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Rich, Other/Just Looking in Norwalk, CA

does a loan modification affect your credit standing?

Asked by Rich, Norwalk, CA Thu Jul 31, 2008

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33
No a loan modification doesn't hurt your credit. And you don't have to been in arrears to recieve a modification. The modification is usually just a different payment option. For example the lender may offer you a lower rate fixed for 5 years and put your delinquent balance on the back of your principal balance. Unfortunately we have no idea if in 5 years the property values will support the increase in your principal. Therefore you may end up in the same bad situation especially if you need to sale your home because you can't afford it. Plus your payment will increase drastically at the end of the five years putting you in the same position you are in now. Which makes me wonder why they offer these modifications knowing there is a possibility of crashing the housing market again in 5 years.

Ask about the Housing Rescue Bill. Please, Please do as much research as possible before you accept any loan. If you don't like an offer turn it down. DO NOT put yourself in another bad situation.

Despite what people tell you, Short sales do affect your credit negatively. But if your payments are already behind then your credit is hurting anyway. Don't be afraid to ask for help. Good luck.
2 votes Thank Flag Link Wed Oct 1, 2008
Loan Modification can mean a solution to a financial problem. Many people find themselves in a hard time to pay the mortgage. Some are lucky enough to know before they have depleted savings and retirement plans. Loan modification is a permanent solution to lower your monthly payments to something affordable. As such it is a viable option for a distressed homeowner. Once the loan modification is applied it is report current. To get more details please see http://www.championfinancialwork.com/fastloanmodification
1 vote Thank Flag Link Fri Oct 9, 2009
Hello,

Nope, will not affect your credit. Has nothing to do with your credit. A loan mod is a re structure of your mortgage which is non credit based.


Oscar Gonzales
WestCo Realty
562-244-2055
BRE# 01771716
0 votes Thank Flag Link Sat May 24, 2014
That is a great question. The consensus here in this forum is that it will affect your credit score and your ability to refinance or purchase at a later date. It is now 2014 and the initial question was asked several years ago. Banks are working with people who have foreclosed, short sold and received a loan modification at some point. They have no choice anymore. There were so many people that were affected in the recent recession. The current real estate market is now on the mend and thank goodness that the worst is behind us. I've read that foreclosures and short sales combined make up less than 5% of todays inventory. That's great news.
Please call me if you have any further questions or if you think you are ready to make a move in Real Estate.

All the best,

Alex Montelongo/Broker
Coldwell Banker Star Realty
562-810-7387 Cell
BRE Lic #01456982
0 votes Thank Flag Link Wed May 21, 2014
Not really! Based on my experience, most of home owner who did a loan modification will eventually fail and has be sell their house anyway. So be prepared!
0 votes Thank Flag Link Wed Jul 17, 2013
It sure affects mine! I pulled my report just about 4 months ago and, having gotten a modification in 2009, it shows me as 48 months in arrears! Yeah definitely a no-no when you need a car.
0 votes Thank Flag Link Wed Sep 26, 2012
The answer is in two parts. First, during the trial period, it does hurt your score. After the trial period, it becomes your new loan and you are reported as paying ok. I wouldn't worry about it too much. You are obviously having economic trouble that led to this situation and you are probably late on un-secured debt long before you became late on secured debt. Credit card debt (unsecured debt) make up nearly 35% of your score. Your secured debt, such as installment loans like car loans and mortgages don't have as much of an impact. So think of it this way: your score lowered, but you kept the house you loved. You get a more affordable monthly budget. You can breathe a bit easier. The other side of the coin is if it actually did indeed become a foreclosure or a short sale. Think of credit damage for 7 years, with no less than 3 years before you MIGHT be able to buy again. In today's tight credit market, 3 years is very iffy. So imagine yourself back as a tenant and not the master of your own domain. Imagine not being able to buy for 7 years, not just a house but other things, like cars. Imagine having almost as much damage as a Chapter 13 bankruptsy. So by contrast, a modified payment in comparison to full blown foreclosure or short sale is not too bad. Enjoy the house and in 3 years, you will repair and recover.
0 votes Thank Flag Link Sat Jun 30, 2012
You are already seriously deliquent at this point , so the damage is already done. So either come up with the cash to pay the amount in arrears on your own, and pay as agreed and the loan will be re-instated.

