realtors Your Peace of Mind

WORKING WITH A REALTOR ® Overview

 

Whether you are buying a home for the first time, selling to move into a larger one, or downsizing, the complicated and, in some cases, daunting issues surrounding today’s market underscore the importance of relying on the skills, knowledge, and expertise of a REALTOR ®.Here are the top reasons for working with a REALTOR ®:

Did you know that there are more than three dozen different disclosure forms that may be required for the completion of a residential real estate transaction in California? REALTORS ® can help you wade through the cumbersome and often complicated paperwork that goes hand-in-hand with any real estate transaction, making sure the proper forms are filled out correctly and on time. This includes the crucial purchase agreement, which serves as the contract between a buyer and seller, and is used to formally identify a purchase price; list terms and conditions pertaining to the sale time frame; and other details, such as a written commitment by the seller to cover the costs of any necessary repairs.

As members of their local, state, and national trade associations, REALTORS ® can tap into the latest technologies serving the housing industry today. This includes Web sites and multiple listing services, as well as market reports detailing crucial data, such as pricing trends; time on the market; and historical sales activity in your neighborhood. In addition, REALTORS ®’ broad market knowledge often makes them experts when it comes to providing a detailed snapshot of where to obtain information about your neighborhood’s amenities and services, such as schools, zoning laws, and tax codes.

Buying or selling a home calls for solid negotiating power. A REALTOR ® can assist with the critical negotiations included in every real estate transaction, and help both buyers and sellers finalize the many details that comprise a final purchase agreement. If you are a buyer, your REALTOR ® can work on your behalf with a seller to negotiate a sale price; set a date for escrow closing; and determine what, if any repairs you’d like the owner to complete as a part of the terms of the agreement, among other things. If you are a seller, your REALTOR ®’s role may include negotiating a sale price, such as so-called “buyer incentives” that help with a buyer’s closing costs or other expenses. Your REALTOR ® also can help you determine what, if any repairs you may be responsible for, if requested by the buyer, and negotiate deadlines for their completion.

Your REALTOR ® can assist with the coordination of the home-inspection process, and help to ensure that the seller’s responsibilities for addressing a buyer’s requirements are met. They also may help with the identification of qualified contractors to help perform needed repairs.

If you’re selling a home, a REALTOR ® can save you time and money by tapping into market data and reports to help you determine a realistic selling price; screening potential buyers; and managing appointments for showings.

Closing the deal takes much more than a handshake. A REALTOR ® can provide objective support during the closing process, ensuring both buyer and seller have received the proper documentation for successfully completing a sale transaction and coordinating a final property walk-through.

Whether you are a buyer or a seller, your REALTOR ®’s role as a valuable resource may not end when you sign the closing documents. In fact, many questions arise for buyers and sellers long after a real estate transaction has been completed, and your REALTOR ® may be qualified and eager to assist you wherever possible ” this includes help with future real estate transactions.

Selling A Home with a REALTOR ®

Buying A Home with a REALTOR ®

Using a REALTOR ® who specializes in certain marketsFIND  A REALTOR ® online
–> –By City
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–With a designationYou’re ready: You’ve decided to seize the unique opportunities presented by the current housing market. The single most important transaction in your lifetime should not be conducted without the expertise and assistance of trained and licensed professionals, and this is where REALTORS ® come in. Chances are you may buy or sell a home again. Developing a long-term relationship with a REALTOR ® is the best way to ensure you will be well-armed and informed when making your housing decisions.What’s Different About a REALTOR ®Working with a real estate professional who is a REALTOR ® is in your best interest. Not everyone who sells real estate is a REALTOR ®. Possessing a real estate license does not afford instant REALTOR ® status–a distinction of which you need to be aware. A REALTOR ® is a member of local, state and national professional trade associations and, as such, has access to a vast array of educational programs, research and resources. By being a member, a REALTOR ® subscribes to a strict Code of Ethics, developed by the National Association of REALTORS ®. REALTORS ® pledge to provide fair treatment for all parties involved, protect the right of individuals to own property and keep abreast of changes in real estate practice through continuing education and interaction with other professionals.

REALTORS ® also are committed to higher levels of education and professional development; many REALTORS ® have earned professional designations or specialty certifications requiring intensive study. For example, REALTORS ® who have obtained the Certified Buyer Representative and Certified Residential Specialist designations have been trained in all aspects of serving as buyers’ and sellers’ representatives in real estate transactions.

