- “Is it better to file for bankruptcy or to be foreclosed?”
- “What is a short sale and how can it affect my credit?”
- “What about a Deed In Lieu of Foreclosure? Or a Loan Modification?
- “What should I do?”
Every day, these questions are asked of me by frightened homeowners who are quickly trying to respond to the financial chaos that continues to arise from the sub prime mortgage fiasco which has touched millions of American homeowners.
Like no other financial crisis this country has seen since the Great Depression, the home lending fiasco has turned the American Dream into the American Nightmare. It has taken down millions of homeowners. It has brought the global financial markets to its knees. And it has catalyzed the implosion of massive banking entities whose greed proved the key to their unraveling.
Millions of homeowners are now wondering how they will manage their way through the lending crisis. How will they manage their credit through the turbulent economic and financial strangleholds in which they find themselves trapped? Is there relief? Is there any salvaging of the current housing market? What is the best path for consumers to get there?
There’s no question that many families will have to leave their homes. Their biggest question now is how to most effectively do so (without devastating their credit scores) so that they will someday be able to buy a home again. I speak to families every day, and I am heartened by those who have the wisdom and emotional strength to face these tough issues head on! They will be served well by their courage, and their credit scores will be better off for it!
Now is the time for tough questions to be asked and answered about Foreclosures, Short Sales, Loan Modifications and how these options affect credit reports and scores. And my next several blogs will do exactly that. But in this blog, I want to empower you with some powerful and significant information –
There are no laws in place requiring that lenders and creditors report negative information to the three major credit bureaus, Equifax, Experian and TransUnion. Let me repeat that–there are no laws in the US Code that require lenders to report consumer payment history to the three credit bureaus.
This is an especially difficult reality for individuals who find themselves in the midst of a crisis. Everyone has dark times in their lives: illness, a death in the family, job loss, unexpected expenses, and most recently the mortgage crisis. When hardship occurs and people cannot keep pace with their bills, they can instantly be labeled as a default. That means they could lose everything that they’ve worked for. That is just not right.
Here’s the section of the law from the Fair Credit Reporting Act:
§623. Responsibilities of furnishers of information to consumer reporting agencies [15 U.S.C. § 1681s-2]
(a) Duty of Furnishers of Information to Provide Accurate Information
(7) Negative Information
(E) Use of notice without submitting negative information. No provision of this paragraph shall be construed as requiring a financial institution that has provided a customer with a notice described in subparagraph (A) to furnish negative information about the customer to a consumer reporting agency.
Here’s the text from subparagraph (A):
(A) In general. A person who furnishes information to a consumer reporting agency regarding a delinquent account being placed for collection, charged to profit or loss, or subjected to any similar action shall, not later than 90 days after furnishing the information, notify the agency of the date of delinquency on the account, which shall be the month and year of the commencement of the delinquency on the account that immediately preceded the action.
There’s more to this story, however. An August 13, 2008 announcement from Fannie Mae & Freddie Mac clearly states that they place NO requirement on how lenders report mortgage default accounts to the credit bureaus. In response to the frequently asked question about how these items should appear on the credit report, the announcement stated:
“For reporting these actions on Fannie Mae loans, we require that servicers report to one of the major credit reporting agencies, but it is our policy NOT to direct specifically how to report various actions.”
Again, this is powerful and significant information. If the Fair Credit Reporting Act doesn’t require lenders to report negative information at all, or in a specific manner, and the nation’s largest buyer of mortgage loans does not require lenders to report negative information at all, or in a specific manner, this leaves the door wide open for negotiating deletions or non-reporting when it comes to short sales, loan modifications and in some instances foreclosures. So I reiterate: NEGOTIATE, NEGOTIATE, NEGOTIATE.
If I were in a position of authority, I would initiate legislation that allows for hardship cases. If a person shows legitimate proof, then creditors should be required to provide lenience and be disallowed from blacklisting a person’s credit standing. There should also be varying levels of hardship. For instance, there should be an established timeframe payment extension for consumers who have lost their jobs, especially due to a sluggish economy.
Be sure to check back soon – my next blog will cover what you need to know about foreclosure and your credit. After that, we’ll take a look at a variety of options for avoiding foreclosure.