Obama's Mortgage Cram down bill is defeated

REALTOR® Magazine-Daily News-Senate Defeats Mortgage Cramdown Bill

Senate Defeats Mortgage Cramdown Bill
The proposed law allowing bankruptcy judges to modify mortgages, known as the cramdown bill, was voted down Thursday by the U.S. Senate.

The financial industry opposed the bill, arguing that the change would drive up interest rates and make the market less stable. Some senators also were concerned that their constituents who pay their bills on time would resent this measure.

Minority Leader Mitch McConnell, who led the opposition, says the vote "ensures that homeowners who pay their bills and follow the rules won't see an interest-rate hike at the whim of a bankruptcy judge."

The reform was a key part of President Obama’s foreclosure prevention plan, leaving some to question ultimate likelihood of its success.

"It won't render the loan modification program useless, but it removed an important ingredient that would have helped realign everybody's interests," says Barry Zigas, director of housing policy for the Consumer Federation of America.

Short sale vs foreclosure and credit

Tbe following is from a wall street journal article on foreclosure vs short sale.

Short Sale vs. Foreclosure - WSJ.com

So I asked Craig Watts, public affairs manager of Fair Isaac Corporation in San Francisco, to comment on your case. Fair Isaac is the company that created the FICO score, used by lenders to assess borrowers' creditworthiness.

Mr. Watts said that the company assesses every negative on a credit report by three factors: recency (how recently did the negative event occur), severity (how late is the payment) and frequency (how many times you've been reported delinquent on credit obligations).
[image] Getty Images

A recent bankruptcy does the most damage to your score. Mr. Watts adds that if lenders are reporting all of your mortgages as in default, the damage to your FICO score would be akin to declaring bankruptcy on all 12 accounts. For more information on credit scores and how they are calculated, visit the "credit education center" at www.myfico.com.

Although a short sale, where the lender agrees to take less than owed on the mortgage, will drop your FICO score as much as a foreclosure will, there is one advantage to it: You may be eligible to buy a home with an institutional loan backed by Fannie Mae or Freddie Mac more quickly than you would if it went into foreclosure.

Lenders encourage short sales over foreclosures because they generally net more from them, since foreclosures incur additional marketing, legal, processing and carrying costs. (For details, see Fannie Mae's announcement 0-82.) Borrowers can be considered for loans following a short sale aftter 24 months, if the sale was caused by extenuating circumstances outside of a borrowers' control, or 48 months if it was the result of financial mismanagement on the borrower's part, according to Freddie Mac public relations director Brad German.

As for your tax situation: because of the Mortgage Forgiveness Debt Relief Act of 2007 and the recently passed Emergency Economic Stabilization Act, you can exclude up to $2 million of income ($1 million if married filing separately) from debt that's discharged through mortgage restructuring, or that's forgiven in connection with foreclosure, for the years 2007 through 2012. The exclusion must be connected with a decline in the home's value or the taxpayer's financial condition, and only applies to a principal residence, not investment properties. You can claim relief on your principal residence through IRS form 982. However, Mike Martin, a financial consultant and tax advisor in Independence, Mo., notes that there may be other provisions in the law that can help you: For instance, if you are insolvent when your debt is cancelled, some or all of that debt may not be taxable.

Given the complexity of your situation, please don't try to resolve this situation on your own: Seek professional tax and legal advice.

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How long will a short sale stay on my credit

The fico people report that most negative information will stay on your report for a maximum of seven years.

They report the following information can remain longer:

"Credit Accounts:
Negative information remains for 7 years from the initial missed payment that led to the delinquency.

Active positive information can remain indefinitely (if an account is closed that has been positive, then it will typically remain on your report for 10 years after the date the account is closed).



Collection Accounts:
A collection account remains for 7 years from the initial missed payment that led to the collection.




Public Records:

Chapter 7, 11 and 12 bankruptcies remain for 10 years from the date filed.

Completed Chapter 13 bankruptcies remain for 7 years from the date paid, and 10 years if not completed.

Tax liens remain for 7 years from the date filed if paid and remain indefinitely if not paid.

All judgments remain for 7 years from the date filed.



Inquiries:

Inquiries remain for 2 years.



New York State Residents Only:

Satisfied judgments remain 5 years from the date filed.

Paid collections remain 5 years from the date of last activity.



California State Residents Only:

All tax liens remain 7 years from the date filed."

For more information on short sales

How does a foreclosure or short sale effect my credit score

The fico people explain the effects of a short sale on your credit are very similar to a foreclosure. (Please note this deals with your computer score. When you speak with investors and investment bankers you may find out they prefer to see a workout in your credit history over a foreclosure.)


The following answer is straight form the horses mouth. The fair issac people.

Answer

How does a foreclosure or short-sale affect my score?
Question
How does a foreclosure or short-sale affect my score?
Answer


Credit bureau reports are limited in how they represent foreclosures today, so it's generally not possible to tell from the credit report if a reported foreclosure is a short sale, deed in lieu of foreclosure, settled account, regular foreclosure, or some other variation.

The FICO® score treats all of these descriptions that appear on credit reports as serious delinquencies, so they have an impact on the score similar to the impact from a charge off, tax lien or account included in bankruptcy.

http://myfico.custhelp.com/cgi-bin/myfico.cfg/php/enduser/std_alp.php?p_sid=o*8fKEwj&p_lva=253&p_li=&p_accessibility=0&p_redirect=&p_new_search=1&p_search_type=answers.search_nl&p_sort_by=&p_page=1&prod_lvl1=111&p_pv=1.111&p_prods=111


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