California Attorney General Pushed Harder Regarding Foreclosure Practices

California Attorney General Kamala Harris's holdout position in a proposed agreement with banks over foreclosure practices may reap financial and political rewards at the cost of prolonging some constituents' suffering, Bloomberg News reported today. She is pushing a broader probe of banks' mortgage practices, including securitization of the loans. The strategy may lead to more favorable terms in a proposed multistate agreement said to be worth as much as $25 billion. State and federal officials have been negotiating a settlement with Bank of America Corp., JPMorgan Chase & Co., Citigroup Inc., Wells Fargo & Co. and Ally Financial Inc. The nationwide foreclosure probe, begun in October 2010, was triggered by revelations that companies were using faulty documents in seizing homes.

More from Bloomberg

Home Modification Program Introduction

The American Bankruptcy Institute reported that the number of Fannie Mae and Freddie Mac related modifications is only 25% to 33% of what was expected or hoped by the Obama Administration.


The Treasury Department yesterday said that nearly 910,000 troubled borrowers on the verge of foreclosure have had their mortgages permanently modified to lower payments as part of a White House program -- far short of the original goal, MarketWatch.com reported yesterday. That number is up from roughly 880,000 permanent modifications as of October, according to the Treasury's November report. The Treasury also noted that as of November 30, banks have reduced the principal amount owed by about 36,000 borrowers. These are borrowers with mortgages that are not owned or guaranteed by Fannie Mae and Freddie Mac; the two government-seized mortgage giants are not participating in a government principal-reduction program. According to the Treasury, the median amount of principal reduced is about $66,000 - or 31 percent of a homeowner's previous unpaid principal balance. The three largest servicers, Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co. account for 71 percent of the principal modifications so far. The number of permanent modifications is still far short of the 3 to 4 million foreclosures that the White House aimed to stop when it unveiled the program in February 2009. Read more.

Credit Scores and Bankruptcy / Foreclosure / Short Sale

I am often asked whether the impact on one's credit score is dramatically different if one chooses to file bankruptcy, allow a home to go to foreclosure, or to sell a home through a short sale.  Bills.com has an article from April of 2011 describing information provided by Fair Isaac & Company (the owner of the FICO score formula).  As always, linking to this information or discussing it does not constitute legal advice.  I am not suggesting that you rely on this information. Seek legal counsel before making decisions that affect your credit score.

The information provided by Fair Isaac & Company indicates there is not a significant difference.  The full Bills.com article provides more background. The following table is from Bills.com which provides the source as Fair Isaac & Co.

Harm to FICO score

Consumer A Consumer B Consumer C
Starting FICO score ~680 ~720 ~780
FICO score after these events:
   30 days late on mortgage 600-620 630-650 670-690
   90 days late on mortgage 600-620 610-630 650-670
   Short sale / deed-in-lieu / settlement (no deficiency balance) 610-630 605-625 655-675
   Short sale (with deficiency balance) 575-595 570-590 620-640
   Foreclosure 575-595 570-590 620-640
   Bankruptcy 530-550 525-545 540-560

Time to Full Recovery

Consumer A Consumer B Consumer C
Starting FICO score ~680 ~720 ~780
FICO score after these events:
   30 days late on mortgage ~9 months ~2.5 years ~3 years
   90 days late on mortgage ~9 months ~3 years ~7 years
   Short sale / deed-in-lieu / settlement (no deficiency balance) ~3 years ~7 years ~7 years
   Short sale (with deficiency balance) ~3 years ~7 years ~7 years
   Foreclosure ~3 years ~7 years ~7 years
   Bankruptcy ~5 years ~7-10 years ~7-10 years

As you can see, there is sigifican overlap between categories and types of sales or financial action.  For example, someone starting with 720 credit who sells a home short with a deficiency might have a FICO score of 580.  That same person, emerging from bankruptcy, might have a FICO score of 535.  Under both circumstances, it takes seven years for the individual's credit to recover (and it might take an additional three years for a credit score recovery under a bankruptcy).

