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Keeping Track of Your Credit Score a Key to Managing Debt

2010-09-03T17:01:25Z

Since the relative collapse of the real estate market, banks have been increasingly careful about loaning money. Individuals that may have had no problem getting a loan five or six years ago may now find that no bank is willing to take a chance on them. This reevaluation of risk has left many people struggling to improve their credit scores in order to make themselves more attractive to banks and lenders.

In case you weren't quite familiar with why a good credit score and solid credit history might be important to managing your debt, consider this: A home mortgage lender looks at a number of factors when deciding to approve a loan and determine what the terms of that loan may be. A credit score is one of those factors. A credit score over a certain threshold may qualify you for a lower mortgage interest rate, which can end up saving you tens of thousands of dollars over the course of a 30-year mortgage.

]]> There are many things you can do to help improve your credit score, but here are a few basic tips for making sure you are on the right track with managing your credit:

Don't cancel your credit cards. Part of your credit score is based on the length of your credit history and another part is based on how much of your credit you are using. Keeping your oldest card open is a good idea because it shows you are experienced with credit. The other part of this is what is called your credit utilization -- it is best to only use about 30% of your total available credit; if you cancel your cards, your utilization goes up and will cause your score to go down.
Pay your balance on time and pay more than the minimum payment. Paying your bills on time is hugely important, but you also want to make sure that your credit card balance does not get too high or too close to your credit limit. Paying just your minimum balance is a good way to quickly max out your card, so try to pay off as much as possible each month.
Get a copy of your credit report. You are entitled by federal law to a free copy of your credit report each year from each of the three major credit reporting agencies. These reports are the basis of your credit score, so it is a good idea to get a copy at least once a year and check it for errors. If your report contains errors, you can contest or dispute them, which should help raise your score.

Related Resources:

Raise your credit score (CNNMoney.com)

AG Obtains Judgment Against Mortgage Modification Company

2010-08-31T17:04:49Z

Wisconsin Attorney General J.B. Van Hollen recently announced that the Wisconsin Department of Justice obtained a judgment against a company for violations of the state's consumer protection laws. The default judgment for nearly $112,000 was obtained against Relief Law Center, Inc., a California company going by the name USA Loan Auditors, which had been soliciting for loan modification services.

The AG's lawsuit claimed that USA Loan Auditors used deception and misleading representations to entice individuals into hiring them. It was alleged that solicitations from the company were designed to deceive homeowners into thinking that USA Loan Auditors was a company seeking to "audit" or investigate the homeowner's mortgage lender. In reality, the company was trying to sell loan modification services.

]]> In announcing the judgment, Attorney General Van Hollen said, "In Wisconsin it is illegal for anyone to charge up-front fees for foreclosure rescue or loan modification services." He went on to warn consumer about companies who use foreclosure prevention and home loan modification as a guise to sell services they never intend to deliver.

The default judgment was reportedly obtained because the company failed to respond with an answer to the AG's complaint. The judgment entered by Dane County Judge Daniel Moeser enjoins the company from making further misleading solicitations and orders they pay nearly $119,000 in forfeitures, penalties, and the costs incurred by the State for the prosecution.

For those that find themselves facing financial difficulties, a company that promises to help fend off foreclosure may seem like a dream come true, but all too often, the companies cannot deliver as promised or have no intention of delivering on their promises. If you find yourself in this situation, you may want to contact an attorney to discuss your options concerning Chapter 7 bankruptcy or other potential loan modification programs.

Related Resources:

AG Van Hollen: Announces judgment against USA Loan Auditors (WisBusiness.com)

Mortgage Modification for Foreclosure Defense, Part 4

2010-08-26T11:02:00Z

In our previous posts, we discussed mortgage modifications and answered some common questions you may have about obtaining a modification and about the trial modification period that most programs require. Here, we will discuss a few final concerns you may have about the process.

What happens to my credit during a mortgage modification trial? The way in which your mortgage servicer reports your modification may depend on the status of your mortgage payments before you entered the program. If you were current on your payments before you began your trial period, it is most likely that you will still be reported as current on your mortgage. However, if you were behind on your payments, your lender or loan servicer may continue to report that you are delinquent on payments. If you are concerned about how the matter is reported to the credit agencies, you should discuss this with your loan servicer.

