12/21/2007

Foreclosure Debt Forgiven; New FICO Score System


The name of the little photo to the right is "holiday deer", and I hope you can also think of it as "Holiday Cheer" with the recent news on debt forgiveness.

At least if you do have to take the bad credit hit for a foreclosure or short pay, the new law signed yesterday by President Bush removes certain taxes that used to apply. So the good news is for renegotiated loans where more was owed than the current value of the home ("short pay'), the borrower will not have to pay income tax on the difference.

A sign of when things are going to bottom out is when there are signs of things getting better, and one of those signs with loans might be that there are more fixed rate loans taken out in the first half of 2007 compared to the first half of 2006. See this Mortgage Bankers Association article. Fixed rate loans are most certainly a sign of better financial health for many borrowers who will thus be avoiding the spiking of their monthly loan payments 1 and 2 years after taking out their loans.

If you're contacted by someone saying he/she will get you out of foreclosure, please read this article about foreclosure scams. This includes DO NOT sign over your property or sign a quit-claim deed, and do not pay someone to renegotiate your loan with the bank (you can do this yourself for free, or ask your REALTOR to help you). Foreclosure in California follow a very specific process--do not allow yourself to be taken advantage. Read my earlier post about knowing your rights if a Notice of Default has been filed on your property.

More news is about your FICO score, as calculated bv the Fair Isaac Company who invented the index most commonly used throughout the loan industry, the insurance industry, the car industry, and anyone else who wants to figure out if you're a good risk or not. Keep your credit as clean as possible, because that will help you get a better loan at a better interest rate if you are trying to refinance or purchase. This new model will be rolling out in the Spring, but may be used before that in the loan industry (it's hard to know), but take a look at the samples in the box under Figuring Your Credit Score as these may be a hint of things to come.


1 comment:

Alan Richardson said...

Great post. With the mortgage industry in the news so much lately it's nice to see something good for a change. At least if you've had to go through a short sale you won't get stuck by the tax man on top of it.

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