A loan modification is one of the best options to prevent foreclosure and keep your home-but how will the loan modification affect your credit? Well, that depends on a couple of things-were you behind on payments prior to the loan modification? Did the lender agree to reduce your principle balance as part of the loan modification? It’s not really the loan modification itself that would cause a negative report on your credit, a negative rating would be triggered by late or missed payments and not adhering to the terms of your original loan agreement.
Some loan modifications include a reduction in principle whereby the lender actually “forgives” part of the money you owe them. In those cases, the bank may report the account as “paid for less than owed”, which is not a good rating. In the majority of cases, there have been late payments reported already-prior to any loan modification agreement. In those instances, a loan modification will only be a benefit to your credit standing as now you will be brought current and the loan should be rated as such.
Since loan modification is a relatively new option for homeowners and lenders, there is no “set” procedure or precedence in place for how a loan modification is handled with the credit agencies. A good idea is to include in your loan modification negotiation an agreement with your lender that will protect your credit rating. When working with your bank to find a workable loan modification, ask them to agree to update your loan as “current” with the credit bureaus when you sign the new loan modification paperwork. They are under no obligation to do it, but it certainly won’t hurt to ask them.
Getting back on track with a loan modification is the first step to re-establishing your good credit rating. A loan modification can help you avoid foreclosure and get a fresh start with your lender. Tens of thousands of homeowners have successfully modified their home loans. YOU CAN TOO! You just need some upfront knowledge and guidance to give you the fighting chance you deserve to save your home.
A great source of information on loan modifications and credit score secrets is The Complete Loan Modification Guide handbook. This easy to read and easy to follow guide will give you the 7 Steps to a Successful Loan Modification, as well as invaluable negotiating tips to use with your lender. The Complete Loan Modification Guide handbook provides you with the necessary forms along with detailed instructions on how to complete them properly. This is a must read for every homeowner considering a loan modification-DO NOT contact your lender until you have read The Complete Loan Modification Guide handbook-you have one shot to save your home-get informed and get going!
If you would like more information on loan modifications and credit report secrets, please visit us at:
19 Responses
I bought my house back in 1993. I have had to make money out because of medical reasons and refinanced about 6 months ago at 6 percent. I have on going medical bills because of a son with autism and this forces my wife from taking a job because of all the running around with my son. I have about 150,000 in equity still because I live near the beach but my house had came down around 200,000 in the last year. I work for the government and we are not getting cost of raises for the next 2 years and are facing salary reductions. I have about 10,000 in credit cards because of medical bills but that is our only bill as our cars are paid off. My mortgage takes 47 percent of my income away each month but I am not behind in the payments. I also have some money in a rainy day fund but would only use in an emergency. Am I a candidate for a loan modifcation. I tried to refinance but the lenders want 720 to get the good rates and my fico is 679 because of the high balance which i could pay off tommorow but would leave me with no cash. I rather have cash because i can just default on a credit card. Thank You
Posted on March 10th, 2009 at 8:51 pm
My mortgage lender will not make an effort to respond to my loan modification documents sent to them 3/19/09. I am not yet behind on my payments but have been unemployed since Nov 2008 and my income is 90% of the household. If we do not get help, we will lose the home. A company called Save My Home Midwest claims to have 30 attorneys that will get this loan modification process moving for me. There are attorney’s fees, between $900-$2500. Is it advisable or should I walk into a Chase Home Finance office in my area for help with my loan modification package? Their 800 number is no help. I have tried too many times to keep up the effort. No one on the other end knows anything about the program or my documents.
The government MakingHomeAffordable.gov site says this is not supposed to be happening but the reality is, it is happening. The mortgage company will not help me.
Posted on April 4th, 2009 at 12:00 am
Hi
I cannot tell you how VERY important this question is in my wife and my financial situation. A rapid response would be GREATLY appreciated.
We own a house with a large mortgage. We are not delinquent with any payments or behind on property taxes. HOWEVER, we are close to the edge.
Looked into refinancing thru our current lender (Chase) among others, which is not an option as I’ve been locked in at 5 and 5/8ths and to drop only 1 point and have to pay points to do so, does not make financial sense.
With all the hoopla around Obama trying to keep people in their homes, we decided to look into a loan modification, which looked real good. It would lower our overhead by about $400 a month and the bank pays the property taxes. Lo and behold, just before we’re about to sign and return the paperwork, we find this could negatively impact our credit. Our credit is good, we do not want to jeopardize it, but we don’t want to become delinquent on our mortgage or property taxes.
