Debt collectors can come calling years after a mortgage default

If Bankruptcy is in the future this is a good reason why to wait to file Last Minute!

IT IS IMPORTANT TO LIST THE “REAL” CREDITOR/LENDER/INVESTORS!

The banks have plans… YOU should too!

PIN THEM DOWN!

By Jim Wasserman The Washington Post
Saturday, March 27, 2010

Homeowners defaulting on mortgages today may be surprised to learn years from now that they still owe thousands of dollars — and that a collection agency is coming after them to get it.

That’s because lenders have been quietly selling second mortgages and home-equity lines left unpaid after foreclosures and short sales. The buyers: collection agencies, which in some states have years to make a claim.

If they win court judgments, these collectors could have years to pursue borrowers with repayment plans, and even to garnish their wages, said Scott CoBen, a Sacramento bankruptcy attorney.

“The only relief a consumer will have is entering into a debt-negotiating plan or filing for bankruptcy,” said Sylvia Alayon, a vice president with the Consumer Mortgage Audit Center. The firm provides mortgage analysis to lenders, advocacy groups and attorneys.

The phenomenon suggests an ominous, looming echo of the recent real estate collapse. As debt collectors seek at least partial repayment of millions of dollars in unpaid home loans, some say renewed financial stresses on tens of thousands of consumers could dampen economic recovery.

“I think there will be a lot of unhappy people when it hits,” said CoBen. “We saw this in the ’90s. This is not really new. Just when you think you’re back on your feet, you’re making money and the economy’s good, they hit you with this.”

Alayon said most people are so stressed out and exhausted by trying to save their homes now that they are unaware they could face another hit later. And many who are losing homes don’t get the advice necessary to prevent future fallout, say loan counselors at nonprofit organizations.

“You’ve got tens of thousands of people in California who have this hanging over their heads who don’t even know it,” said Scott Thompson, principal at for-profit Mortgage Resolution Services in California. He fears a new wave of bankruptcies might affect people just starting to recover from losing their homes.

“So many of these are people with 750 or 800 credit scores who made a bad decision,” said Thompson. “Or they’re people who suffered income cuts. These are people, in terms of the economy, whom we need to participate.” But an entire industry is gearing up to buy their debt at deep discounts and collect what it can, Alayon said.

“It’s a big business, and investors are coming out of the woodwork. It’s a very lucrative business,” she said. Real estate insiders and financial players know it as “scratch and dent.” One of the biggest players in the business, Texas-based Real Time Resolutions, did not respond to an inquiry on the subject from McClatchy Newspapers. Neither did Bank of America, which holds many defaulted loans made by its Countrywide affiliate during the real estate boom.

Banks made many “second-lien” loans, including those used to finance 20 percent down payments during the housing boom. A separate category of “seconds” includes home-equity loans and home-equity lines of credit. Nationally, about 3.4 percent of those loans are currently delinquent, according to Foresight.

Owners are generally, but not always, on the hook for the second loans left over from a foreclosure or short sale. Most investor mortgages, too, leave the borrower liable for potential unpaid debt.

In many short sales, experienced real estate agents or attorneys can negotiate away debt obligations for the second-lien loan. But many inexperienced borrowers don’t know that, and they sign final-hour agreements giving lenders the right to pursue them later.

“Seek advice,” counseled Doug Robinson, spokesman for national nonprofit mortgage counselor NeighborWorks America. He said nonprofit counselors can help.

“Often when you work with a real estate agent, they’re not really equipped to handle the repercussions. They’re set up to make the sale,” he said.

A new Obama administration short-sale program aims to prevent banks that hold second-lien loans from pursuing collections from homeowners after the short sale. It goes into effect April 5 and works this way: Sellers will receive notice that their servicer has steered part of the sales proceeds to secondary lien holders “in exchange for release and full satisfaction of their liens.” But this release would apply only to short sales done for people through the Home Affordable Foreclosure Alternatives program.

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Even High-Score Borrowers at Risk of Mortgage Default: NYTimes

My Comment: If one is not being foreclosed on by the Entity who holds your note why should your credit be affected in the first place? If you raise this issue to the credit agencies I wonder if they will begin to wonder themselves. To be frank the way the future is going WHO WILL WANT CREDIT or NEED ANY CREDIT SCORE! …statement not a question.

Even High-Score Borrowers at Risk of Mortgage Default

The New York Times
By BOB TEDESCHI
Published: March 10, 2010

A HIGH credit score won’t necessarily insulate borrowers from the home-foreclosure crisis, according to a new study from FICO, which creates the credit-scoring formula used by most lenders.

In fact, the report, which was released in late February, suggests that these premium borrowers might be more likely to default on their mortgages than their credit card debt should they encounter financial difficulties.

From May through October 2009, the mortgage default rate for borrowers with credit scores of 760 to 850 was 0.32 percent, versus 0.12 percent for credit cards, according to the report. (FICO considers loans 90 days or more past due to be in default.)

Of course, that mortgage-default level is still far lower than the 4.5 percent rate for all mortgage borrowers during this period, according to FICO, which is based in Minneapolis. But the numbers are nonetheless worrisome, said Rachel Bell, a director of analytics in FICO’s global scoring solutions business, because they mark the first time the mortgage default rate for this category of borrowers exceeded credit card defaults.

In 2007, the mortgage default rate for high-scoring borrowers was 0.08 percent, versus 0.10 percent for bank cards.

Housing counselors offer at least one possible explanation for the shift: some people with financial reversals who are in danger of losing their homes anyway might be more likely to pay back their credit cards, because they still need them to buy groceries and other essential items.

Ms. Bell declined to speculate about the motivations of borrowers. Because the FICO analysis did not look at specific households, she said she could not determine whether a particular family carried both a mortgage and credit cards, and defaulted on one before the other.

But she did say that the growing mortgage problem among households with high FICO scores might be linked to two areas of increasing trouble in the mortgage industry — namely, defaults on vacation homes, and so-called strategic defaults, in which owners abandon homes that are worth less than the mortgage.

The Mortgage Bankers Association, which closely tracks foreclosures and defaults, says it does not track such statistics for vacation homes. But Walter Molony, a spokesman for the National Association of Realtors, said that if foreclosures had risen among vacation homes, their owners would most likely have bought the properties recently and for investment purposes.

The more value a home loses, the more likely an owner will be to consider a strategic default. A study in late 2009 by three university researchers — from the European University Institute, Northwestern University and the University of Chicago — found that when the mortgage exceeds the home’s value by less than 10 percent, homeowners rarely consider a strategic default. But if the value was just half the mortgage amount, 17 percent would abandon the house, and the loan.

FICO did not break out its recent data by state, but its regional data suggest that those with high credit scores in the Northeast were faring better than such people elsewhere. In the Northeast, borrowers with high FICO scores were still twice as likely to default on their credit cards as their mortgages. In 2005, they were four times as likely to default on their credit cards as their mortgages.

Borrowers with FICO scores of 760 and higher generally qualify for a bank’s best mortgage rate, as long as the down payment and monthly income also fall within the bank’s limits. A score of 720 is considered “prime,” and is usually the lowest rate that will allow borrowers to secure the most widely advertised mortgage rates.

FICO does not publish an average FICO score, but the company said the median score was about 720. And for the high FICO borrowers who default, even 720 is a dream score. One default drops such people into the mid-600 range, at best.