Credit Damage From Housing Bubble Burst Detailed
HOME LOANS, INDUSTRY NEWS, SHORT SALES, TIPS FOR SELLERS
September 21st, 2009
A recent story in 
THE LOS ANGELES TIMES reported the impact of tough economic times on Americans’ credit ratings. Those that had trouble making their mortgage payments and sought a loan modification actually saw a modest improvement in their credit scores. Others that elected to unload their property by negotiating a short sale were not as lucky. On average, as measured by the risk-prediction index provided by VantageScore Solutions, those that successfully complete a short sale saw a 120-130 point drop in their credit score.
Those that walk away from their homes by defaulting on their mortgageresulting in foreclosure can expect a 140-150 point drop in their credit score, according to columnist Kenneth Harney. The worst thing one can do to damage their credit score is seeking protection by declaring bankruptcy. This method of avoiding debt obligations caused a 355 to 365 point drop on average. Why? Bankruptcy addresses all debt of the consumer including credit cards and car loans, not just the mortgage debt. To add insult to injury, the reporter points out that bankruptcies impact your credit for a decade.
It helps to understand the VantageScore Solutions index, whose scoring system is now being used by some of the nation’s largest lenders, differs from the three major credit bureaus that generate credit scores. Their scale ranges from 501 (subprime, high-risk) to 990 (super prime, low-risk). FICO scores can vary 50 to 100 points depending on the credit bureau generating the number while Vantage scores are more consistent for all 213 million American consumers with credit profiles.
It took little more than a year for consumers with super prime ratings-scores above 900, to fall from that tier in staggering numbers. More than 3 million Americans fell from the elite status in this time period. Additionally, almost 5.5 million dropped to the lowest credit category joining 34.4 million other Americans already there. These drops were attributed to late payments on mortgages, other serious credit delinquincies, short sales and foreclosures.
The lesson to be learned here is those in trouble with their mortgage should contact their lender immediatelyand seek a loan modification because falling a few payments behind will cause a drop of ”240 points on your score” according to Barrett Burns, chief executive of VantageScore. He goes on to explain this credit drop will impact your ability to borrow for years.
Good advice from someone on the inside!
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL ESTATE PROFESSIONALS GMAC
CORNER OF COURT AND PLACER IN REDDING
QUARTER CENTURY LOCAL REAL ESTATE EXPERIENCE
