Your FICO Score

Borrowers already knew that late payments hurt their credit scores, but for the first time, they now know the extent of that damage.

Did you max out your credit card? Expect a credit score drop of 10 to 45 points. Declare bankruptcy? Your score will plummet by up to 240 points, and your odds of getting credit will nosedive with it.

The "damage points" data, unveiled recently by FICO, are part of the most revealing glimpse into the firm's once-secret -- and still mysterious -- credit scoring model. The new information discloses how many points borrowers' scores will drop when they make the most-common mistakes.

'Help People Understand' Scores

"I hope this information will help people to better understand FICO scores and the value for them of avoiding credit missteps. It illustrates key points such as the higher your score, the farther it can fall if you stumble," says FICO spokesman Craig Watts. "Getting and maintaining a good score isn't complicated. We all just need to pay our bills on time, keep credit card balances low and take on new debt sparingly. "



The greater transparency about FICO scores is important because American consumers' ability to get credit rises and falls with the number. FICO, the company that pioneered credit scoring, assigns consumers a three-digit number from 300 to 850, depending on how well they handle credit. Other companies also offer scores, but FICO's version is the most widely used by lenders in determining whether a consumer can borrow, and at what rate.

FICO's credit score has been around for decades, but only within the past decade have consumers gradually gained access to theirs. Though the raw numbers can be purchased, how they're figured remains a FICO secret, as closely guarded as the formula for Coca-Cola. Until Thursday, FICO revealed only broad categories of factors influencing the score, but not the number of points at stake for consumers who fail to pay as agreed. The "damage points" information, revealed in a report by personal finance writer Liz Pulliam Weston, will be made available through its myFICO.com Web site starting this weekend.

FICO's information shows that bankruptcy does the most serious damage to a credit score (up to 240 points), followed by foreclosure (up to 160 points) while maxing out a credit card has the least numerical impact (as few as 10 points).

Those with good or excellent credit -- so-called prime borrowers -- put more points at risk with each mistake. For example, someone with an average credit score of 680 who pays a bill 30 days late will see a drop of 60 to 80 points. But for someone with an excellent credit score -- 780 -- that same delinquency can send a FICO score tumbling by 90 to 100 points.

If you earn your FACS certification as a Real Estate Professional you get a hand out showing what the three major credit Bureaus told me in a face to face interview specifically on the topic of Short Sale's.

-Christopher Rockey

Defaulting on Your Mortgage? Is Your Agent FACS Certified?

Due to the national mortgage failure rate there are several alternatives available to homeowners to avoid Foreclosure. If you are considering a Short Sale make sure your agent is FACS Certified. The Foreclosure Alternative Certified Specialist is the highest level of Short Sale education in the country according to Fidelity National Financial. Beyond Short Sale's, the agent's who have earned FACS will have a superior knowledge of Loan Modification, Short Refinance, and several other options.

Activity in Fannie Mae’s portfolios declined according to most metrics during the month of October as compared to September. Delinquency rates reported, however, continued to increase.

In their monthly summary, Fannie Mae reported the corporation’s Book of Business declined at a compound annualized rate of (3.1) percent during the month. The current Book of Business is $3.23 trillion, an increase 4.8 percent thus far in 2009.

The retained portfolio declined 27.8 percent to $771.5 billion during October. The portfolio has declined 2.4 percent thus far in 2009. The principal decline was in non-Fannie Mae Agency Securities which dropped from $60.6 billion to $49.4 billion. Mortgage loans increased by about $5 billion and non-Agency securities decreased a little over $5 billion. Fannie Mae, along with Freddie Mac is mandated to reduce its portfolio by 10 percent a year beginning in 2010 until the portfolio of each corporation reaches $250 billion.

It is imperative for agent's to know they have no choice but to be in the default market if they are planning to do Real Estate over the next ten years. The Foreclosure Alternative Certified Specialist (FACS) designation should be mandatory for Real Estate Professionals.

-Christopher Rockey

Why You Need to Earn the FACS Certification

Option-ARMs: File under, "It sounded good at the time."

These exotic mortgages allowed homebuyers to come to closing with little cash and choose, monthly, how much to pay: interest and principal, interest only, or a minimum amount less than the interest due.

Of course, the last option is the one 93% of option-ARM buyers selected, according to a new report released this week by Standard & Poors.

But eventually, everyone has to pay the piper.

Nearly all of the 350,000 option-ARM borrowers owe more than when they first bought their homes thanks to the unpaid interest accumulating. And many loans written during the first big wave, which started in 2004, are getting ready for their five-year reset, when they become standard amortizing loans. Additionally, some newer loans will reset early if the accumulated interest has pushed the loan-to-value ratio above 110% to 125%.

