Wednesday, January 20, 2010

Loan Modification will hurt your credit.

Avoiding foreclosure, loan modification

In the race of trying to avoid foreclosure many consumers does not realize that their credit is affected even they are successful with their bank on modification process.
A potentially damaged credit score is one of those hidden costs of home loan modification. It varies significantly depending on the lender, and how your loan was altered.
More than often Banks do not tell troubled homeowners up front that could happen.
Frequently banks utilize as a form of loan modification a trial period that allows temporarily reduce monthly payment for set numbers of months’ to make sure that income is still in place, before program could be implemented permanently.
Banks explain that modified payment during the trial period is going to show up as a rolling 30 day late payment on credit.

The rolling 30 day late payments will have a serious negative impact to Fico scores. More than likely mortgage will show up as being 30 days past due for 4 straight months. This is a great illustration of the disconnect between these mortgage relief plans and the realities of credit reporting.

Supposedly, the federal program requires three trial payments (in some cases four) before the loan can be modified. The reason that it would be considered delinquent on current mortgage is that the payment is lower than originally agreed on the Note. Therefore, it will show as a rolling delinquency on the payments of the difference between old mortgage payment and new mortgage payment the first month, and then when the next trial payment is submitted, the delinquency would be made up but I would have a new delinquency in the second month, and so on, until the loan is modified.
The lender said that "Treasury Guidelines" do not allow the lender to waive the negative credit reporting.

After the terms are met, payment are made on time and modification moves to the permanent status the delinquencies showing on credit bureaus are being wiped out.

But is this really happens?

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