Does A Loan Modification Ruin Your Credit? Just Find Out Whether It Can

Oct. 18, 2012 - PRLog -- Many borrowers may think, “How does loan modification affect your credit?” Well, their thinking does make sense as lenders will report remittance of modified payments to the credit bureaus. But a lot could depend on how loan mods will be reported by your lenders to these agencies. Ever since early 2009, the term “loan modification” has been construed to be a household phrase and people who managed to get their mortgages modified were able to secure monthly payments which were affordable as well as manageable. Remember, in a typical process of modifying home loans, a mortgage servicer will act to lower interest rate and extend loan duration so that the monthly mortgage installment gets substantially reduced. The entire gamut of mortgage modifications is centered around the hypothesis that if a borrower can pay monthly payment regularly, there could be fewer chances that he will default on the loan.  

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Nevertheless, the question, “How does loan modification affect credit?” may not be entirely baseless. Initially, when home loan modifications became a rage way back in 2009, lenders used to report them as “partial payment plans” to the credit reporting agencies. But such plans adversely affected credit scores in the FICO system and so homeowners who got their mortgage loans modified found their credit ratings plummeting. As there was a lot of hue and cry raised because of this, in November 2009, the “Consumer Date Industry association” or CDIA, which represents the credit reporting bureaus in the country, announced certain changes so that the effect of loan mods on credits in the FICO system got neutralized. As per the amendments, if loan mods were reported under any of the “government sponsored programs” they would not have a negative impact on the borrower’s credit. But there could be some exceptions to these as well.  

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If you are getting worried as to, “Does a loan modification ruin your credit?” then it could be vital for you to have some information regarding this. Typically, mortgage modifications have trial plans which are reported by lenders to credit reporting agencies but what is more serious than that is that for processing applications lenders could take months. Within this time frame, there are chances that more monthly payments will be missed and that will certainly get reflected in the credit report of the applicant. Besides, mortgage servicers normally report trial loan mods as payment of past dues and so credit can be adversely affected. All such things could be better understood from some competent legal expert or mortgage specialist who is well versed with loan mod processes. On the internet, many firms provide specialist help to enable borrowers understand these subtleties; one only needs to find a company which is reliable and reputable.