How dramatically does a loan modification affect your score? How long does it stay on your records? We only plan on living here a few more years and want to move on. We don’t want to be paying 9%, because of poor credit.
Thank you.
Dave and Sandra Peterson
Posted on April 29th, 2009 at 4:13 pm
We had problems even getting phone numbers for the escrow department… or when we did get thru to someone they hung up on us.. we went into Chase bank locations… only to be told NO CAN HELP… so We wrote to the FTC filed complaints.. and to the Office of the Comptroller at the US Dept of Treasury.. the Dept of Treasury stirred someone at Chase bank because we got a nice letter and an invite to work together to solve the problem… After all who holds the bailout monies??? the Treasury!!! here is where you can start your complaint process http://www.occ.treas.gov/customer.htm
Posted on May 1st, 2009 at 3:52 pm
I am no expert on the subject but have been in he banking industry for 15 years working directly with credit approvals and selling notes. Your credit will be damaged but it will recover a year after the loan modification is running. You will, little by little, regain your credit rating.
As the banking industry has been so impacted, the consumer and mortgaging lending has bercome very conservative good or bad credit is really making little impact on desicions, unless is really bad credit. Now it goes more towards how many credit lines you have opened and what their balances are. To have your credit impacted but to save money will only give you peace of mind. A decision like this can make or brake your marriage, if you have kids the way you planned to raise them the education they receive from you. Financial concerns of this sort have a lot of preasure on relationships. Your mood will be different. You yourself said that you were on the verge of falling behind. The question you should ask yourself is: What would I rather keep? What should I risk? My Family/ My credit rating.
Posted on May 5th, 2009 at 10:22 am
For Deborah, who posted 4/4/09, just so you know, it took Chase a little over 7 weeks to confirm that our loan modification papers were received. When you fax them, they have alot of backlog. No one knows anything until the papers are updated into the system. So keep calling every week or 2 and you should hear something soon.
Posted on May 16th, 2009 at 10:06 pm
How do you know if the company is reporting “paid less than owed” or “current”? I have no late payments on my mortgage and am current but am modifying my loan because I have (or had) a 10/1 arm, a super jumbo loan, and a husband with no job. Citimortgage just told me today that they closed on this new loan for me at 2% interest for 5 years, 30 year variable, cannot go above 5.59%. What if my credit is wrecked?
Posted on July 2nd, 2009 at 1:19 pm
For Suzanne, Citi offered me the same deal but for 40 years and the rate will go up 1 point per year until it gets to the going rate. I have good credit and no late payments and I was at 5.875 for 30 year fixed So I dont know if it will damage my credit and also did they lock that rate in on your paperwork. And to all those waiting on the banks .. be persistent, its taken me a little over 4 months and still going, Thanks Tyler
Posted on July 3rd, 2009 at 1:11 am
I have been dealing with our lender since December but since we are not late they would not help. Then end of March I put new paper work for the new program. I had to keep calling and bugging them sometimes waiting up two hours on hold. Just last week they said some one will review it and call me back that didn’t happen. We finally got an answer this week they denied us according to them they feel we can make our payments and are not willing to work with us. We also have a lot of medical bills and we are current with our loan but barely making it. I’m frustrated because it took so long we are going to try with a mortgage company see if they have better luck then I did. It was a lot of hassle and headache trying on my own. I hope I this works.
Posted on July 23rd, 2009 at 9:14 am
I was told by Wells Fargo (today) that a loan modification will not affect our credit because we are not behind on our mortgage. Does anyone know if that is really true?
Posted on July 23rd, 2009 at 10:23 pm
Just a warning….
I was not behind on my mortgage payments and requested a loan modificaiton. While the loan was being processed, they put me on a trial payment plan until the modificaition could be completed. About three months into “the trial plan,” i found out that the bank had reported a serious deliquency to all three credit bureaus. My credit cards (which were all in good standing) all increased my APR to 19.99% and my credit lines were lowered to just above the credit limit! One of them closed my account without even telling me. My credit score has dropped over 100 pts in the past four months. I still have not heard back about my modification. I dont know what i should have done differently, but I AM SO SCREWED right now! I dont know what I’m gonna do.