]]> If I complete the trial period does the loan servicer have to finalize the modification? Some people may worry that they will complete the trial period and then have the loan servicer back out on them. If you are working through the federal government's Home Affordable Modification Program (HAMP), the loan servicer will not receive any payment from the program unless the modification is completed. Therefore, the loan servicer has every incentive to complete the modification if they can.

If you are not a part of the federal program, the loan modification agreement you signed should spell out the conditions of backing out or finalizing the modification. If you aren't sure about the agreement, you may want to speak with an attorney to find out more about your rights and your obligations.

What happens if I miss payments during the trial period? Depending on the program you are participating in, a missed payment may be able to be made up, or it may cause you to become ineligible for the modification program. If you do become ineligible for a certain program, you may be able to find another modification program, or you may want to consider other options such as a Chapter 13 or Chapter 7 bankruptcy filing.

Related Resources:

Want to modify mortgage? Get a trial run. (bankrate.com)

Mortgage Modification for Foreclosure Defense, Part 3

2010-08-23T18:01:35Z

In our last post, we provided some answers to a few common questions asked about mortgage modifications and the trial period that typically accompanies them. Here, we will discuss a few more concerns for those looking to mortgage modification before they contemplate other potential solutions such as Chapter 13 or Chapter 7 bankruptcy.

Are the terms of the trial modification going to be the same as the terms of the finalized modification? It is possible that the terms of the modification may change once you have completed the trial period. However, if the loan servicer has all of the needed documentation before the trial period begins, there shouldn't be any need to change the agreement.

If it seems like the terms of your agreement are changing in a way that is going to make it difficult for you to keep up with the mortgage, you should discuss this with the loan servicer, and you may want to speak to an attorney about your options.

]]> Can I still earn the government incentive payment during my trial period? Under the federal Home Affordable Modification Program (HAMP), those that complete their trial modification and make their modified payments on time could earn up to $1,000 a year for as many as five years.

During a trial period, you can still earn the incentive, but you don't get credit for it until your trial period is over and you begin your finalized mortgage modification. If you eventually earn the incentive, it will be applied to the principal of your loan to help you pay down your mortgage faster.

In our next post, we will wrap up our discussion of the mortgage modification trial periods and talk about the effect it might have on our credit and the consequences for failing to make payments.

Related Resources:

Want to modify mortgage? Get a trial run. (bankrate.com)

Mortgage Modification for Foreclosure Defense, Part 2

2010-08-19T11:01:46Z

In our last post, we briefly discussed options for those facing foreclosure on their home due to falling behind on their mortgage. Of course, Chapter 7 bankruptcy and Chapter 13 bankruptcy will be options for most people, but if you aren't ready to take advantage of those options yet, mortgage modification may be an option to pursue.

Below are some common questions that may come up in pursuing a trial modification as part of a mortgage modification program. Remember, these programs can be confusing and complex. If you have questions or are unsure about the process, seeking legal guidance might be a good way to put your mind at ease.

]]> Do I have to go through a trial modification? Typically, mortgage modification programs want to see that you are really determined to make payments and keep your home. Since the government and private companies have to do a lot of work to finalize a modification, they want to make sure you can make the modified payments and that you can make them on time. Usually these trial periods are expected to last three or four months, but they have been known to take longer.

What happens if I am already in foreclosure? A lender or mortgage servicer has some incentive to avoid foreclosure and see if a modification will work because foreclosure can be an expensive process for them. However, every company is different, the best thing to do is to contact the company, or have a lawyer contact them for you, to see if arrangements can be made.

What do I have to do in a trial period? To obtain a modification, you will probably have to provide a lot of paperwork, such as information about your income, tax records, proof of insurance and so on. During the trial, you need to get your paperwork in and you need to make the agreed-upon mortgage payment. If you fail to make payments or provide the documents needed, your trial run might be terminated and you may find yourself facing foreclosure again.

In our next post, we will discuss a few more concerns surrounding mortgage modifications to help you decide if that is the right path for you.

Related Resources:

Want to modify mortgage? Get a trial run. (bankrate.com)

Contemplating Mortgage Modification for Foreclosure Defense?

2010-08-16T17:02:23Z

One of the major financial problems people have run into over the last few years is the decline of home values combined with rising mortgage payments. Many took advantage of the low initial interest rates of adjustable rate mortgages thinking that within three to five years they could sell their house or refinance before the mortgage payments readjusted and became unmanageable.