Here are your options :
a) Court in a Judicial State and fight them based on Legal Standing to foreclose. You will spend legal fees, to buy time, but not necessarily win. You save your money during this time and build a large cash cushion using the mortgage payments you are NOT making. You are credit damaged for 7 years, but might fix in 3 years.

b) Short sale and face a deficiency judgement , or they'll forgive the debt, because you are insolvent, and you get a 1099c for the difference reported as income. So now you owe to the IRS. So a loss on their books is treated as ordinary income on your books. Think about that for a min. Let's say owe $340,000 but can only sell for $200,000. That's a whopping $140,000 difference you owe. Can't pay it? ok, fine. it's income. Now go pay uncle Sam 31% of $140,000 in one shot. Can't do it? Ok, declare bankruptsy. Now you have a double whammy,a short sale which is treated as a foreclosure and a BK all combined. So, debt forgiven by them, is considered income for you, the borrower, just as if it is from earnings.

So this law :http://www.irs.gov/individuals/article/0,,id=179414,00.html

is expiring in 2012. So if you short sale, do it NOW!!! You only have 6 months left until Dec 31st 2012.

c) Do a loan modification. Hurt Credit during the trial period, but it becomes ok after that and becomes perm. It's the lesser of all the evils.

Your credit is in ruins right now anyhow. Don't focus on credit. Get your finances in order, save the house, reduce your other debt and rebuild a cash cushion. In 3 years your credit will bounce back. But, focus on saving the house for now and worry about all else later. Keep strong. it's a tough road ahead in dealing with your Servicer.
0 votes Thank Flag Link Sat Jun 30, 2012
Even if you have never missed or been late on a payment a Modification WILL affect your ability to get credit. In my situation the mortgage was in my wife's name (owned the house prior to marriage) she was never late and never missed a payment. The Mod did not affect her credit scores at all. BUT, it significantly affects her ability to get a new mortgage or to refinance the existing one. Since interest rates have dropped further since the Mod two years ago, we have not found a lender who is willing to refinance the loan due to the Mod on her credit report. Even after paying off the second mortgage and having equity in the home. Credit score is fine 787 but it's the mention of a Mod on the credit report that kills the deals. No problem getting a new car loan. It just seems to affect housing loans.
0 votes Thank Flag Link Mon Jun 11, 2012
Reading these posts it appears two different things are getting mixed together. Yes, if you become late on your payments to be eligible for a loan mod - even if the lender recommends it - that will obviously hurt your credit. The more important question is: Does the loan mod itself get reported as an item on your credit, the way a foreclosure, bankruptcy and short sale does. (Note: in a short sale the lender has to write off a part of the loan balance, whereas in a mod it is usually a payment modification (just like a refi.) So can any one succinctly answer whether a mod per se is an event reported to the credit agencies?
0 votes Thank Flag Link Wed Apr 4, 2012
YEEEEEESSSSSSSS!!!!!

I had a loan modification through Chase bank that my credit took a serious hit for. I was instructed to not make payments on this loan during the modification process and I found out several months later that unbeknownst to me, they reported the non-payment on my credit report as deficiencies. This was never disclosed to me on any documentation and I wonder how many other people have had the same experience. Now I'm being told by other lenders that I will have to wait up to 3 years before I can buy again. My credit prior to this, was decent. I don't think this is fair and I feel that if this is a normal practice with Chase, that they are being very deceiving to their already hurting customers. This only ensures that the customer stays with Chase because they won't even be able to refinance to get out from under the Chase "umbrella". What can I do?
0 votes Thank Flag Link Thu Mar 22, 2012
I have had the exact same thing happen with Webster Bank. It's been a nightmare.
Flag Fri Mar 21, 2014
YES it does! i just finished a conversation with chase bank and it will reduce your credit score because you are having your loan modified to as little as 31% of you household income. This is considered a type of consolidation.
0 votes Thank Flag Link Wed Jan 4, 2012
The information out there is very inconsistent on this matter. I would suggest, unless you really need a 'modify', rates are so low everywhere....it is better to shop for a refi. Clearly, only case you cannot do this is where your mortgage + deliquent payment balance is greater than your home's current value. As long as it is less, refi!
0 votes Thank Flag Link Wed Jul 20, 2011
I was a rep with Titanium and all of the loan mods we facilitated, would negatively affect the credit score. The way they typically worked was that the loan mod would become permanent after a period of making the lower payments as agreed,.. during which time the payments would be reported as late.

