Settling a 2nd mortgage - how will this report?

ahadderwave · Joined: 03 Nov 2009 Posts: 3 1.90 Dollars($)

we are offering 5-10% to our second mortgage holder to settle the debt. we are not behind and have never missed a payment - 800+ fico scores. however, we did a 100% financing and now the LTV is 134%. our first lien holder denied a "short-refi" and we have opted to attempt a loan modification with them now.

based upon the low LTV, we have offered to pay the second at a lower amount than owed and requested for them to report this as: "paid as agreed / closed by consumer"

the 2nd informed us that they would not be able to report it as such and would list it as "settled for less than the full amount" (something to that affect)

i have 3 questions based up on this:

1. how many points would this agreement reduce our credit scores?

2. if they accept 5-10% of the balance due - is it worth it settle or stop paying and let them charge it off? (credit rating is important to us)

3. what can we do to remove this from our credit reports if we do move forward?

the final move if this does not work out with the 1st and 2nd - would be a short sale. we do not want to miss ANY payments and truly would like to have a mortgage at fair market value (a bit less than what is owed on the 1st). if this cannot be achieved, we would just as well let john doe jump right in and have it as we move along and save/invest...thanks for any insight!

smithsussane · Posted: Tue Nov 03, 2009 7:51 pm Post subject:

Hi ahadderwave!

Welcome to forums!

If the lender reports it as "partial payments" or "settled for less than the full amount", it would definitely affect your credit score. It will lower your credit score by few points. If the lender accepts the 5-10% of the balance due, then it would be a good idea to settle the dues. Late payments or charge off may ruin your credit score and can remain on your credit report for the next 7 years.

You will have to take steps to rebuild your credit in order to remove any negative item from your credit report. Check out the following page to know more about rebuilding credit:
http://www.mortgagefit.com/credit-rating/credit-repair.html

Feel free to ask if you've further queries.

Sussane

ahadderwave · Joined: 03 Nov 2009 Posts: 3 1.90 Dollars($)

i appreciate your feedback...we are looking to settle the offer with CitiMortgage (hopefully in the 5-10% range of the full balance) and i was curious what the affect would be on the credit scores. as you stated - and we assumed - late payments or a "charge-off" would pull the scores down considerably. simply settling for less than the full amount will pull the scores down some, but by the next month the positive affect from our installment loans (2 auto loans - 1st mortgage) will begin to establish positive trade line history again...

thanks again sussane and have a great week!

smithsussane · Posted: Wed Nov 04, 2009 9:05 pm Post subject:

You're welcome ahadderwave! and you too have a great week ahead Smile

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