At-risk FHA Borrowers in Marin Will Receive Early Relief Assistance

Homeowners with loans insured by the Federal Housing Administration (FHA), including those in Marin County, experiencing financial hardship now are eligible for loss mitigation assistance prior to defaulting on their mortgage, the Dept. of Housing and Urban Development announced Friday. Previously, borrowers with FHA-insured loans were not eligible for such assistance until after they had missed payments.

FHA also issued guidance to FHA-approved loan servicers on how to assist FHA borrowers who are facing “imminent default,” defined as an FHA borrower who is current or less than 30 days past due on the mortgage obligation and is experiencing a significant reduction in income or some other hardship that will prevent him or her from making the next required payment on the mortgage during the month that it is due. Unfortunately, in this economic climate, that includes more and more of us in Marin County.

To become eligible, borrowers must be able to document the cause of the imminent default which may include, but is not limited to, a reduction in, or loss of, income that was supporting the mortgage; or a change in household financial circumstances.

Loan servicers must document the basis for its determination that a payment default is imminent and retain all documentation used to reach its conclusion. The servicer’s documentation must also include information on the borrower’s financial condition. Not yet known is how this will affect the creditworthiness of the borrower. Call me for further information, 415.302.7787. Cheers!

Distressed Marin Owners Hammered by Credit Bureaus

Marin County homeowners who find themselves struggling with mortgage payments and unsure how to handle the situation—short sale, foreclosure, or walk away—are advised to consider the impact of each on their credit scores.

According to the L. A. Times, loan modifications that roll late payments and penalties into principal debt owed on the house can actually increase borrowers’ scores modestly, while refinancing underwater mortgages may have little or no negative effect on credit scores, according to Vantage Solutions, a scoring company created by the three national credit bureaus.

Short sales on the other hand can trigger large declines in credit scores, according to researchers. For example, a Mill Valley homeowner with an excellent credit score might see a 120 to 130 point decline after a short sale. Homeowners who choose to walk away from the home and stop payments altogether should expect their credit scores to fall 140 to 150 points, plus negative marks on their credit bureau files for up to seven years.

People filing for bankruptcy protection covering all their debts will get hit with an average 355- to 365-point drop in their scores. Bankruptcies remain on borrowers’ credit bureau files for 10 years. But there is good news.

Marin homeowners facing financial stress can experience minimal declines to their scores if they contact their loan servicer or lender when they first discover that they may have trouble making their monthly payments. Questions? Call me right away at 415.302.7787 or JMcLaughlin@FHAllen.com. Expert in workouts and short sales.