A Trial Mortgage Loan Modification Can Damage Your Credit – Know The Facts

Homeowners who are behind on their mortgage payments or struggling to keep them current may be considering a trial loan modification. 

President Obama’s mortgage rescue plan is intended to help homeowners avoid foreclosure. The plan reduces monthly payments to no more than 31% of eligible borrowers’ pre-tax income or gives borrowers the opportunity to refinance their mortgage even if they have litle or no equity in their home.

Pros and Cons of a Trial Mortgage Modification

The good news is that the  mortgage rescue plan has helped over 9 million borrowers avoid foreclosure.  The bad news, however,  is that a trial loan modification can adversely impact a borrower’s credit score and make an already tenuous financial situation even worse.  

Trial Period and Credit Reporting

Under the plan, borrowers must first go through a trial period for a few months to make sure they can handle the new payment commitment as well as give their lender time to collect verification and hardship documentation. 

Here’s is the caveat – while homeowners are in the trial period, lenders are required to report a borrower’s status before entering the modification trial, including the number of days they were delinquent on their mortgage (if applicable) to the major credit bureaus.

The borrower is issued a code indicating they are in a partial repayment plan and the more mortgage payments missed before the trial period, the more a borrower’s credit rating is affected.

Credit Score Plunge

Most borrowers considering a trial loan modification are already behind on their mortgage payments and have already seen the fall-out of their credit.  But for those who are not behind, they could see their credit scores plunge as much as 100 points because the credit code they are issued shows they can not make their original mortgage payments.

Understanding the Facts

The bottom line is that if you are applying for a loan modification on your home loan, find out the facts and get them in writing from your lender. If at all possible, make the trial period as short as possible to minimize the negative effects on your credit score.

Charlotte, NC Real Estate and Foreclosure Expert

Leigh Brown is the leading real estate agent and foreclosure expert of the Charlotte, NC  Metro Area. Leigh has helped many clients avoid foreclosure with short sales.  She has also helped clients find great deals on foreclosure property in Charlotte, NC as well as walk them through the foreclosure buying process.

 You can reach Leigh Brown by filling out her online contact form or by calling her at (704) 688-5005 or toll free at (866) 440-7136.

Sources:
CNNMoney.com
Mortgage News Daily