Walking away from a mortgage may seem like the only option for significantly distressed homeowners. But those considering this option should be prepared for the long-term effects it can have on their credit score and finances.

The current housing crisis has left many lenders unmotivated to collect remaining debt after a borrower leaves their property. In addition to walk aways, those who pursue short sales may also be able to leave their property without hearing again from a debt collector.

But this is hardly a safe bet – and could become significantly less common after banks eliminate excess distressed properties. A recent article by the Baltimore Sun referred to laws in some states that allow lenders to pursue borrowers for any shortfall they incur after reselling the property. For example, if an individual walks away from a house with a $350,000 debt and the bank is able to sell it for $250,000, said lender may be able to pursue the $100,000 difference.

Maryland debt collectors may seek this balance for up to three years after the distressed homeowner leaves his or her property. They may be pursued for 12 years in certain circumstances, according to the report. Chapter 7 bankruptcy may be the only alternative for some borrowers weighed down by debt.

All of these actions will have negative effects on a credit report. Late payments on mortgage loans will remain on their report for seven years, as will a foreclosure or short sale. Bankruptcies remain longer, up to 10 years, according to FICO spokesman Craig Watts.
“And what’s on your credit report can affect your employment,” the report said. “Many employers, for example, review applicants’ credit reports before hiring.”

Maryland is among the 16 states whose lawmakers have considered banning credit-based hiring practices. Critics of these practices have said that using someone’s financial history as reflection of their responsibility as an individual can unfairly trap some job seekers in a cycle of unemployment and debt defaults. Stuart Pratt, president and CEO of the Consumer Data Industry Association, recently wrote a column for the Sun defending such practices. He said that viewing one’s credit report can help businesses protect against risk, particularly at companies with fewer than 100 employees.

“Employers should have information available to them that protects their businesses from catastrophic losses and also ensures that their workers can stay employed,” he said.

Therefore, those seeking new employment or mortgage loans may benefit from a credit monitoring service which will give them a thorough understanding of their credit standing.

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About the Author:
I am the SEO Specialist at www.creditscore.com We are authorized to provide consumers with access to their credit report at the three national credit bureaus: Equifax, Experian and TransUnion. We are continually seeking to push the envelope to provide consumers with innovative tools that give consumers every possible advantage to successfully navigate through the confusing credit industry.
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About 5 million homeowners are likely to be benefitted by the plan, which offers ways and means of modifying the mortgage loans. The Government will compensate the mortgage lenders who will work with the distressed homeowners by restructuring their monthly payments at lower levels.

The lenders would be made to reduce the interest rates so that the monthly payments of the homeowners using the loan modification plan will not be more than 38% of their gross monthly income. There are still more possibilities to further reduce the interest rates to make the monthly payments to 31% of the monthly income. For this the lenders can get matching dollar amounts from the Homeowner Stability Initiative of the Government. Considering that the present layoffs have considerably reduced the monthly incomes of the people, often a homeowner may have to part with 40 to 50% of their incomes towards mortgage payments, loan modification plan has become has become an absolute necessity to provide relief to them.

The lending institutions are required to complete a series of steps, as laid out by the U.S. Treasury while providing relief to the homeowners through loan modification. These guidelines would help to make the process more efficient compared to the past initiatives of same nature. What happened in the past was to provide loan modification by linking missed payments with the principal amount. However such an attempt failed to reduce the monthly payments. Now Obama’s plan strikes the right chord with the people as they would be required to pay lesser bills and thus have the real solace.

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