Financing in Chicago>Question Details

Jason Randall, Home Owner in Longwood, FL

Impact to FICO by participating in HAMP (Home Affordable Modification Program)?

Asked by Jason Randall, Longwood, FL Mon Dec 26, 2011

I am eligible for the HAMP program based on the criteria i've read on the government website. I have excellent credit (779 experian, 766 transunion). My PITI HOA dues are approximately $2000 per month. Based on the 31% ratio for the program, my payment would be reduced to approximately $1500 per month - so I would saving $500 per month which is great.

Also, currently i'm on an ARM mortgage at 3.5% since rates are low, but as rates rise, my payment will rise as well. While I can currently afford my mortgage, i'm living with a 3 month cushion - i'm self employed and if I don't get work I could default in 4-6 months. I work in a commission based business (real estate broker) and there are often 2-4 months sometime without income. I use to make a lot more income before when I originally bought the property in 2005 (income has declined 50% since then).

My question is what would the impact to my credit score be if I went forward with the HAMP program?

Help the community by answering this question:


What will impact your score is when you have to go through the lender's 4 months of trial period of reduced payments. It does not make sense but if you do not follow their direction, your loan modification will not be approved.

Once the lender determine that you are a good candidate for their loan modification, they will put you in a trial period for 4 months, making reduction in payments. Even if you are capable of making the full payment, you still have to follow their instruction if you want your loan modification to be approved. This is where your fico score will be affected.

Obviously, when you are making a payment that is less than your normal monthly mortgage payment, the payment will not be enough to cover your monthly interest payment. The lender will then report your payment as a deficiency. Their logical thinking is: because they allow you to make lesser payments, the savings that you will receive each month, you should be able to apply it to your other debt obligations. Within these 4 months, hopefully, your lender will have reached a permanent decision in how to modify your loan. But if they have not, you must continue to make your full mortgage payment once the trial period is done.

I hope this information helps you to understand part of the loan modification process. Good Luck
0 votes Thank Flag Link Wed Jan 4, 2012
From what I have seen, a modification will NOT have a major impact on your credit. If you like your home, it fits your needs and you plan to stay there long term, this is a good option.
0 votes Thank Flag Link Wed Dec 28, 2011
We're considering this and I'm wondering, what do you consider long term?
Flag Wed May 14, 2014
You wrote: I would saving $500 per month which is great.

If you qualify and are successful in participating in this program, then do it. You will be saving $500/mo. You should be able to convert your ARM to a FIXED RATE product.

What are your options for your current home:
1) Do nothing and pay $2000/mo
2) Do HAMP and pay $500 less/ mo
3) Stop Paying - Live for Free for a while - Ruin Your credit - Eventually get Foreclosed on and evicted.

If you like where you live and plan on living there for a long time , then #2 looks like a good alternative.
0 votes Thank Flag Link Tue Dec 27, 2011
Suzanne - thanks. My home is not under water (my current LTV is about 70% - i paid down a large chunk of the loan when I use to have a different job with a much higher salary) - but the reason I can't refinance is b/c my debt to income ratios are too high.
0 votes Thank Flag Link Tue Dec 27, 2011
There is an excellent book called "Underwater Home" that you should read, it may help answer this question more thoroughly than I can. My guess is it will probably have a negative impact but how much of an impact is the question. If you are current on your mortgage payments and stay current during the process the impact should, I think, be minimal. And your credit score will rebound fairly quickly. The problem is if you ARE current on your payments the banks have little incentive to work with you. But, if you are persistent and can get out of your ARM and into a fixed rate I would think it would be worthwhile. Your scores are quite high now so a minimal impact might not be so bad all things considered!
0 votes Thank Flag Link Tue Dec 27, 2011
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