As a member of the CALIFORNIA ASSOCIATION OF REALTORS ®, your REALTOR ® can tap into numerous resources, like immediate access to full-time, staff real estate attorneys who can provide objective up-to-the-minute counsel. Your REALTOR ® also receives up-to-date information on a wide variety of legal, financial and economic issues and has access to an association with more than 80 years of experience in real estate. And, if things don’t work out, your REALTOR ® can offer arbitration as a choice instead of lengthy and expensive legal proceedings.

The CALIFORNIA ASSOCIATION OF REALTORS ® has served as the unsurpassed proponent of integrity, professional standards and private property rights fortification within the real estate industry in California since 1905.

In addition to subscribing to the REALTOR ® Code of Ethics and belonging to their local, state and national REALTOR ® associations, some REALTORS ® have undergone additional training to serve specific markets and client groups. If, for example, you’d like to work with a REALTOR ® who is familiar with international transactions or a REALTOR ® who works primarily with elderly clients, you might want to find REALTORS ® who are designated as Certified International Property Specialits (CIPS) or  Senior Real Estate Specialists (SRES), respectively. To find out about the various designations REALTORS ® hold, click here.

The Right REALTOR ® for You

Like finding the right house, selecting a REALTOR ® you can trust and comfortably work with is paramount. Just as you wouldn’t be casual in the selection of your doctor or your attorney, you shouldn’t take the selection of your REALTOR ® lightly. Indeed, the best way to find such a professional is through recommendations from family and friends. Of course, you should interview several REALTORS ® before you choose one. If you™re selling your home, you should ask the candidates how they plan to market your home, what pricing advice they can offer, and what other suggestions they can provide to further enhance the desirability of your home. Whether you™re buying or selling, ask candidates about the transaction to evaluate their knowledge. Ask for–and check–references. And, finally, ask yourself whether you will feel comfortable working closely with this individual in the months ahead.

Article from California Realtors Your Peace of Mind

FREDDIE MAC OFFICIALLY LAUNCHES REO RENTAL

INICIATIVE AFTER FORECLOSURE

Freddie Mac Continues Suspension of Evictions Through April 1, 2009

McLean, VA “ Freddie Mac (NYSE: FRE) today announced the official launch of its new REO Rental Initiative giving qualified tenants and former owners the option to lease their recently foreclosed properties on a month-to-month basis. The REO Rental Initiative will be managed by HomeSteps ®, Freddie Mac’s national real estate unit, and implemented through several national property management firms.

Freddie Mac also announced it will continue to suspend all eviction actions until April 1, 2009 to ensure there is ample time for current occupants to learn about the options available to them under the new initiative.

“Freddie Mac’s REO Rental Initiative can help ease a foreclosure’s impact by giving renters and former owners more time to determine what options are best for them and their families. At the same time, the REO Rental Initiative helps stabilize property values and local communities by keeping homes occupied and less vulnerable to vandalism,” said Ingrid Beckles, Senior Vice President, Default Asset Management at Freddie Mac.

Starting today the property management firms will begin the process of contacting occupants of foreclosed properties to determine their interest in staying in the home and their eligibility for a month-to-month lease. Occupants will be contacted only after the foreclosure gives Freddie Mac the legal authority to offer a lease.

To qualify for a lease, the tenant or former owner must occupy the property and show they have adequate income to pay the monthly rental amount established by the property management company based on market rents for the area in which the home is located. Occupants must agree to allow HomeSteps to show the home to potential buyers as it will be marketed for sale during the lease period.

Additionally the home must be in safe, habitable condition and meet all local codes for rental properties to qualify for the REO Rental Initiative.

If an occupant does not wish to lease the property, Freddie Mac will continue its current practice of offering relocation assistance. In addition, Freddie Mac will also explore available workout options with owner-occupants after Freddie Mac gains title to the property through foreclosure.

Freddie Mac was established by Congress in 1970 to provide liquidity, stability and affordability to the nation’s residential mortgage markets. Freddie Mac supports communities across the nation by providing mortgage capital to lenders. Over the years, Freddie Mac has made home possible for one in six homebuyers and more than five million renters.

article taken out of the Freddie Mac webside

Last year, before the subprime crisis hit, a home buyer was on the verge of purchasing his first home. His mortgage broker told him that qualifying for a mortgage would not be a problem.

