Study: Homeowners Who Default on Mortgage Alone Not a Credit Risk

Today, many homeowners who defaulted on their mortgage payments have asked the question, "Will my mortgage delinquencies make me a higher credit risk to lenders?"

Good question.

On the surface, it is obvious that falling behind and becoming consistently delinquent on any bill is not a financially sound thing to do. However, your credit rating may not be as tarnished as some would leave you to believe.

A homeowner needs to consider what establishes poor credit and good credit in the eyes of the lender. Surprisingly enough, if you have other debt that you are in good standing with, such as credit cards or an auto loan, you will be less likely deemed as a credit risk. Those who have defaulted on their mortgage payment as well as other accounts are higher risks to a lending institution. The study below reveals why.

Mortgage-Only Defaulters

Transunion. , a global leader in credit and information management, released a study which stated, "...consumers who only defaulted on their mortgage during the economic recession were far better risks than those consumers who went delinquent on multiple credit accounts." This particular study explained that consumers, who were only default with their mortgage payment, displayed stronger ability to stay current with other loans.
"There appears to be a pocket of opportunity among mortgage-only defaulters that is not the result of excess liquidity, but rather the unique circumstances of the recent recession," said Steve Chaouki, group vice president in TransUnion's financial services business unit. "This new market segment that the recession created is an important one for lenders to understand. They have the potential, today, to be stronger and more reliable customers."

Breaking it down…
• The lack of cash flow that resulted in defaulted mortgage payments does not by itself make the consumer “high risk” to a lender.
• You are a risk if you have multiple delinquencies on other accounts including the mortgage.
• You are not a risk if you have mortgage-only defaults but are current with other debt, such as a car loan or credit card.

In conclusion, if you are a mortgage-only defaulter you have more hope than those who are not and should not consider yourself a high risk. For more information, here is the link again to the Transunion study Mortgage-only Defaulters.

Let me know, as always, how I can help!
Francis

Silicon Valley Specialist
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Refinancing problems? here is a suggestion...

Are you trying to refinance but you cannot because your equity is too low?

This is the classic catch 22 in which you cannot take advantage of great rates because the bank’s appraisal is too low.

The HARP refinancing program is addressing precisely this need. HARP: Home Affordable Refinance Program, administered by Fannie Mae and Freddie Mac.

Good News !!

Set to expire June 30, 2011, this program has been extended one year. In 2010, Fannie Mae and Freddie Mac purchased or guaranteed more than 6.8 million refinanced mortgages. Of this total, 621,800 were HARP refinances with Loan-To-Values between 80 percent and 125 percent !! This is more than 3 times the number in 2009.
Some limitations apply of course, but fairly reasonable.  One of them, for instance, is that you need to spend more than 31% of your pre-tax income on your mortgage payment. (thank you Nicolas!  ;-)  for the input). Check out the details on the Freddie Mac web site, or the Fannie Mae web site:  Fannie Mae web site.

Another program worthy of noting if you have financial problems: the "Making Home Affordable" Program.

Thanks for reading!
Francis

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Some perspective on the Silicon Valley market....

Some recent headlines turned heads and generated a lot of questions among my clients recently, headlines such as: “Case-Schiller Down 5.1%; What Will Stop It?” and “The Depressing State of Housing”.

What is really going on in the Valley? I find that chosen graphs speak much better than headlines. Comparison of the first 5 months of last year, with the same months this year, for the Counties of Santa Clara and San Mateo:

This graph shows roughly the same movement as last year. If anything, it shows a better situation, since we do not have in 2011 the government incentives for 1st time homebuyers that we had in 2010 (Calif. 1st time homebuyers credits, and federal incentives). These created last year a rush to buy before June, which does not exist in 2011.

Comparison charts for Sunnyvale and Mountain View:

Comparison charts for Los Altos and Palo Alto:

Average prices can vary  a lot from month to month.  These charts just show that overall the market is fairly the same as last year, at the very least.
Thanks for reading!
Francis

Mortgage rates: Week ending 6/23/2011:  - 30-yr. fixed: 4.50 fees/points: 0.8%   - 15-yr. fixed: 3.69 fees/points: 0.7%    -  1-yr. adjustable: 2.99% Fees/points: 0.5%  (Source: Freddie Mac)

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Monoxide detectors: don't forget: it's the law...

If you have a rental property, and if you receive my monthly e-newsletter, you have probably already received about 6 months ago a note about this new law that has passed: you need a monoxide detector in the house as of the 1st of July.

Whereas in your own house, there is little chance to have an inspector come and check you out, you must remember if you rent a property out that it is mandatory.
Typically you would put a CO detector on each level of your house, near appliances that emit carbon monoxide (furnace, wall heater, stoves, etc... although other sources of carbon monoxide include cars - in a garage for instance, and fireplaces).  Where exactly should it go? it is advised to "follow the manufacturer's instructions".

Also, it is good to check with your City: some Cities have special requirements.  Here is the link to the City of Palo Alto smoke and Co detector requirements.

Carbon monoxide is particularly dangerous: it has no color and no odor. 
If you have an old furnace in your home, or a wall heater, you have a risk of having a source of CO leakage.
Detectors seemed to cost at least $45 or $50 about 6 months ago, but it is possible nowadays to find the units below $30.

Do you find this note useful? Forward it to someone you know who might need to read it.
- or "like" it on FB

Thank you, have a great week-end!
Francis

Silicon Valley Real Estate
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