I believe this is done so that people were not going after mods that did not really need them,.. in other words the bank was going to be taking a hit and they expected the borrower to take one as well. While a Loan Mod is certainly a better solution than a short sale or a foreclosure,.. it does not come without cost.
Web Reference: http://www.springsnet.net
0 votes Thank Flag Link Thu Mar 17, 2011
Thank you for your question about how loan modification affects your credit score. Please be advised that loan modification does affect your credit score. consult a credit repair specialist or counselor to find out exactly how it may affect your credit score specifically.
0 votes Thank Flag Link Thu Mar 17, 2011
I received the Citimortgage Responsible Payment... this month. I also asked the questions about the effect on credit score, as I have no lates, etc. They said it will be listed as Loan Mod, but as long as we continue to make the payments on time as we have since day 1, then there will be minimal effect on credit. And the small hit should be made up in 3-6 months with continued on-time payments on all account balances. Under the program, we are to make the same payment as before, until they complete the paperwork and then notify us of the new payment. It is basically like a no-cost refinance with a new 30 year mortgage at a new lower fixed rate. I will have to trust Citi that they won't report us late while this process is being completed, as we will continue to pay all payments on-time as before.
0 votes Thank Flag Link Thu Mar 17, 2011
YES ABSOLUTELY a loan mod will negatively effect your credit score. I had a buddy who had 800 credit scores and did a loan mod and his scores plummeted to 520 because the bank still reported him 90 days late for 9 months even though he was paying negotiated new payments on time. Only do loan mod if you already have BAD credit. Check out my blog for more details LOAN MODIFICATIONS - A REAL HORROR STORY.
0 votes Thank Flag Link Sat Jan 29, 2011
wells fargo told us it would NOT hurt our credit score time and time again and in the end they reported us 90 days late for 6 months in a row even though we made our modification payment on time every single month! This is so sneaky and wrong! There has to be something we can do!
Flag Wed Sep 26, 2012
Have anyone heard of Citimortgage's "Responsible Lending Refinancing Program"? I'm not in financial trouble, have no problem paying my mortgage and have been current on payment. Out of the blue on 12/1/2010, Citi (my 1st mortgage lender) sent me an unsolicited offer saying that I've been pre-approved for a loan modification. It will fix my 5/1 ARM to a 30 year fixed and keep the interest rate at 3.375% with no closing cost, no fees and no extra doc. The net benefit to me is a low interest rate locked in for 30 years. My monthly payment is lowered a little bit because they are stretching out the loan but that doesn't matter to me too much because i can more than pay for my monthly payment.

The only caveat is they will report to the credit bureaus as "CO Loan Modification under a non government modification program. Neutral impact on credit score." When I called Equifax, they said most loan mod comes with "late payment" because the new monthly amount is lower than the original and that will damage my credit score. Citi told me that since I'm still paying for the same loan, as long as I'm current, they won't report me as late. In fact, I can pay more than the basic amount + more. Bottom line - should I trust Citi in reporting me as current after I accept the offer?

Granted, this is a new program that just started in 12/1 so not everyone has all the info.

Thanks.
0 votes Thank Flag Link Tue Dec 21, 2010
Speaking from experience, it most definitely does effect your credit. The loan mod takes 180 days, and is complicated. Say your mortgage is $2,500/mo. You will have to give the bank $2,500 on say the 15th of every month ON TIME for 6 months. The thing with the mod is that those 6 on time payments of $2,500 are NOT applied towards your mortgage; they are place in an account that at the end of the 6 months does go to the mortgage in a lump sum- but it shows on your credit as being 180 days late on your credit. If you modify, be prepared because you will under NO circumstances be able to get any type of loan for several years, including a new mortgage if you sell, a car loan, a home equity loan, etc. If you're in foreclosure status now, or are heading towards it, then consider a loan mod. Otherwise steer clear.
0 votes Thank Flag Link Thu Oct 28, 2010
Yes, unfortunately it will affect your credit score. There are some good answers here that explain why. Good luck.
0 votes Thank Flag Link Sun Jul 18, 2010
I was just approved for a Wells Fargo modification. Into what they call a step up program. 2.5% for 5 yrs, 3.5% for 5 yrs, and fixed at 4.38% for the rest if term (term was kept at 30yr).

I was told by Wells Fargo that during the Trial period of 3 months, which is required. They would put a stop on credit reporting and not show late, slow, or partial payments. In month 4 the program goes permanent at wich time the payments will reflect on the credit report as full and on time.

Has anyone else heard of this?
0 votes Thank Flag Link Fri Jul 16, 2010
Yes, it really affects your credit score. How much? It will depend on each bureau agency.
But, what you should consider the benefits of a loan modification. It will really change the terms of the contract and get the interest rate lower, so you will save a lot of money to make a credit restoration.
Consider for and pros, and think about it.
0 votes Thank Flag Link Wed Jul 14, 2010
Actually, I simply inquired with my lender about a modification. My ex-wife had stopped paying on the mortgage and I contacted the lender to request assistance. I was told repeatedly that nothing could be done and I should consider a short sale. My credit score at that time was in the neighborhood of 715. Without a raise in credit balances or any late payments (I have continued to struggle and make all of the payments), and no signed action on my part, my credit score is now 590, three months later. See this article below and read CAREFULLY before applying, as I know almost 2/3s of the Fair Issacs Matrix. It appears that simply REQUESTING a modification can have an extremely adverse effect on your score. If this is the case I hope someone considers a class action lawsuit; I would love to join it.
0 votes Thank Flag Link Thu May 20, 2010
The problem with a loan modification is that the monies you pay do not get applied as payments until you make the required payment. So when you are in the trail, your money is placed in what the banks call an unapplied account until enough money is in the account to make a contractual payment. Thus your account will be considered deliquent even if you never missed a payment if the modification payment is less than your current contractal payment.. The banks are suppose to place a block on your credit during this process but they are not unless you are able to escalate the issue.