Now, with the home values sinking, it has made selling a home difficult and refinancing a home nearly impossible for most. When we also add in the general sluggishness of the economy and the fact that so many people have lost jobs, we end up with a number of people falling behind on their mortgages and in danger of losing their homes to foreclosure.

]]> One option for those in this predicament is looking into a bankruptcy filing. Filing for either a Chapter 7 or Chapter 13 bankruptcy may help you get rid of other debts so you concentrate on saving your home. Bankruptcy will also help you stop the foreclosure process through the pendency of the bankruptcy process.

However, before you opt for bankruptcy you may want to consider other options such as pursing a mortgage modification. If you can obtain a modification of your mortgage, you may be able to lower your payments allowing you to catch up on any deficiency and use any leftover money to catch up on other debts. You should know, however, that obtaining a modification could be a lengthy and complicated task. It may be advisable to seek out legal assistance in dealing with the various contracts and legal arrangements.

If you decide to pursue a mortgage modification, you will most likely have to complete what is called a trial modification. Regardless of whether you apply for a federal modification program or a program through a private company, you will probably have to go through this trial process designed to make sure the program and the modification will work for you situation.

In our next post, we will go over some of the requirements of these trial periods and provide a little more information on what you should know before making this commitment.

Related Resources:

Want to modify mortgage? Get a trial run. (bankrate.com)

Credit Reporting, Debt Management and Job Applicants, Part 2

2010-08-12T11:01:56Z

In our last post, we discussed the growing practice of employers using credit reports and a job applicant's debts to evaluate them as a potential employee. In this post, we will discuss some of the criticism of this practice and what some state governments are doing to control the practice.

Opponents of using credit reports for hiring practices point to the fact that these measures can easily be misinterpreted. According to Ben Woolsey, direct or marketing and research for CreditCards.com, some employers could easily fall into the practice of using this credit and debt information as a sort of financial character reference, when in reality, that information might not really say as much about the individual as it does about an unfortunate event that befell him or her.

]]> For instance, someone may be a very responsible individual with good financial health until a family member suffers a serious medical problem. Through no fault of their own, they may find themselves facing overwhelming financial problems. Moreover, individuals that take the responsible step of filing for bankruptcy when overcome with debt, may find themselves punished even further if employers do not look past the filing itself to see the reasons behind it.

According to Maurice Emsellem, policy co-director for the National Employment Law Project, employers are likely to come across large numbers of potential employees with credit problems, but that doesn't mean those individuals steal from their employer or represent any sort of financial risk to the company. Many job candidates have credit problems that are completely unrelated to their ability to perform a job.

While conducting credit checks has become more common, there is a movement in some states to curtail this practice. Currently, three states, Hawaii, Washington, and Oregon have passed laws limiting the ability of employers to use credit reports in hiring. At this time, Illinois appears close to finalizing a similar law that would limit the use of credit reports to cases in which the information would be directly relevant to the job for which an individual is applying. The federal government, sixteen other states, and the District of Columbia also have related legislation pending.

Related Resources:

Job seekers' latest hurdle: Credit checks (CNNMoney.com)

Debt Management Becoming Even More Important for Job Applicants

2010-08-10T11:02:33Z

The last few years have seen a rise in unemployment as well as increasing numbers of people having a hard time keeping up with their bills. Now it seems that the combination of those two factors may make things even worse for some people. The growing trend of employers using credit checks on potential job applicants makes a healthy credit report and sound debt management skills more important than ever.

A recent study by the Society of Human Resource Management indicated that as many as 60% of employers may be using credit checks when making hiring decisions for some positions. That represents a large increase over the 35% that reported the practice in 2003 and the 13% that followed that path in 1996.

Unfortunately for job seekers, many have seen their credit ratings plummet in recent years as they lost jobs and found themselves struggling to keep up with mortgages and other bills. Some workers have found themselves in a vicious circle finding that they can't pay their bills because they have lost their job, now they can't get a new job because they can't pay their bills.

]]> It is not exactly clear why employers are using this source of information in such greater numbers. One possible explanation is that with higher unemployment rates, and a greater number of potential applicants, employers are looking for some way of filtering out some individuals in search of the best candidates.

According to Stuart Pratt, CEO of the Consumer Data Industry Association, the trade association for the credit rating agencies, employers don't look at credit scores, but instead look at debt levels, bankruptcies, and amounts in collection, all of which might indicate an individual's ability to manage responsibility. In addition, according to Pratt, these credit reviews are only one factor for employers to consider. He says that employers should give potential hires a chance to respond to this credit information.

