Can A Loan Alteration Lower Your Credit Report?
Posted By tsauthor on November 11, 2009
Many people today are considering if they should apply for the government sponsored colorado stated income loan program Making Home Affordable. One of the major concerns individuals have is what effect a loan alteration will have on their credit reports.
Until now a colorado commercial was reported in various ways depending upon the individual financial institution and their reporting policies. Some lenders would report a mortgage adjustment as ?paid as agreed?, however, most would report them as ?partial payment?, which has a negative impact on a person?s credit report. A ?partial payment? report is a major derogatory, in the same category as a foreclosure or short sale according to FICO spokesman Craig Watts. Fair Isaac and Company, is one of the three biggest credit reporting businesses in the US.
New reporting plan
Starting November 1, 2009, mortgage companies are encouraged to use a new benign way to report government-sponsored mortgage adjustment. Under guidelines put out by the Consumer Data Industry Association, lenders should report them as a ?mortgage alterationunder a federal government plan?. CDIA is the dept which represents credit bureaus. FICO, the main provider of credit scores, will ignore this new notation for the time being. It will neither help nor hurt a home owner?s credit numberscore until FICO decides how to treat it. FICO says new mortgage changes will not hurt scores. ?Once there is enough documented performance for people who went through a government sponsored note modification, we will be able to assess the accumulated data to determine how predictive it is?, says FICO spokesman Craig Watts. As a rule the analysts prefer having at least a year?s worth of performance data before making any modifications to its credit-scoring formula.
Under the associations guidelines, if a person is current with his mortgage payments before and during a trialloan adjustment period (typically three months), the lender is supposed to report the mortgage as current.
Starting November 1, 2009, if the mortgage modification is approved after the trial period, the lender adds a comment that it was modified under a federal plan instead of the dreaded ?partial payment?.
If the note was at least 30 days behind before the trial loan modification, payments during the trial period will not bring it current. The lender will continue to report the appropriate level of delinquency, but if the loan adjustment is approved, it will reported as a loan modification under a federal plan.
Caveats
The new designation could blemish a borrower down the road if FICO decides to treat it as a risk factor. Even if it never enters the scoring formula, potential credit union can see it on an applicant?s credit report and decide for themselves how to treat it. Have in mind that in some cases the banks will look beyond a credit score and study someone?s full credit history when determining a borrower?s credit worthiness.
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