Extreme misinformation about credit score ramifications after a mortgage Loan Modification
I am becoming accustomed to misinformation on the internet by (hopefully) well-meaning reporters, but this article in New Jersey Business News (NJ.com) is filled with so many inaccuracies I am astounded and compelled to correct the numerous mistakes. The article is linked below.
Why anyone would trust their lender to offer the best terms for the homeowner is beyond me. As usual, the reporter quotes the interviewee and not the original question. Without knowing what the original question was, I’m slightly hamstrung in guessing why the misinformation was issued.
The only reason a credit score would suffer is because of late payments. Period. These may, or may not, be necessary in any specific hardship. I am totally at a loss as to why a consumer would turn down an approved modification because of their precious credit score. This is critical – a modification is new terms negotiated on a previous loan, period. A MORTGAGE LOAN MODIFICATION IS NOT A REFINANCE. The reporter confuses and interchanges the terms repeatedly to the point of distraction. The Peterson’s had two years, (count ‘em, two years); to recover any hit on their credit score! What planet do these people live on?
The only “partial payments” that might be reported to the bureaus would be during the manadatory three-month ‘trial period.’
There is evidence that the lenders have data to predict if a homeowner will default given a loan modification. No one will ever be able to prove that. One more reason to hire a national attorney that can get around that nefarious conclusion without having to ask.
The implication of Nov 1 is simple: wait until after the modification becomes permanent and contact the three bureaus, dispute the comment and insist on an update. For a new, permanent, affordable monthly mortgage payment, how dificult would that be?
I really am curious, just how many mortgage modifications is Bamboozled.com prepared to follow up on? Does the reader really believe that Wells Fargo finalized the mortgage modification out of goodwill to the Criscione family?
Read on:
Back in February, the Petersons requested a modification from their lender, Chase Home Financial. They filled out forms and wrote a hardship letter. After many follow-up calls, faxes and e-mails, they were offered a modification that would significantly reduce their mortgage payment.
The couple were thrilled. Then they asked the $64,000 question: what would happen to their credit scores?
They had concerns because their daughter would finish high school in two years, and then, they were planning to downsize. They’d need to maintain their high credit scores — in the 700s — for favorable terms on a new mortgage.
No one at Chase could tell them the ramifications to their score, so they withdrew their application.
THE IMPACT OF THE MOD SQUAD
There is no clear answer to Peterson’s question.
There are guidelines by the Consumer Data Industry Association, a credit reporting trade group. These recommend lenders report modifications as “partial payments.” Not good for credit scores.
John Ulzheimer of Credit.com called the guidelines “horribly premature’’ because no studies have indicated people who modify are actually higher credit risks than those who don’t.
To confuse consumers even more, not all lenders follow the guidelines.
That may change on November 1, when lenders can use a new code to report them as a “loan modification under government program.” The code will clarify which borrowers have taken modifications, but because the modification process itself is not streamlined, it won’t be the only worm squiggling out of the can.
The bigger impact on credit scores may depend on how the loan was modified.
A loan can be refinanced through the same lender with the same account number, said Jennifer Costello, a spokeswoman for the credit bureau Equifax. The updated account status, including the new loan amount and any term changes, would be reported to the file. (Probably a negative credit mark.) Or a lender may close the original account to refinance the loan, Costello said.
Costello said in this case, the credit file would reflect two loans: the original account number showing the account has been closed, and a new account number for the new mortgage.
If the old account is closed and the lender doesn’t report it as a modification, it may appear on a credit report like a traditional refinance — not a bad mark at all.
It makes sense for credit scores to take a hit after a modification, said Tom Kelly, a spokesman for Chase, Peterson’s lender.
Because of privacy concerns, Kelly couldn’t specifically discuss the Petersons, but he offered this story: Say two borrowers purchase homes on South Main Street on the same day, for the same amount, with the same mortgages. The borrower at 2 S. Main St. pays his mortgage every month, but the borrower at 6 S. Main St. is having a financial hardship. He gets a modification lowering his monthly payment by $600 a month, or $7,200 a year, or $72,000 over 10 years.
But no one can say exactly how your score would be affected. It seems even the credit-scoring companies aren’t sure.
Like every modification, every borrower is different. Some may have scores in the 700s, like Peterson, while others may have less-than-desirable credit from the get-go. Because scoring companies like FICO treat scoring formulas as a trade secret — think KFC’s special recipe — lenders can’t simply plug in a few numbers and tell a borrower what impact a modification would have on their score.
TO MODIFY OR NOT TO MODIFY?
Credit score concerns are valid because future scores will have an impact on your future borrowing abilities. A lower score will mean higher borrowing costs on loans of all kinds.
But given the choice between a hit to your credit score or losing your home — which will also hurt your score — it makes sense to keep your home at all costs.
Ask your lender how it plans to report the modification, said Steven Katz, spokesman for the credit bureau TransUnion.
But don’t be surprised if the lender can’t tell you, just like Chase couldn’t tell the Petersons. It’s not that they were keeping a secret. They simply don’t know the answer.
UPDATE ON THE CRISCIONE FAMILY
There’s more to report on our first frustrated modification family, the Crisciones. Bamboozled helped nudge CitiMortgage to refocus on the Somerset family’s request for a modification on their second mortgage, and they got a deal lowering their monthly payment from $1,268 to $518 a month..
The couple said they had similar problems with modification requests on their first mortgage, so Bamboozled contacted their lender, Wells Fargo. Wells Fargo said it lacked a document or two, and once those papers were in, within two weeks, the Crisciones had a deal: the mortgage balance will be reamortized into a 39-year fixed-rate loan at 4.25 percent, reducing payments from $2,728 to $1,979.
Read it here