In our next post, we will discuss the opposition to using credit checks in making employment decisions, and the response that is being made through legislation.

Related Resources:

Job seekers' latest hurdle: Credit checks (CNNMoney.com)

Bankruptcy Filings in Wisconsin Near Highest Level in Five Years

2010-08-05T11:02:58Z

As economic growth remains slow and unemployment remains high, the number of bankruptcy filings brought in the state of Wisconsin rose to their highest levels since the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) was passed in 2005. According to some observers, the increase is most likely tied to unemployment and under employment, which has put more financial strain on individuals who may now have reached the point where they can no longer make ends meet.

The number of bankruptcies reported in Wisconsin for the period from January to June of this year totaled 16,021. That number represents a large increase in filings over the same period a year ago when there were 13,802 filings with the U.S. Bankruptcy Court. The number of filings were the most since just before the BAPCPA, which toughened the Chapter 7 "means test" and made it more difficult for some debtors to seek that type of bankruptcy relief.

]]> Of the recent filings, 82% are reported to be Chapter 7 bankruptcy filings. Chapter 7 is the type of bankruptcy that enables qualified individuals to discharge certain unsecured debts such as medical bills, credit card bills and utility bills.

The total bankruptcy filings seems to be closing tracking national trends as filings for the first six months of 2010 were reported to have increase 14% over the previous year. The American Bankruptcy Institute is now forecasting as many as 1.6 million bankruptcies will be filed in 2010.

Some suspect that the number of bankruptcy filings may also be increasing in part because debtors are not experiencing the same stigma individuals did in the past. While many may still feel embarrassed or ashamed of their financial condition, the necessity of bankruptcy is being recognized by many others and the many media reports detailing just how many individuals are utilizing the process may make the bankruptcy options seem more socially acceptable.

Related Resources:

Bankruptcy filings in state up 16% at midyear (Milwaukee Journal Sentinel)

Foreclosure Prevention and Mortgage Relief Companies Sued by FTC

2010-08-03T11:02:26Z

The Federal Trade Commission (FTC) recently announced that it banned an additional eight companies and individuals from selling services as mortgage relief or foreclosure prevention companies. This action is part of an effort to protect consumers from unscrupulous individuals and businesses attempting to make money off distressed homeowners in search of help to defend against foreclosure or obtain a mortgage modification.

Since the housing crisis began a few years ago, many businesses have sprouted up promising to help homeowners stave off foreclosure or modify their mortgages, typically for the price of a few thousand dollars in up-front fees. In the last several years, the FTC has brought a total of 29 cases against companies that have falsely promised to perform mortgage modifications or prevent homeowners from losing their homes in foreclosure.

The eight companies recently banned by the FTC include those going by names such as Federal Loan Modification Center, Loss Mitigation Services Inc., Hope Now Modifications, and Hope Now Financial Services Corp.

]]> In addition to banning these companies from selling mortgage-relief services, the FTC has ordered the companies and the individuals running them to return or repay nearly $30 million in fees collected from their clients. However, it appears that many of the companies and individuals will be unable to come up with the money.

The FTC warns that companies attempting to exploit or take advantage of homeowners in financial distress often attempt to make themselves appear more credible by operating under names that might easily be mistaken for a federal agency or with names that imply some sort of relationship with the government.

For instance, Hope Now Modifications and Hope Now Financial Services Corp. are alleged to have claimed they were related to Hope Now, an organization of counselors, lenders and investors created through the urging of the Department of Treasury and the Department of Housing and Urban Development and designed to assist distressed homeowners.

If you suspect that a company offering to provide mortgage or foreclosure-related services may not be legitimate, or if you suspect that you have been the victim of a mortgage services-related fraud, you may want to speak with an attorney or contact the Department of Housing and Urban Development to report the problem.

Related Resources:

FTC bans 8 marketers from selling mortgage relief (Associated Press)

Simple Tips for Controlling Debt and Managing Your Money, Part II

2010-07-29T11:01:38Z

Here is the continuation of our previous post dealing with some basic concepts and common strategies and tactics for dealing with debt and making financial decisions.

