3 posts categorized "Mortgages"

December 13, 2010

One good reason you should walk away from your mortgage

One of the most common questions or requests for help that I receive goes something like this:  “Kevin, my home is severely underwater?  Should I walk away?  If so, how will a mortgage default affect my credit score?”

Many people who seek my advice on this matter aren’t in dire financial straits.  They neither have taken on too much debt nor have been reckless in their finances.  Contrarily, they have been reasonably good stewards, but worry that they are in a terrible deal, one that won’t get better anytime soon. 

I never answer this question directly, giving only information to help people make an informed decision.  Everyone’s situation and values are different.  However, new information published today strengthens the decision to walk away from a mortgage in cases where homes are underwater.

Almost two years ago, I wrote a prophetic article “Fair Isaac Corporation (FICO) increasingly irrelevant” in which I posited that banks would rely less on credit scores and more on other subjective factors to assess creditworthiness.  It appears that this prediction is a reality, as consultants have created new categories to help banks focus on potential customers who, based on a credit score alone, would be too risky. 

As reported today in The New York Times, these new categories (in order of most to least creditworthy) are “strategic defaulters”, “first-time defaulters”, and “sloppy payers”.  They help creditors distinguish between consumers who have the same or similar FICO scores.  

What does this mean? It means that those who walk away from a mortgage a.k.a. “strategic defaulters” have newfound hope of ascending from the depths of credit purgatory sooner than seven years. According to The New York Times article, strategic defaulters are those “whose credit scores were damaged because they walked away from a home when its value dropped below what was owed on the mortgage. These borrowers made a bad bet on real estate but may otherwise be prudent risks because they make a good living.”

So, in short, this new information will help people solve their moral conundrum of whether or not to walk away from their mortgage.  But, as I often say, this game is always changing. What seems like hope today could be horror tomorrow. Make sure you consider all the possibilities and consequences of such a crucial financial decision.

November 30, 2010

Just when you thought you knew something about mortgage securitizations


If you ever needed more proof of just how complicated the mortgage crisis is because of securitization, you’ve got it. Try to follow all of these transactions for one mortgage without getting a headache. It took one year to put together this flow chart.

View a higher resolution chart with an introduction at ZeroHedge.com.

January 04, 2010

How a loan modification can damage your credit

An article released in The New York Times on Jan. 1 reports that economists and housing industry experts believe that President Obama’s plan to fight the foreclosure crisis is not working.  In fact, many believe that the President’s $75 billion plan, which compels banks to lower monthly mortgage payments, has backfired and prolonged the recovery process. 

The article mentions briefly an important and little-known consequence of the program: the fact that some borrowers who accept a loan modification receive adverse reporting on their credit reports.  Certain banks, such as Bank of America, have reported to credit rating agencies that homeowners are making only partial payments.  This occurred despite some borrowers being told by their mortgage companies that their credit would not be damaged. 

Continue reading "How a loan modification can damage your credit" »

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About Me

Greetings! I’m Kevin D. Johnson, a business owner who has recently assumed the role of consumer advocate and internet activist. Atlanta, Georgia is my home.

My Story

Upon returning from my wonderful honeymoon in Jamaica in October 2008, I received what I thought was an ordinary American Express bill, but to my surprise it was a disappointing letter informing me that my credit line was reduced by about 65% for a highly suspicious and discriminatory reason. Considering my excellent credit score and pristine payment history, it just didn’t make sense. However, what does make sense are the unfair and insidious policies that I have uncovered when asking why. It is time to change them.

Good Morning America tells my story.

The Goal

I created this web site to document and share my challenging journey to change what is wrong, unfair, and unjust in the credit card industry. The ultimate goal of this web site is to inform consumers of ways to stand up for themselves against treacherous business practices and to educate consumers about how to improve their credit. Finally, I hope to encourage a more open dialogue with credit card companies about their policies–good and bad.


I am proud to say that this blog's unyielding demand for change led to an important amendment in the final Credit CARD Act signed by President Obama on May 22, 2009. Despite this major accomplishment, there is still more work to be done.

View video of bill hearing in Maryland

Testifying at a bill hearing in Annapolis, Maryland

Speaking Engagements

In an effort to educate as many people as possible about financial management, especially about how to manage the current credit crisis, I have begun to speak around the country at colleges, universities, corporations, chamber of commerce meetings, congressional hearings, trade organization meetings, etc. Having acquired a wealth of information that will help to empower people and to improve their financial future, I feel that sharing this information is the least I can do to make a positive impact. For information on my availability for speaking opportunities, please send an e-mail to Jennifer Silverman at jennifer@silvermanworldwide.com.

Speaking at a university


All information provided on NewCreditRules.com is provided for information purposes only and does not constitute or substitute for professional financial advice. Information on NewCreditRules.com is subject to change without prior notice. Although every reasonable effort is made to present current and accurate information, NewCreditRules.com makes no guarantees of any kind. This web site may contain information that is created and maintained by a variety of sources both internal and external. These sites are unmoderated forums containing the personal opinions and other expressions of the persons who post the entries. NewCreditRules.com does not control, monitor or guarantee the information contained in these sites or information contained in links to other external web sites, and does not endorse any views expressed or products or services offered therein. In no event shall NewCreditRules.com be responsible or liable, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any such content, goods, or services available on or through any such site or resource.

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Great Resources

  1. ChangeInTerms.com

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