Posted on July 29th, 2009 at 12:27 pm
I work with a mortgage company and thought I would supply some of you with some basic facts, First there is nothing a third party agency or attorney can do with your loan that you can not do yourself. They are going to call the same numbers you will call and they are going to submit the same docs and they are going to wait the same time, in all actuality it will slow down the process because your account is secured information and with out a letter of authorization on the account no one within the company can talk to the third party and that process can take several weeks. With the govenrment program it is a 20-30 minute phone call and either you qualify or you dont. Usually if there is something they can offer they will. If you are unemployed there is usually nothing they can do. Investors will not approve a modification with out stable income and we all know. unemployment is not stable. also anything you do different then pay your mortgage on time with the terms you agreed to will affect your credit. with the Obama plan if you go into it current it reports paying under a agreed plan and once the mod happen it reports mod agreed to by both companies. That is what is required by the credit bureau. with the obama plan they try to get you to 31% but you have to be logical if they cant get your 500000 mortgage down to 31% of 2500 in salary the answer is no. They are not offering principal reductions only forbearances so if the cant get what you owe stretched out to 40 years at 2% to represent 31% ,it is a no. And if they can get it to 31% they still will not offer it if after all of your bills are paid you still cant afford the new payment. People have unrealistic expectations. it really all is a simple numbers game. And another requirement is you have to have a hardship do if you have money in a savings account that represents more then three months cash reserves you will not qualify and if you have equality in your home you will not qualify.
Posted on July 29th, 2009 at 10:46 pm
I am up to date on payments, I have good credit - I am laid off and hanging by a thread - I applied for modification w/ wells fargo - they agreed to reducedmy payment for a 4 payment “trial period” - I read the paperwork entirely - yes they do report to your credit - and as the woman who posted before me said - I think that will have reprecussions with your credit cards - also they add on the difference between the old and the new monthly amount at the end of the trial period - at least this is how I read it - I have had phone calls from wells fargo asking what I want to do - when I ask them questions back they do not have the ability to answer the questions and give me a number to call - I am sorry but this just seems to be a mess - just give me a refinance with lower interest - I am already paying my mtg and have never been late - but they will not due to the fact I was laid off - I am so frustrated - the lenders are being paid back by the government for a % of each person they modify - it’s good for the mtg. companies but not sure it is helping us who try hard to pay our bills. again the middle guy gets the shaft!
Posted on August 15th, 2009 at 2:28 pm
Hi…
I cannot tell you how VERY important this question is in my wife and my financial situation. A rapid response would be GREATLY appreciated.
We own a house with a large mortgage. We are not delinquent with any payments or behind on property taxes. HOWEVER, we are close to the edge.
Posted on September 1st, 2009 at 7:48 am
As far as I know modifying your loan will not affect your credit if you’re not behind yet. Once you fall behind and are facing foreclosure, obviously the damage to your credit has already been done by late or non payment, so your credit should not be the reason you don’t modify. Post 12, Sue gives a lot of good information however some is a bit inaccurate or one sided.
If you are in a situation where foreclosure is eminent or a possibility, you actually have a bit of leverage if you qualify. The bank would much rather modify and drop your interest rate to 2% or even 0 to keep you in the house if it makes money sense to them. By the time the bank takes your house, does necessary fixes, pays a realtor to list, THEN sell at a discount, they will probably be wishing they would have just lowered your payments. I’m not saying that this is true for everybody because first of all you have to qualify for the plan.
But if you’re even thinking this could happen to you I suggest you find out what the qualifications are for the modification. You will need to get all your ducks in a row before you contact your bank, however once you do, you will be a more informed person. And with all your information in hand, it makes it a bit harder for them to ask you for something you weren’t expecting and have to call back, or have to mail whatever it is you forgot.