Easy money can be dangerous. When people need money quickly, they often turn to their retirement accounts or borrow against their home. We've seen the danger of home equity loans in the last few years. Borrowing against your home could lead to disaster if you can't make payments and your home is foreclosed upon. As for borrowing against your 401(k), it may give you cash now, but you could seriously damage your ability to grow your retirement savings and you may face repayment penalties.
You need to have a reserve. Experts usually recommend that you build up a cash reserve just in case of an emergency. In the event that you or a family member gets sick or loses a job, you generally want to have three to six months worth of living expenses saved up. Of course, it's not easy to save up that much money, but if you contribute bit at a little at a time, you can build up a savings account that will at least cushion the blow.

]]>

Don't put all of your eggs in one basket. Some people are under the impression that paying down their mortgage is the best investment. The events of the last few years show that might not be the best strategy. If all of your money is tied up in your home and the value of your home falls, you may easily lose that investment. Paying down your home mortgage may save on interest, but a mortgage is usually at a lower interest rate than most other debts. In addition, the mortgage interest you pay is most likely tax deductible where interest on most other loans is not. If your mortgage interest rate is too high, investigate refinancing instead.

Don't be afraid to ask for help. It might surprise you to hear that the average American household with at least one credit card carries a balance of almost $11,000. The truth is this: there are many people carrying a great deal of debt. You don't have to be ashamed. If you find yourself in financial trouble, talk with a professional to find out what you can do to get back on track.

Related Resources:

Money 101: Top Things to Know (CNNMoney.com)

Simple Tips for Controlling Debt and Managing Your Money

2010-07-26T21:01:41Z

We could all be better about managing our money in ways that keeps us from accumulating excessive debt and provides us with a cushion in case of a financial emergency. While there are surely some complicated financial maneuvers that could help you, there are also many simple debt management principles that you may have forgotten.

As a reminder of some of the simple things you can do to stay financially healthy, below are a few concepts and tips to keep in mind when managing your money and debt.

Keep track of what you spend. We often don't realize where our money goes every month. If you keep track of your purchases for an entire month, you might be surprised how much you spend on items you don't really need.

]]>

Some debt is okay. While many people worry about incurring any debt at all, you need to realize that not all debt is a negative thing. Rarely can we afford items such as homes, vehicles, or education without taking on some debt. The important thing is to make sure this debt is affordable. We will talk more about how "good debt" can turn bad if you don't plan wisely in one of our future posts.

Some debt is bad from the start. There are certain times when taking on debt is simply a poor strategy. Going into debt for an item you don't need right away is usually a bad idea. Instead of paying interest on an extravagance, save up the money beforehand so you can pay in cash or pay off your credit card in full when you get the bill.

Pay off debts that charge the most interest first. You may have some debts that charge significantly higher interest than others. If possible, try paying off those debts first. The more you can save on interest, the more you can eventually put toward your lower-interest debts.

Don't pay the minimum on your credit card. Your credit card statement should show you how long it will take to pay your full balance if you only pay the minimum each month. Even if you only owe a few hundred dollars, it may take you years to pay off the full balance. If you can't pay your full balance now, at least make sure you pay more than the minimum so you make some progress toward full payment.

In our next post, we will continue with some additional money and debt management tips to remember.

Related Resources:

Money 101: Top Things to Know (CNNMoney.com)

CARD Act May Pose Problems for Those Managing Credit Card Debt

2010-07-22T21:01:34Z

The Credit Card Accountability, Responsibility and Disclosure (CARD) Act was passed last year as an attempt to ban some of the abusive practices used by credit card companies. While the legislation did prohibit many practices thought to disadvantage consumers, there are still a number of things that credit card companies can do that will make in difficult for individuals to effectively manage their debts.

Some of the major changes already in place include requirements that companies allow customers at least 21 days to pay their balance and a requirement that customers be given a 45-day notice period before any major changes are made in their cardholder agreement. Changes coming next month include prohibitions on inactivity fees, excessive late fees and other penalty fees.

While those changes seem like positive steps for consumers, credit card holders also need to be aware of some practices that are not prohibited and some of the actions credit card companies are likely to take in response to the CARD Act, including the raising of interest rates, cutting of credit limits, and creating and expanding of fees.

]]> Companies are prohibited from raising interest rates on existing balances, but they can raise interest rates on new purchases as long as they provide notice to the cardholder 45 days before the change. Moreover, companies are reportedly beginning to switch cardholders over from fixed rate cards to variable rate cards, which have interest rates that rise and fall with the prime interest rate.

