The True Impact of Mortgage Defaults on FICO Scores

There is an interesting article in the February 2014 issue of OC Realtor that I wanted to share.  The article was written by Nabil Captan, founder and president of Captan & Company.  The article is written in a question and answer format, which I will summarize.

1) How long will a short sale, deed in lieu, foreclosure, or bankruptcy remain in my credit file?
  
The answer is seven (7) years.  A loan modification with rate and term alteration and no principal reduction is simply a re-finance transaction, and will not impact credit scores.  Chapter 13 bankruptcy remains on your credit file for seven years, whereas a Chapter 7 bankruptcy remains for 10 years.

2) How many points will I lose if I choose a specific type of default?

It depends. The number of points lost depends on your starting credit score at the time of the default.  The higher your credit score, the higher the negative impact on that score.  A short sale with deficiency balance continues to present a higher risk, similar to a foreclosure.

CONSUMER                            A                         B                         C
starting FICO score                  680                      720                      780

30 days mortgage late               600-620               630-650               670-690
90 days mortgage late               600-620               610-630               650-670
                                                   9 months              2.5 years              3 years

short sale no def balance           610-630               605-625               655-675
                                                    9 months             3 years                  7 years

short sale with def balance        575-595               570-590               620-640
                                                    3 years                 7 years                 7 years

Foreclosure                                575-595               570-590               620-640
                                                    3 years                  7 years                 7 years

Bankruptcy                                530-550                525-545              540-560
                                                    5 years                  7-10 years             7-10 years

3) How much time will it take to recoup points lost because of a mortgage default or bankruptcy?

The higher the score, the longer it takes to recover to the starting score before the occurrence of any type of mortgage default or bankruptcy.

Everyone is entitled to receive one free credit report a year and they are available from www.annualcreditreport.com.  You can also pay $20 if you wish to obtain a genuine FICO score from www.myfico.com

Educate yourself by visiting only these websites:  www.ftc.gov, www.cfpb.gov, and www.myfico.com for free and truthful information.