MCP Help Blog

According to an article in the LA Times, mortgage problems are becoming credit problems. While refinancing under making Home Affordable programs won’t hurt your credit and may even help it a little, the same can;t be said for short sales. Many holders of under water property assume that a short sale won’t harm their credit, or at least not much, but it really depends on how the lender chooses to handle the sale. Unless you live in a non-recourse state like California, your lender has the right to pursue a deficiency judgment against you. If it does, you could be liable for the difference between the sale proceeds and the loan balance. And even if you pay this in full, one large American bank still reports the transaction as a “charge off,” which is little better than a foreclosure.

According to risk predictor VantageScore Solutions, about 36.6 million of 213 million consumers in the databases of the three national credit bureaus in the first quarter of 2008 had super-prime credit ratings. Those borrowers made up 17.2% of the country’s consumers. However, by the end of the second quarter of 2009, roughly 33.3 million of the 213 million consumers tracked by the three national credit bureaus in the first quarter of 2008 had Vantage scores above 900–by the end of the second quarter of 2009,  3.3 million people had dropped out of this top-drawer credit category.

In addition, by the second quarter of this year, another 5.8 million people joined the 34.4 million who were already in the lowest credit category last year–for a total of 39.8 million in the credit basement.

This shift, with fewer people having excellent credit and a lot more having bad credit–has been caused by late payments on home mortgages, serious delinquencies, and short sales and foreclosures, according to VantageScore researchers.

So how do you keep minimize your own damages? Most people go through  several months of not making payments while they wait for a modification or short sale. If you can possibly do it, keep making your payments through negotiations. if you don’t get a modification, or your bank tries an eleventh hour end run to try and force you to pay a deficiency in a short sale, bankruptcy may be your best option. By making your payments until you file, the fallout from bankruptcy may not be as much as the hit from a short sale, foreclosure, or deficiency judgment if you skip your payments.