Some credit card users may see a change in their credit limit as companies reevaluate cardholders and their spending and payment record. Even if you typically pay off your balance each month, it is possible the company will drop your credit limit or decide to close your account without notice.

Under the new rules there are restrictions capping late fees at $25 and banning inactivity fees, but to make up for those restrictions card companies are expected to create new fees and raise existing fees such as annual fees, balance transfer fees and so on.

According to industry experts, their best advice for cardholders is to carefully watch your mail for notices from credit card companies. If a change is going to be made to your account, you will get notice in the mail and then have just 45 days to opt out of your cardholder agreement.

Related Resources:

High rates, more fees -- credit card traps here to stay (CNNMoney.com)

Congressional Testimony Offered on Bankruptcy and Medical Bills

2010-07-19T22:01:27Z

A number of experts recently testified before members of the House Judiciary Committee's Commercial and Administrative Law subpanel regarding medical debt and its effect on debtors and bankruptcy filings. At issue was a proposed bill known as the Medical Bankruptcy Fairness Act, which, if passed into law, would make it possible for people with large medical bills to exempt certain property if they were forced to file for bankruptcy.

The House bill was introduced by Representative Carol Shea-Porter of New Hampshire last February. A similar bill was introduced in the U.S. Senate last August by Rhode Island senator Sheldon Whitehouse. If passed, the house bill would amend the bankruptcy code to allow debtors with medical debt to exempt up to $250,000 of the value of their home or their burial plot when filing for bankruptcy relief.

Offering testimony in support of the bill were U.S. Bankruptcy Judge Cecelia Morris and a law professor from the Franklin Pierce Law Center, Peter Wright. Both offered testimony based on their personal experiences with those filing for bankruptcy and those finding themselves with seemingly insurmountable medical debt.

]]> According to Wright, many people all over the country live paycheck to paycheck and significant illnesses and the resulting medical bills sometimes make it impossible for them to recover and pay the bills that need to be paid.

Judge Morris added that medical bills and credit cards are often related because many individuals cannot pay for medical care on their own and resort to using credit cards to pay for needed care. Consequently, the debtors find themselves unable to get out from under the credit cards because they initially could not afford their necessary medical treatment.

One critic of the proposed legislation was Aparna Mathur, a resident scholar at the American Enterprise Institute. In his testimony he questioned the relation of medical debts to bankruptcy and talked about the potential for unintended consequences such as allowing credit card debtors to file bankruptcy as medical debtors when, in fact, their debts are not related to medical bills.

These bills are almost sure to be further debated in the House and Senate and we will try to provide updates when more information is available.

Related Resources:

Bankruptcy hearing reveals competing views on medical debt

Walking Away From Homes in Foreclosure May Preclude Future Loans

2010-07-15T21:01:03Z

As the housing market has declined in recent years, many individuals have seen the value of their homes decrease dramatically. As many people lost jobs and had difficulties paying their mortgages, a number chose foreclosure by employing a tactic called "strategic default" in order to avoid losing more money on their home investment.

In a strategic default, a homeowner who owes much more on a home than it is worth makes the decision to stop paying their mortgage under the theory that the existing mortgage is essentially just a bad investment. Eventually the borrower defaults on the loan and the home goes into foreclosure.

The upside of this plan for the borrower is that he or she can use the money saved by not paying a mortgage to pay other bills or keep up with other debts. Since it generally takes several months, or even or year, to foreclose on a home and evict the tenants, the borrower could essentially stay in the home quite some time before being forced to leave.

]]> Of course, there are some serious downsides to this strategy as well. For one, the borrower will have a foreclosure on their record. In addition, the foreclosing bank may seek a deficiency judgment against the borrower, in effect, holding them responsible for the balance of the mortgage after the home is sold at a foreclosure sale.

Recently, another downside has become apparent as Fannie Mae, one of the largest financers of homes in the country, has said that it will make it more difficult for those that engage in strategic defaults to get loans in the future. While borrowers who actually tried to pay their mortgage but failed would be able to get another loan within two or three years, a strategic defaulter might be barred for seven years.

Freddie Mac, another large financer of home loans, already bars strategic defaulters from obtaining new loans for five years. Things may get even worse for those using this tactic, because there is legislation pending in Congress that would permanently ban strategic defaulters from obtaining FHA loans.

Related Resources:

Fannie Mae gets tough on homeowners who walk away (Los Angeles Times)