Does loan modification affect your credit? (insurance, California, credit report, rate)

[trebein]

For those who had their loan modified because they couldn't refinance. Did it affect your credit ? If so how?

[chet everett]

There were articles in the major newspapers about this. It was on Bloomberg. Cheaper Mortgages Spark Lower FICO Scores for Payers (Update1) - Bloomberg.com

The details from the story are pretty clear:
“We view an account that has been settled or renegotiated for less than the full amount as a negative because historically consumers on reduced payment plans represent a greater risk,” said Ethan Dornhelm, a principal scientist at FICO’s San Rafael, California, office.

Personally, while I can understand that a borrower might be a more than a little upset at such a result, as it could cascade into reducing credit limits and/or increased rates on variable consumer borrowing, the fact is FICO exists to help LENDERS make decisions about managing risk. By readjusting amount to lend / rate to charge these changes tend to make things safer and keep credit working.

[mimomof2]

We modified our loan in Michigan and lets just say the bank we dealt with did not know what they were doing as far as reporting to the credit bureaus! They reported us late for months after the modification became effective. Just within the last week after several months of trying to get them to straighten it out they finally fixed what they did wrong after I sent a letter threatening legal action. All I have to say is watch your credit report!

[Leavethetable]

Further thought if you are currently making your payments and your mortgage is current. Some of the new government loan modification programs (e.g. the HAMP 31% program) have a trial period before the actual loan modification takes place. This "trial period" is a close estimate of what your payment will be if your loan is modified. During this trial period, your mortgage payments made will be reported as DELINQUENT to the credit reporting agencies even if you make your trial period payments on time. Once the loan is modified, the modified payments will be reported as current (assuming of course the modified payments are made on time).

I woukld have to assume, that the delinquent reporting will compound the adverse effect the loan modification will have. This trial period can last for 3 to 4 months of payments.

Just some food for thought and something to look out for if this is an option that is presented to you. Good luck!!

[lscalder]

Before you get on the Modification, you must get on the Trial period Plan which might be 3 months During those 3 months you will be paying reduced payment. When the bank report to the credit company that is when it will affect your credit because they will report it as Reduced/Modify payment which will affect your credit until your loan is Modify then they will report you as current and Loan modify.

Lets say you were current on your mortgage before the mod it will still affect your credit until your loan is modify.
If you are currently paying 2k a month and on the 3 month trial period you will be on a reduce payment. Lets say 800.00 a month that includes taxes and Insurance. How that work is the Lender will minus the taxes and Insurance out of the $800.00 and put the difference in an suspense account until it adds up to $2k then they will apply it to your mortgage. During the 3 months you are still held accountable to make the 2k payment so they can not report you to the credit agencies as current. I hope this help.