One of the biggest problems with loan modifications is that a loan modification can lower your credit scores. And while homeowners should probably forget about their credit for a while when trying to save their home, it’s hard for them to do so. For most homeowners, credit is a serious consideration. Good news has finally come in the form of credit reporting relief for homeowners.
November 1st, 2009 brought with it good news for consumers who want to modify their mortgages without lowering their credit scores. That was the first day that a new way of reporting a loan modification to the credit bureaus became available to mortgage lenders. From this point forward, mortgage lenders can report a loan modification as “Loan Modified Under Federal Government Plan.” This new way to report a loan modification does not have any negative impact to a consumer’s FICO credit scores.
Keep in mind, however, that this new credit reporting guideline only applies if the consumer qualifies for a loan modification under the Making Home Affordable plan. For those not able to qualify for a government loan modification program, the “partial payment plan” designation will most likely continue to be reported.
The news isn’t all good, however. The only reason the new reporting guidelines do not damage your credit scores is because FICO, the company that created the FICO credit score, has not had a chance to include the new status in their credit score development processes. If, in time, they determine that people who have this “Loan Modified Under Federal Government Plan” status on their credit reports are an elevated credit risk, they can choose to modify their credit scoring models to consider it negative. Of course, if they determine that consumers who have this on their credit reports are not an elevated credit risk, they will probably do nothing. Only time will tell.
For now, homeowners finally get a bit of good news, their credit may not be impacted at all from a loan modification under the Making Home Affordable program.