After reviewing the numbers of an attractive teaser-rate adjustable, the buyer had second thoughts. He called a knowledgeable friend and asked her to review the loan documents with him. After fully understanding how much the loan would ultimately cost, he decided not to go through with the sale.

In the residential real estate business, a red flag refers to a condition affecting a property that might be a material fact that needs further investigation. A material fact is something that would affect the buyers’ decision to buy or the price they would be willing to pay. For example, a hole in the roof is a red flag that the roof might need replacing.

Although red flag is a concept commonly associated with the physical aspects of a property, it’s a valuable notion for home buyers to keep in mind throughout all aspects for their home search and purchase. If more buyers had raised questions about the mortgages they took out during the past several years when lending practices were lax, there would be fewer foreclosures today.

HOUSE HUNTING TIP: Home buying is an exciting experience. It can also be stressful. To ensure a satisfying home-buying experience, resolve to stay actively involved in the process. Commit to being hypervigilant. Watch out for red flags and investigate anything questionable.

Working with an excellent real estate agent will increase your confidence level. However, your agent acts on your behalf and should not make decisions for you. Always remember that you are in the driver’s seat. This applies to sellers as well.

Make sure that you work with quality professionals in your area. If your real estate agent or mortgage person doesn’t return your calls promptly, this could be a red flag this relationship won’t work well for you. Likewise, if your agent keeps showing you properties that don’t match your criteria, you could be in for a frustrating and time-consuming experience.

If you get conflicting information about a property, this could also be a red flag. It might indicate carelessness. Or, it could mean that someone is concealing a material fact. Follow through and find out answers to all your questions. There are no stupid questions when it comes to buying and selling real estate.

It’s a red flag if an inspector you hire to inspect the house you’re buying tells you that he already inspected the property for the seller, but you were never given a copy of the report.

Don’t make any assumptions without following through to verify that they are accurate. For instance, if there’s a downstairs living area with a second kitchen, don’t assume you can rent it to a tenant even if the seller has in the past.

If the property is located in a neighborhood zoned for single-family residences only, renting the downstairs might be a zoning violation. If you’re counting on income from the lower living area, you could find yourself in a house you can’t afford if the zoning regulations are enforced.

Don’t overlook upcoming changes in the neighborhood. For example, the seller should, but might not, tell you that a school is going to be built across the street. If you’re sensitive to noise, this could become a problem for you. Vacant land close to the property is a red flag.

THE CLOSING: Find out what will be built there before making a final decision.

California Association of Realtors

Housing News

What is a Mortgage?

A mortgage is a lien on a property/house that secures a loan and is paid in installments over a set period of time. The mortgage secures your promise that you’ll repay the money you’ve borrowed to buy your home. Mortgages come in many different shapes and sizes, each with its own advantages and disadvantages. Make sure you select the mortgage that is right for you, your future plans, and your financial situation.

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Article source Freddie Mac

Lending a hand House

OKs bill for foreclosure relief

 

Click photo to enlarge

 

 

Three homes sit for sale in the Sierra Lakes community in… (Will Lester/Staff Photographer)

 

Help may be on the way for homeowners, banks and communities hit hard by the mortgage crisis after the House of Representatives approved a relief package on Wednesday.The bill gained traction after President Bush dropped his objections to it, including allocating $3.9 billion to bolster neighborhoods hit hard by foreclosures.

“Everyone’s goal is to help end the downward spiral of the housing market because that’s the threat to the health of our overall economy,” said Julie Senter, director of public affairs for the Building Industry Association for Southern California.

Most importantly, the bill, expected to be adopted by the Senate later this week, is expected to help boost the jittery financial markets.

“This will inject a degree of capital that will increase confidence in Freddie Mac, increase confidence in Fannie Mae, in banks and lending,” said Ira Jackson, dean of the Drucker School at Claremont Graduate University.

The bill passed 272-152, with all of California’s Democrats voting for approval.

Several area Republicans voted in favor of the bill, including Jerry Lewis, R-Redlands, David Dreier, R-San Dimas, and Mary Bono-Mack, R-Palm Springs.