That means borrowers are about to start paying very hefty prices for their homes. In one scenario outlined in the S&P report, the payment on a $400,000 mortgage jumps from $1,287 to $2,593.

25% default rate
But that doesn't just spell bad news for borrowers. Some industry pessimists say the looming default problem could have the power to derail the nascent housing market recovery. "The crux of the matter is that as soon as these mortgages recast, the history is that they will default," said Brian Grow, one of the S&P report's coauthors.

And the newer the loans, the worse they will perform, the report said. The last year that any option-ARMs were issued was 2007. In the first 20 months after issuance, this vintage of option-ARMs had an average default rate of just over 22%.

That includes all option-ARMs issued in 2007. But if you calculate default rates for only 2007 option-ARM borrowers who are now underwater, the default rate jumps to 25% after just 20 months, according to S&P.

So, while there may not be an awful lot of these loans out there, their high default rates will have an outsized influence on housing markets, adding to already bloated foreclosure inventories and driving prices down further.

Bubble markets
And the markets where they'll produce the most foreclosures are still among the most vulnerable in the nation.

Option ARMs were most popular in bubble markets -- California, Nevada, Florida and Arizona -- where double digit home annual price increases put the cost of buying a home out of reach.

In fact, 60% of these loans went to residents of California and other Western states, places where prices have fallen the most, according to report coauthor Diane Westerback. "The geography is negative for these products," she said.

Many borrowers in these places could only afford a home if they chose the option ARM. Many counted on continued hot market conditions to add value to their homes. The extra equity could then be tapped to pay their bills.

We all know how that worked out.

Home prices in many of the markets where option ARMs are most concentrated have fallen 30%, 40% or more. When the loans recast, most borrowers will find themselves severely underwater.

"Because borrowers of [options ARMs] are in a much worse position," said Westerback. "You'll see defaults rising very rapidly."

And most option ARM borrowers will not be good candidates for refinancing or mortgage modifications because their loan-to-value ratios will be far too high. Under the administration's Making Home Affordable program, for example, mortgages with balances that exceed 125% of the home's value are not eligible for help.

Not so white lies
There is another little problem that many option-ARM borrowers seeking refinancing would face: "Upwards of 80% of were stated-income loans," said Westerback.

These are the so-called "liar loans" in which lenders did not verify that borrowers earned as much money as they said they did. Lenders may not be able to modify mortgages because many of the borrowers' income could not stand up to the scrutiny. Borrowers may also not want to go through underwriting again because they could be held legally liable for deliberate inaccuracies on their original applications.

Add to those conditions the still fragile economy and high unemployment rates, and you have a recipe for disaster.

I had a conversation wit h the HR Director for Layton Construction this evening who said on the commercial side they expect 2010 to be the toughest year to get work since the great Depression. I will form an opinion on Commercial Real Estate soon but I can tell you, historical trends are pointing in a bad direction!

-Christopher Rockey

FACS

Foreclosure Alternative Certified Specialist (FACS)
In 2008 Fidelity National Financial (FNF) acquired a California based company that specializes in pre-foreclosure and Short Sale compliance. This company, Mortgage Resolution Services, since it’s FNF acquisition has had the opportunity to make a very serious place for itself in the Short Sale industry. Because Mortgage Resolution Services has an affiliation with FNF they are able have face to face appointments with lenders. These meetings are specifically made to learn the lenders language in the Short Sale process.
Mortgage Resolution Services has a unique ability to teach the lenders language and then pass that education on to Real Estate professionals. The FACS certification is specific to Short Sales but not exclusive. Because this is a foreclosure Alternative certification, we present all avenues to avoiding foreclosure including, Loan Modification, Short Refinance, High LTV refinance and others.
The FACS course is the only interactive course that requires participation from all attendees. Each student is broken into a team with one common goal much like in real life. This is also a unique teaching method rather than other certifications that bolt a desk to the ground, lock the doors and make you listen to an instructor for two days.
Mortgage Resolution Services is highly sensitive of its FACS education and only teaches very specific Short Sale strategy and execution. Because our course is the only one day Short Sale, it is fast paced a lot of fun and cost efficient.
Scott Thompson the founder of Mortgage Resolution Services who authored the FACS course has been recognized as an industry expert by National Association of Realtors. NAR has had Scott Thompson out to Washington DC on numerous occasions for national webinar education on the subject of Short Sales. Christopher Rockey, the Director of Education for Mortgage Resolution Services and the FACS certification is also a National Speaker on Short Sales.
FACS is the highest level of Short Sale strategy and execution offered for your budget as a one day course. If you are an agent interested in how to get short Sales done in a more efficient manner, specific strategies on settling with junior lien holders, how to protect commissions and interested in depth training on Risk Management, FACS should be highly considered as the training course for you and your team of Real Estate Professionals.

