The Impact of Foreclosures & the Rescission on Consumers’ Credit Records

The Impact of Foreclosures & the Rescission on Consumers’ Credit Records

As everyone knows, foreclosures and accompanied recession caused tremendous economic damage affecting millions of consumers. These events have adversely affected the credit standing of millions of our citizens. The National Consumer Law Center has published an excellent report describing the problem and what should be done to mitigate the problems.

Consumers who lost their homes due to foreclosure inevitably end up with a report of a foreclosure on their credit reports. These reports knock their credit scores down by 100 to 150 points. Even when a homeowner avoided foreclosure by resorting to a short sale, a loan modification, or deed-in-lieu, the owner’s credit score was adversely affected.

The banks and credit reporting agencies have not lived up to the requirements of the FCRA in many cases in reporting on such real estate transactions. For example, some lenders, such as Chase Bank, report that a foreclosure was started and that the property was sold for less than full value when what really happened is that the property was sold in a short sale. When someone pulls the consumer’s credit report, what is reported is a foreclosure rather than short sale. Under various lending programs, a consumer is eligible to get a new home loan with a short sale having been reported, but not if the report merely references a foreclosure.

When a lender agrees to a loan modification, the results are not always accurately reported to the credit reporting agencies. Worse, some lenders agree to a modification, the owner makes all required payments on a timely basis, and the lenders turn around and trash the owner’s credit reports by reporting they paid late. Such reporting is a violation of the FCRA.

There are many ways to reform the way the agencies report on these events. The NCLC report has some suggestions for reform.

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