The bill would let hundreds of thousands of homeowners, trapped in steep mortgages and plummeting home values to escape foreclosure by refinancing into more affordable, fixed-rate loans backed by the Federal Housing Administration.

As part of the bill, lenders would have to agree to take a substantial loss on the existing loans, and in return, they would walk away with at least some payoff and avoid the often-costly foreclosure process.

Jackson said the legislation simply slows down the housing calamity and will provide some stability to a very volatile market.

City officials around the region, however, are studying a provision that would provide $3.9 billion for local governments to buy and rehabilitate foreclosed homes.

Robb Steel, economic development director for Rialto, said the city is dealing with about 900 vacant homes and 200 more in early stages of foreclosure, numbers up from just a handful as recently as 2006.

“Hopefully, this legislation will come through and help turn off the spigot of new foreclosures,” Steel said.

Steel said the key to new legislation is how much money will become available to the city for preventive measures to stop the flow of fleeing homeowners.

Steel estimated that median prices in Rialto had plummeted about 40 percent since the 2006 peak. Similarly steep drops have occurred in Fontana, where a glut of newer homes have exacerbated the downturn.

“The boomtowns have really paid the price,” Steel said.

Don Gee, deputy director of the San Bernardino Economic Development Agency, said the crucial question is how federal aid would fit with measures at the state level to provide an array of resources and tools.

“We’re cautiously optimistic,” Gee said. “The city can benefit, and combined with state and local resources, this can make a difference.”

But Jackson said without the measure, mortgage rates would have continued to rise which in turn would have made it harder for homeowners to sell.

“If one property goes into foreclosure, then the homes (in the area) lose value and then the whole neighborhood starts to go,” Jackson said.

The plan also creates a new regulator with tighter controls for Fannie Mae and Freddie Mac and modernizes the FHA.

It includes about $15 billion in housing tax breaks, including a credit of up to $7,500 for first-time buyers who purchase homes between April 9, 2008, and July 1, 2009.

In Rancho Cucamonga, the housing crisis has resulted in fewer foreclosures and less neighborhood decay than in many surrounding cities, said city Redevelopment Director Linda Daniels.

With less pressure to slow the foreclosure rate and fewer residents teetering on the brink, Daniels is more hopeful about the new loan regulations and safeguards than prospects for direct financial aid.

Daniels said key provisions in the federal bill are those that tighten lending standards, which Daniels said could put in a system that limits the depth of future crises.

The bill sets a cap of $625,000 on the loans that Fannie Mae and Freddie Mac may buy and the FHA may insure.

Article taken out of the Daily Bulletin Ontario/Montclair

Liset Marquez, Staff Writer

Article Created: 07/23/2008 08:43:26 PM PDT

Facing Foreclosure? Here™s where to get help!

Have you have suddenly found yourself in a situation where you can no longer afford to make your mortgage payments? Maybe you™ve lost your job, your monthly payment went way up, or you see it coming and want to be prepared. By seeking information, you™ve already taken the first step to find a solution. What you can do depends on your unique situation. Learn how to avoid falling into scams, know all your options, and make right decision for you and your family by arming yourself with information and resources. Below is a list of some organizations you can trust to assist you.

Aprenda Como Evitar la Ejecución Hipotecaria. Aquí Puede Conseguir Ayuda:

Si usted tiene dificultades con pagar su hipoteca no esta solo. Talvez perdió su trabajo, subió su pago mensual, o por alguna razón anticipa tener problemas. Al estar aquí, ya tomo el primer paso. Es importante hablar con expertos que lo pueden ayudar a encontrar la mejor solución para usted y su familia. Aquí encontrara una lista de algunas organizaciones de confianza que lo pueden aconsejar.

Resources / Recursos

Housing Opportunities Collaborative	www.housingcollaborative.org
ACORN Housing	1(888)409-3557 (English & En Español) Website in English Página Web en Español
Freddie Mac	Website in English Página Web en Español
US Department of Housing and Urban Development	Website in English Página Web en Español
NeighborWorks Center for Foreclosure Solutions NeighborWorks America	Website in English Information obtained from NAHREP (NATIONAL ASSOCIATION OF REAL ESTATE PROFESSIONALS)   cOR

Welcome to Azucena Rodriguez’s Blog! This blog will provide you with valuable information, tips, and general insight into the real estate market in Rancho Cucamonga.