Most troubled homeowners don’t realize they are hurting their credt by entering President Obama’s trial mortgage modification program (HAMP).
It’s typically true that many people who apply for the Home Affordable Modification Program are already delinquent in their mortgage payments, but add in the fact the amount of time a trial period takes, typically 3 to 6 months, this may only add to the pain.
Under the president’s plan, troubled borrowers can have their monthly mortgage payments reduced to 31% of their pre-tax income, however, homeowners are first put in a trial modification for several months to prove they can handle the new terms by making timely mortgage payments and to give the bank time to collect the necessary income and hardship verification documents. This is where it gets dicey…during this trial period and according to industry guidelines, loan servicing companies are ordered to report borrowers to the credit bureaus according to their status before they entered the modification – either current or the number of days delinquent. Additionally, borrowers’ accounts are also designated with a code indicating they are in a partial payment plan.
The coding alone can impact credit scores. This is a measure of a consumer’s financial health and range from 300 to 850 under the FICO system. The severity depends on how many payments the borrower missed before entering the program. Those who were current in their mortgages could see their scores fall up to 100 points, according to the Treasury Department.
Tags: Credit, Credit Deterioration, Credit Reports, Credit Standards
