Credit Hit from Wave of Loan Modifications?
Modifying mortgages to make them more affordable for struggling borrowers is a cornerstone of the Obama administration’s housing rescue plan. It allocates $75 billion for an initiative that would reward loan servicers for lowering mortgage payments for five years, after which they would rise to today’s current mortgage interest rates which, fortuitously, are in the low 5% range.
By now, most homeowners understand that a foreclosure judgment is a “significant ding” that will reflect in the credit score and perception of manual underwriting for many years to come. Being late on your mortgage payments is a serious issue, but if you or your loan modification company are already negotiating with your lender, it certainly doesn’t hurt to attempt to get the lender to remove the delinquencies. It’s amazing how powerful a letter from the creditor says that they “made an error in reporting.” But several readers recently wrote to Lisa Sitkin, in an effort to get clarification on the impact of loan modification and the long standing credit implications. If the lender doesn’t agree, consider credit repair.
Lisa Sitkin, a staff attorney with Housing & Economic Rights Advocates in Oakland, was kind enough to take a crack at answering that question. Here’s what she wrote: Our view is that a loan modification that included a principal reduction might be reported as a write-off of some sort. Home loan modifications without a principal reduction (which will be the case in most borrower’s loan workouts) should not be reportable, but that is not a guarantee it won’t be. Credit reporting is something borrowers should be asking servicers about as they discuss lower mortgage rates. They should also request that prior past-due derogatory comments on the credit reports be changed to reflect new current status after the mortgage loan modification.
Sitkin suggests checking with an attorney with debt collection and/or fair credit reporting expertise for more insight on this issue; there is an attorney directory on Naca.net. See the full article >