FACS

Media Advisory

“FOR IMMEDIATE RELEASE” Fidelity National Financial

Rancho Cordova, California www.mrseducation.com

November 24th, 2009 916.631.6180


Fidelity National Financial Implement’s National Pre-Foreclosure Compliance Course for Realtors®

SACRAMENTO, CA. – Fidelity National Financials pre-foreclosure solution and Short Sale arm known as Mortgage Resolution Services (www.mrseducation.com) has announced the Foreclosure Alternative Certified Specialist, FACS designation for Real Estate professionals today on a national platform. Mortgage Resolution Services is a national Short Sale processing center located just outside of Sacramento California.

Scott Thompson the founder of Mortgage Resolution Services is considered a national expert who has already been sought out nationally for expert advice on the subject of Short Sales. Thompson will be one of two instructors who was recently quoted in Time magazine saying “Short Sale’s are very much an Art not a Science.” Christopher Rockey, Director of Education for the FACS certification is recently quoted as saying “It’s important for the Realtor® to know that any lender big enough to give their clients everything they want is certainly big enough to take away everything the homeowner has.”

The FACS course will be unique to any other course because of the affiliation Mortgage Resolution Services has with FNF. Tom Bolinger, twenty year FNF employee heads up Mortgage Resolution Services and is quoted as saying “Our FACS Course and Instructors have a more unique understanding of the lenders language than the lenders themselves in some cases.” This understanding and ability to communicate that language to Realtors® will make this one day training a turning point for the careers of Real Estate professionals nationwide.

Thompson and Rockey the instructors for the FACS course, have taken part in writing Short Sale certification courses in the past. The two believe they have comprised the best of the material to bring the highest level of pure Short Sale strategy and execution on the market.

Please note for registration information please go online to www.mrseducation.com
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Uncle Ben

Federal Reserve Chairman Ben Bernanke has a tough road ahead.
Very tough.
Bernanke, whose four-year term expires in January, is certain to face a contentious Senate banking panel at his confirmation hearing, set for Dec. 3. He is also defending against the sharpest attack on Federal Reserve powers ever.

The latest blow came last week, when a House panel overwhelmingly agreed to tack on to must-pass regulatory reform a proposal to dig into the Fed's books, despite attempts by Rep. Barney Frank, D-Mass., to make it less intrusive.

Fed watchers say they expect that Bernanke will be confirmed for a second term as chairman. But he may get the fewest favorable votes on record - and end up at the helm of a vastly changed Federal Reserve.

"It's going to wind up to be a very different institution," said American Enterprise Institute scholar Vincent Reinhart, a former director of the Fed's division of monetary affairs. "At least on the Federal Reserve part, Congress is going to converge on something that's tougher on the Fed. It's a way to vent anger. And fundamentally people are angry."

What Congress has in store for the Fed
While many credit Bernanke for saving the economy from falling into the next Great Depression, some in Congress blame the Fed - and Bernanke - for having failed to restrain the housing bubble. Others say he has gone too far in the financial system bailouts.

Interesting to see why Mr. Frank wants such a high level of anonymity? I wonder if it has anything to do with intrusions in his own personal life?

-Christopher Rockey

Deed for Lease Program

Fannie Mae announced Thursday that it is implementing a program under which qualifying homeowners facing foreclosure will be able to remain in their homes as renters if they voluntary transfer the property deed back to the lender.

The GSE’s new Deed for Lease Program is designed for borrowers who do not qualify for or have not been able to sustain other loan-workout solutions, such as a modification. Under the program, borrowers transfer their property to the lender by completing a deed in lieu of foreclosure, and then lease back the house at market rate.
“The Deed for Lease Program provides an additional option for qualifying homeowners who are facing foreclosure and are not eligible for modifications,” said Jay Ryan, Fannie Mae’s VP. “This new program helps eliminate some of the uncertainty of foreclosure, keeps families and tenants in their homes during a transitional period, and helps to stabilize neighborhoods and communities.”

To participate in the program, borrowers must live in the home as their primary residence and must be released from any subordinate liens on the property. Investor properties with tenants are also eligible for the program.

Prospective renters must show that they can afford to pay the new market rental rate and must be able to document that the rental payment is no more than 31 percent of their gross income.

Leases under the new program may be up to 12 months, with the possibility of term renewal or month-to-month extensions after that period.

A Deed for Lease property that is subsequently sold includes an assignment of the lease to the buyer.

