Mortgage rescue can kill your credit rating
Most troubled homeowners don't realize that President Obama's entering a trial mortgage modification can actually hurt their credit. It's true that many people who apply for the president's plan are already delinquent in their mortgage payments, but being in a months-long trial period may only add to the pain. Under the president's plan, troubled borrowers can have their monthly mortgage payments reduced to 31% of their pre-tax income. Homeowners are first put in a trial modification for several months to prove they can handle the new commitment and to give the bank time to collect the necessary income and hardship verification documents. During this period, industry guidelines call for loan servicing companies to report borrowers to the credit bureaus according to their status before they entered the modification - either current or the number of days delinquent. However, borrowers' accounts are also designated with a code indicating they are in a partial payment plan.
The coding alone can impact credit scores, which measure a consumer's financial health and range from 300 to 850 under the FICO system. The severity depends on how many payments the borrower missed before entering the program. Those who were current in their mortgages could see their scores fall up to 100 points, according to the Treasury Department.
Hi Eric;
Great post with super information about loan modification. Thank you for sharing.
Wow, that is pretty scary !! I wonder when our broken system will be mended.Every new path leads to more complications
And how does the plan affect those who were delinquent? Their scores are already shot, so does the modification make it worse?
Eric:
Sad but oh so true, its uncharted terrain.
Usually they need to be delinquent even before being "qualified".