Posted on October 13th, 2009 at 12:29 pm
I have great credit never been late on a payment , I did call the Bank to reduce my payments they did agree , my question to you is they did agree to lower the payment from 2,500 to 1,500 but they did mention they were going to report to the credit bureal as a partial payment , now would that affect my credit
Posted on November 20th, 2009 at 4:07 pm
I also have good credit. I recently have had a divorce and have had some hardship. I to applied for a loan modification an was approved right away. Then I read the fine print. The representative from Citi told me flat it did not affect your credit . He lied it does. It will be destroyed for along time believe me dont fall into the trap. If it is to good to be true it probably is. I immediately opted it out of the program. It was a nightmare trying to get out. I never signed thing. Then I spoke with another rep. he said we have a better plan for you where it is just a straight modificatiion for the life of the loan . He then told me I wasn’t elegible because I turned down the first modification. This program is the biggest joke. If you do a modification your credit will be destroyed and all your loans and credit cards interest will go to the max. You will be worse off than before but with bad credit and you will still have to pay the mortgage . That rate they give you only lasts for 5 years and the loan is stretched to 40 years. The banks aren’t doing are sacrificing a thing even though they were given millions in your tax dollars. The only people this will work for is the people who shouldn’t have bought homes in the first place. There lives are in shambles anyway so what do they have to lose. So once again if you do things the right way and actually care about your credit which is basically your word you get screwed. All that money the banks recieved and as of Sept. 1. 2009 350,0000 trial modifications begun . of that about 1700 permanent modifications. This is the whole country. One in 7 mortgages is delinquent or past due. This is a program mandated by the government. Yeah right. If its to good to be true it probably is. Unless you have nothing to lose this is the plan for you. Thanks Obama that was 200 billion dollars that was put to great use. The economy is thriving or so you say. Oh yeah its Bush’s fault. You have done more damage in a fraction of the time he could ever dream of. The banks just recieve a free gift of our money. None of that money is being used to help us the people. There are no penalties for the banks not following the rules. It’s busines as usual and they’re going to get their interes believe it and then some. I am gonna hold out for HAM 2 maybe it will be better. The banks just get richer well the rest of us try to find work while Obama throws the bigges parties the White House has ever seen on your dime. What the hell he’s got a taste for spending now. AVOID THIS MODIFICATION!!! IT’S A SCAM!!! IT WILL HARM YOUR CREDIT FOR EVER!!! The banks don’t care about your credit. All they care about is the bottom line their profits.
Posted on December 11th, 2009 at 7:13 pm
For some people credit is not as important as having a roof over their heads and their families head. These are the people Obama intended to help with his program. So, if you are in a situation where you have to choose between shelter vs. credit, I would highly advice you to choose shelter.
But, if you can afford your payment even after a hardship, and are looking for a small cushion and you qualifiy for savings under this program, then you may want to think twice. Is your kid going to college in the next few years and requires you as a co-sign for a loan? Would you be in need of a new car in the future? Do you need good credit score for anything in the short-term? If not, maybe having the small cushion is better than having a bad score. Remember, you score will improve over time.
Posted on December 28th, 2009 at 12:07 pm
This is scary stuff! I just lost my job last week and in an effort to be an upstanding citizen and pay my bills on time, I considered the Hardship Loan Modification Program. The more I look the more of a sinking feeling I get. My gut is telling me that this is a bad and misleading program. Once again the Federal government hasn’t considered the implications of its actions. They didn’t look past the banks, they just gave them the money. The banks are now the largest owners of real estate and have been given Billions not just millions of tax payer money AND the Federal Government printed money which devalues the dollar in a way that we have yet to understand. INFLATION, you’re going to hear that word a lot in the coming days and months I fear.
In the late 80’s banks and Savings and Loans had every incentive to modify or do whatever they could modify loans and didn’t take it. Do you remember what happened? Banks and S&L’s dropped like flies and the RTC was born. House prices dropped and we all went about our business buying property at a lower price. Investing in real estate and the banks left were loaning the money. Within the next five to eight years, people and the housing market was on a comeback. None of that has happened this time…
There are Billions of dollars in foreclosed properties being held by banks and mortgage companies and what’s happing to them? We’ve had banks go under but the assets didn’t really go anywhere? The percentage of foreclosure prices didn’t go down as far as I thought they would. For a time you could buy houses easily and the government helped first time home owners get their due. Which begs the question, just how toxic where those assets to begin with? It still looks like the prices aren’t down to where buyers are willing to buy them and you know banks aren’t willing to lend on them. So what’s the problem? The BANKS! They don’t need to do anything right now because they have what they want. An endless supply of money backed by the government at a very cheap rate. THEY DON’T NEED US! Not rocket science.
I think at this point we are just going to hang on and make due. Yes I feel like I’ve been robbed and yes I have. I’ve worked hard for 35 years and now I have to start over, savings gone, investments worth less or worthless. I’ve been taken by unscrupulous people in government and in banks and investment. Doesn’t really matter which side caused it. I could blame them both and I still have less. Question is where do we go from here? Billions we will never see are being given out here, Trillions overseas. We should have thought to take the credit cards away from the teenagers before we gave them the car. Now we’re paying the bills. My New Years resolution is to see to it that my government representatives, and I say that with “tongue in cheek”, know who the hell I am and not in a good way! No worries, at least we have healthcare!!!
No - we’ll probably not bite the hook dangling from the government bobber on this deal. The bank is on the other end of the line - and they’re in a feeding frenzy!!!
Posted on January 7th, 2010 at 11:43 am
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