Is it worth preserving 45 FICO points to work for months--perhaps a year or more--to short sell a home?  Do the added advantages of bankruptcy (elimination of other unsecured debt, for example) outweigh that small point difference?  That is a question each person facing the situation must consider and weigh. 

Improvement in Unemployment and Housing Starts

From the American Bankruptcy Institute quoting the Wall Street Journal.
The number of people applying for new unemployment benefits last week fell to its lowest level since April 2, signaling continued progress in the feeble U.S. jobs market, the Wall Street Journal reported today. Separately, U.S. home building fell less than expected in October, while a gauge of future construction surged, a sign the long-suffering housing sector might be stabilizing. Initial claims for jobless benefits dropped by 5,000, to a seasonally adjusted 388,000 the week ended Nov. 12, the Labor Department said today in its weekly report. In the prior week, jobless claims were revised up to 393,000 from an originally reported 390,000, according to the newly released figures. The four-week moving average of new jobless claims fell by 4,000 to 396,750—the first time in nearly seven months that four-week average fell below 400,000. The government's broadest snapshot of the labor market, released earlier this month, showed that the economy continued to add jobs in October. But the pace of hiring in the private sector was too slow to make a real dent in the unemployment rate, which fell only slightly, to 9.0 percent from 9.1 percent in September. Making further gains could be difficult as some areas of the economy continue to show weakness, including the financial sector. Read more.
The question that continues to remain answered for me is whether this is sustainable.  Even if it is, the real dent in unemployment was one tenth of one percent.  Will that really help many families avoid bankruptcy?  Will the trend continue and accelerate?

If a recovery arrives, it may be even a better time for families to get out of unsustainable debt.  A fresh start and freedom from debt from the Great Recession might help put one on his or her feet.

For help with bankruptcy in Ventura, Oxnard, or the surrounding communities please contact Mansfield Law Office

Foreclosure Warnings and Repossessions Increase in October

The American Bankruptcy Institute brings alarming news by way of its daily update.  The ABI summary of the Wall Street Journal article is below.
RealtyTrac: Lenders Stepped Up Foreclosure Warnings, Repossessions in October
More U.S. homes entered the foreclosure process in October than in the previous month, with Florida, Pennsylvania and Indiana registering among the largest monthly increases, new data show, The Washington Post reported today. Some 77,733 properties received an initial default notice last month, up 10 percent from September, foreclosure listing firm RealtyTrac Inc. said Thursday. The number of homes scheduled to be auctioned or repossessed by lenders also posted monthly increases. All told, notices of default, scheduled auctions and bank repossessions hit a seven-month high in October. The numbers are further evidence foreclosure activity is picking up. The rate that homeowners were 60 or more days late on their mortgage payment rose in the June-to-September period for the first time since the last three months of 2009, according to TransUnion. The credit reporting agency said 5.88 percent of homeowners missed two or more payments, an early sign of possible foreclosure. That was up from 5.82 percent in the second quarter of 2011. Read more (free subscription required).

Mansfield Law Office is here to help if you are caught in this increase in foreclosures in Ventura County.

28.6% Home Mortgages Underwater

This is an incredibly high number.  I will look for local Ventura County mortgage numbers to compare.  In the meantime, this explains a good deal about the bankruptcy crisis, too. From MSNBC.
A whopping 28.6 percent of homeowners with mortgages owe more on their loans than their homes could sell for, according to quarterly data released Tuesday by Zillow, a real estate website. That's up from 26.8 percent in the second quarter. Home values declined only 0.2 percent from the second quarter but were down 4.4 percent year over year.
More at http://www.venturadebtlaw.com
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The Great Recession or Great Depression?

Can you believe the news?  I feel the pain out in our community.  Mansfield Cheney, PC can help, though.  We provide a great deal of information on bankruptcy protection on these web pages on our main website mcpclawfirm.com for those in trouble.

Bernanke, Fed see economy losing steam

U.S. Home Prices Fell 5.7%

Andrew S. Mansfield

Mansfield Cheney, PC serves the greater Ventura County region.