Home Loan Defaults And Credit Score Damage–Will Losing A Home Cause Financial Problems In Other Areas For Homeowners?

05/31/2011
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Home loan defaults have been a major problem for the housing industry, banks, and homeowners in general, but when it comes to individuals who are facing potential default on their mortgage, a consumer’s credit score is also one of the main areas where men and women worry that unforeseen financial struggles which have led to their situation will create problems for years down the road in their financial life. Yet, there have been questions as to whether losing a home will cause financial problems for homeowners who have defaulted on their mortgage, rather than those who are simply suffering general financial distress that has led to defaults in other areas of their life.

Recently, there were reports that stated homeowners who only defaulted on their mortgage were less likely to have problems in other areas of their financial life, and this statement alone has led to many discussions as to whether this is accurate for homeowners who are facing trouble with their mortgage, since many homeowners who only default on their mortgage, but keep other areas of their financial life afloat, may be strategic defaulters and, the idea that banks may view these individuals in a more favorable light or as less of a risk has been questioned.

Yet, before defaulting even becomes an issue, homeowners must take advantage of the programs that are available from the federal initiatives, directly from banks in the form of proprietary programs, or even state-specific plans that can avoid these problems that homeowners face altogether even if unemployment, negative equity, or financial setbacks are in place. Not all homeowners will obviously be in a position to take advantage of these plans, but for those who may be considering the possibility of strategically defaulting or feel that defaulting is inevitable, there are solutions that may be presented to a number of homeowners that will allow them to find the affordability they need to keep their home.

In relation to these reports that homeowners who only default on their mortgage, and would therefore be a safe risk in other areas or have seen less problems with other financial obligations is a predicament which homeowners may not want to test, but rather avoid. Some homeowners have defaulted on their mortgage as a result of negative equity and feel that, despite the fact their credit score took a hit, they can rebuild their credit rating more quickly since, in certain cases, they are still in decent financial position but refused to continue making payments on the mortgage that was at a higher value than their property.

However, more homeowners who are facing delinquency on their mortgage and the potential to default entirely do, once more, have modification options, subsidies, or even funds available directly from their state’s housing agency and mortgage servicer they can be used to help them stay afloat even if troubled finances are present in their life, but for homeowners who feel that strategically defaulting can be easily overcome, in terms of the damage their credit takes, many advisers caution against this line of thinking as it’s not only detrimental to a homeowner’s credit score, but can cast doubts on whether they are truly a safe credit risk in the future.

 

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