Loan Modification Failure Rate

I have spent the last several years preaching Short Sales and the importance of recognizing there significance in the market place. Now with the national changes in the political climate the 'Anti Foreclosure Parade' marches on. Here are some facts about Loan modification which I am anxious to stop writing about. It appears the HAMP program is about as significant as a Big Foot sighting!
In what it termed a "conservative projection," Fitch Ratings says 65% to 75% of securitized subprime loan modifications will fall back into default a year after modification.

The findings were included in Fitch's semiannual report on loss mitigation actions taken by servicers on securitized loans. The report, which included information from Fitch-rated servicers and data from First American Loan Performance, found that, during the first half of 2009, about 30% of modified subprime loans fell back into default by the six-month mark and about 60% redefaulted 12 months after modification.

These numbers actually understate the number of loans that fail after modification, Fitch says, because the figures do not include modified loans that were subsequently re-modified or liquidated. While the rating agency adds that the number of prime-loan modifications initiated this time last year is insufficient for Fitch to determine a 12-month trend, at six months, the statistics on prime redefaults are similar to those for subprime and Alt-A loans.

By analyzing a pool of loan modifications from the third quarter of 2008 - a pool that included prime loans but mostly comprised Alt-A and subprime loans - Fitch found that 34% of the loans are current today. Five percent are in 30-day buckets, 17% received a second modification and 8% have been liquidated. These statistics support Fitch's contention that its 65%-75% redefault projection is conservative.

In explaining why modifications may not necessarily be the best route for servicers to take with certain borrowers, Fitch warns its rated servicers against re-modifying loans for the sake of improving performance data.

"The use of multiple mods for the sole purpose of managing default statistics and advances could not only put at risk a servicer's, as well as the transaction's, ratings, but also could greatly increase the ultimate loss to the investor," the report's authors state.

Modifications as a percentage of loan resolutions (i.e., actions that result in home retention as well as those that result in foreclosure) grew in the first six months of the year when compared to the six months ending Dec. 31, 2008. Loan modifications accounted for 58.1% of residential mortgage-backed securities loan resolutions in the first half of 2009, whereas they made up only 39.6% of loan resolutions in the last half of 2008. In total, 88.5% of the loans worked by Fitch-rated servicers' loss mitigation departments between January and June 2009 resulted in workouts. For the prior six-month period, 71.4% of cases resulted in workouts.

Looking for a Loan Modification, good luck. All too many loan moods are in favor of the lender and not the consumer!

-Christopher Rockey

Does Loan Modification turn your Mortgage into Recourse Debt?

I have been asked this question several times in the recent past. I have always told Real Estate professionals that as long as the the original purchase money deed of trust is recorded on the property, the lender has no recourse. In LA last week I had a couple agents put up a very excellent argument on why the debt should become recourse. I decided to do the research beyond my own suspicion and seek the advice from a REPUTABLE attorney!

Under California law (Civil Code Section 580b), if a lender makes a loan to enable a borrower to buy a 1-4 unit property which they live in, the lender has no recourse against the borrower. They can only take (foreclose) the property. They cannot get a judgment against the borrower if the property is not worth the amount owed on the loan. This is called an “acquisition loan”. If the borrower later refinances this loan by getting a new loan, this protection is generally lost because the new loan was not obtained to acquire the property. That makes sense. But what about a loan modification?

Recently, several clients have had lenders (or collection companies) tell them that their loans became recourse because they got a loan modification. From what I can see, this appears to be false and is no doubt said in an attempt to collect some money even when there is no recourse.

The First reason that this is false is that the loan and security (deed of trust) have not changed. It is still the acquisition loan and the same date of purchase recorded security. Second, there is a rule in law called “substitution”. The substitution doctrine applies when an acquisition loan is refinanced by the lender holding the original acquisition debt. The acquisition portion refinanced retains its purchase money character and the anti-deficiency protections of CCP §580(b) apply. (Union Bank v. Wendland, 1976). Further there is legal authority that the protection extends to situations where the “beneficiary of the purchase-money loan ‘refinances’ the loan, ie: same lender, borrower, and security, but different loan amount. From these sources, it appears fairly clear that a modification will not alone convert a non-recourse acquisition loan into a recourse loan. As the court said in the Union Bank case, “…. the protections of the anti-deficiency statutes can not be avoided because of some clever paper shuffling on the part of the lender. To allow such is a circumvention of the anti-deficiency statutes.”

It was also clearly outlined to me that if the lender did try to actually seek a judgement a trial could easily be attained. With that said any first year internet attorney could win that case by illustrating the unpopular lender practices now perceived by the American public as villainous.

-Christopher Rockey