Will A Mortgage Adjustment Lower Your Credit Report?

Posted on November 15, 2009
Filed Under home mortgage | Leave a Comment

Many people these days are considering if they should apply for the federal sponsored colorado reverse lender program Making Home Affordable. One of the huge concerns individuals have is what effect a mortgage alteration will have on their credit reports.

Until now a colorado reverse mortgage was reported in various ways depending upon the individual financial institution and their reporting regulations. Some lenders would report a loan modification as “paid as agreed”, however, most would report them as “partial payment”, which has a negative impact on a person’s credit score. A “partial payment” report is a serious derogatory, in the same category as a foreclosure or short sale according to FICO spokesman Craig Watts. FICO, is one of the three biggest credit reporting companies in the US.

New reporting plan

Starting November 1, 2009, mortgage companies are encouraged to use a new benign way to report federal-sponsored note adjustment. Under guidelines put out by the Consumer Data Industry Association, lenders should report them as a “loan adjustmentunder a federal government plan”. CDIA is the association which represents credit bureaus. FICO, the leading provider of credit scores, will ignore this new notation for the time being. It will neither help nor hurt a home owner’s credit numberscore until FICO decides how to treat it. FICO says new mortgage changes will not hurt scores. “Once there is enough documented performance for people who went through a government sponsored note alteration, we will be able to assess the accumulated data to determine how predictive it is”, says FICO spokesman Craig Watts. As a rule the analysts prefer having at least a year’s worth of performance data before making any changes to its credit-scoring formula.

Under the associations guidelines, if a person is current with his mortgage payments before and during a trialmortgage adjustment period (typically three months), the lender is supposed to report the mortgage as current.

Starting November 1, 2009, if the note adjustment is approved after the trial period, the lender adds a comment that it was modified under a federal plan instead of the dreaded “partial payment”.

If the mortgage was at least 30 days behind before the trial loan modification, payments during the sample period will not bring it above water. The lender will continue to report the appropriate level of delinquency, but if the mortgage alteration is approved, it will reported as a mortgage adjustment under a federal plan.

Caveats

The new designation could affect a home owner down the road if FICO decides to treat it as a risk factor. Even if it never affects the scoring formula, potential credit union can see it on an applicant’s credit report and decide for themselves how to treat it. Have in mind that in most cases the financial instituations will look beyond a credit score and study someone’s full credit history when determining a mortgage holder’s credit worthiness.

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