Wednesday, November 4, 2009

MHA Loan Modifications and Credit Scores

An interesting article on the SFGate blog from the San Francisco Chronicle highlights new guidelines adopted by the "Consumer Data Industry Association" (the organization that represents credit bureaus - the people that track our credit scores).

Under the new guidelines, lenders should report loan modifications made under the Making Home Affordable (MHA) program as "loan modified under a federal government plan".

Until now, individual lenders reported modifications to the credit bureaus differently. Some reported them "paid as agreed" which didn't affect scores, while others reported them as "partial payment" which can have an extremely negative impact on credit scores - - as much of an impact as a short sale or even foreclosure.

If homeowners fall behind (one of the requirements for a MHA modification) lenders will still report the delinquent payments (30 day late, 60 day late, 90 day late, etc.) so there is no way to avoid at least SOME damage to a credit score with a modification - but if a homeowner is current during the trial period - banks should report those modified payments as "current."

HOWEVER... here's the catch... FICO, the country's best-known provider of credit scores (the famous "FICO Score") has said that they will, over the coming years, analyze "accumulated data" to see if there is any predictive value of the new "loan modified under government plan" on payments... which will determine how much the new category affects a credit score IN THE FUTURE. For now, the category does not either help or hurt a credit score.

Regardless of the impact on score... homeowners need to understand that a creditor might deny them credit (car loan, store credit, rental agreement, etc.) if they see the "loan modified under governement plan" on a credit report. Just something to keep in mind.

If you are falling behind in payments... and think a modification might work for you, contact a free, non-profit Housing Counselor in your area for assistance with a modification... or to see if there may be any other help or assistance available to you. For help in Minnesota, click here.

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