Beginning Nov, 2009, people can have a little more assurance when it comes to washington loan modification and how they impact credit figures in a bad way.
Before, the effects of a mortgage workout on one’s credit scores was something of a mystery. Some financial institutions would not report late or partial payments to the credit agencies during the trial alteration process while others would. This led to confusion among borrowers, leaving many afraid of further damaging their credit with a mortgage alteration.
Thanks to new guidelines set forth by the Consumer Data Industry Association, mortgage workouts under federal programs Making Homes Affordable and the Home Affordable workout Program are to be listed on credit reports as, “attorney modified under a federal plan”. This notification on the credit report will not have the same negative impact previous entries such as “partial payment” have had. In many instances, a report of a partial payment during the trial note modification period could drop a people credit score as much as 100 points.
For the time being, FICO has agreed to take no action on these new entries… yet. Instead the credit reporting agency plans on studying the long term outcome of these home loan s and then making an appropriate score assessment based on the success rate of modified attorney s. As it stands now, lenders are supposed to report the home mortgage as current if the individuals is current on their normal mortgage payment and is current through their trial. However, if a homeowner is behind on their payments as they begin the trial process, their late entries on their credit report will not be expunged. When the permanent home mortgage workout is approved and implemented that is when their attorney will be brought current, but the late that are currently on the credit report will continue to report on the credit report.
It is important to note that these new guidelines only apply to attorney changes under the umbrellas of the federal loan change programs MHA and HAMP. Individual lenders loan modifications do not qualify and the note holders will report to the credit agencies based on their specific policies. In addition, even if the individuals credit score is not affected by the “mortgage modified under a federal plan” entry will still be visible on a people credit report, which may affect a lender’s decision somewhere down the line.
Ultimately, the decision still rests with the homeowner on how to proceed with their specific situation. While a mortgage workout may or may not have an impact on credit reports, the impact of a foreclosure or short sale on credit scores will most likely be far more severe.
Finally, FICO will wait one year in order to gather data on this new ruling to see if they will retroactively decide to report negatively on the individuals credit report. This of course will be an across the board decision. And yes, they will retroactively ding your credit if they decide that is the appropriate course of action. However, any creditor that pulls your credit will still see some type of term listed on the credit referencing a note change. This means the new creditor will be aware of the workout, which may impact their decision.
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