It can be a trade off reduced payment for having to repair your credit after payments changes take place. If the mod does not get approved it is almost like digging a hole that is hard to get out.

Good Luck
Keith Manson
First Weber Group

Certified Distressed Property Expert

Metro Milwaukee

http://www.milwaukeebailout.com
0 votes Thank Flag Link Sun Apr 25, 2010
We have seen several customers pass the trial Make Home Affordable Loan Modification and have the loan modification become permanent. As such, we have seen the long lasting effects on credit. First, the loan is changed from behind to current. Recently, there was a new category launched to denote these loan modification homeowners. It is intended so it would not hurt them. So, when you get a loan modification it is not treated as a debt settlement or paid less than agreed. That's good news. Second, the loan modification's goal is to reduce the mortgage payment and/or reduce the debt. Both of these qualities help your credit. Depending on who does your loan modification and what they accomplish, your credit can see some improvement. Hope this helps. For examples on what long term effects can do to your credit, check this site http://www.championfinancialwork.com/fastloanmodification
0 votes Thank Flag Link Sun Apr 25, 2010
The loan mods seem like a Great Deal,... but the answer is YES,.. the trial payments are considered late until such time as the modification is complete. The paperwork for the trial payments clearly states that those payments are considered to be late until such time as the modification is complete.

If you are going to lose you home without the modification,.. then do it,.. if you are able to make the payments you agreed to,.. don't
Web Reference: http://www.springsnet.net
0 votes Thank Flag Link Wed Dec 2, 2009
YES! Actually it does effect your credit score during the application process. If you current on your loan and agree to the modification trial period payment (less than your regular mortgage) your credit score drops because you are making "partial payments" We were current NEVER late and entered into the modification process to make our payments more affordable. We made the 2 of the trail montly payments until we realized this and then made or regular payment. In the end we cancelled the modification process. We pulled our credit score and it went from a 700 to 500. Unless your score is low to start and your are behind any way. do not do this!!!!
0 votes Thank Flag Link Wed Dec 2, 2009
PEOPLE! THE ANSWER IS YES. THIS WILL YOUR LOWER CREDIT IF YOU ARE ACCEPTED. SIMPLY APPLYING FOR A HOME MODIFICATION WILL NOT, BUT ENROLLING WILL. KEEP IN MIND- THIS PROGRAM IS FAILING, AND ONLY A VERY SMALL % WILL BE ACCEPTED.
0 votes Thank Flag Link Sun Oct 25, 2009
Dear Rich,

Not necessarily. A modification in and of itself does not hurt your credit, however, missed mortgage payments do affect and harm your credit standing. I suggest you contact my rep at AALMG through their website, and he will be able to provide you with any information you may need.

http://www.aalmg.com/contact-us.php

Good Luck!
Web Reference: http://www.crestico.com
0 votes Thank Flag Link Mon May 11, 2009
NO NEVER, NEVER EVER!

Hey Kids, a Loan "Mod' is part of a relief plan or work out for a loan seriously in arrears’. Ahhhh work out, seriously in arrears. ...sooooo delinquent.....ummmmm derogatory credit already reported so question is rhetorical.

Damage is already done!

Why by the way would anyone want to hire or negotiate a Rip Off Plan , (I mean work out plan?). Under the new legislation for lender ethic's and HUD mandates for foreclosure solutions, THEY MUST OFFER YOU A WORK OUT PLAN. And Here it is critters.

“Take and bake all the accrual due and divide out by so many months. Add it to the current payment So a $1,000 payment goes to $1,250 if you have $1,000 in arrears and were to pay it back over 4 months. Ahhhh I can’t afford my current payment so let me think about this ingenious idea.

If you can’t afford the loan due to an adjustment make a claim for predatory lending. Get your loan cut in half. Ahhhh now that's a cram down modification program I like!

http://www.borrwerhotline.com admin@borrowerhotline.com
0 votes Thank Flag Link Fri Aug 1, 2008
Rich
What affects your credit standing is whether or not you are current.
In most cases a lender will be looking at your ability to pay and the reasons why now you cannot afford to pay the mortgage for a loan that originally your were qualified.

As long as you are current, you should be fine. A loan mod is better than a short sale or a foreclosure.
0 votes Thank Flag Link Fri Aug 1, 2008
Keith Sorem, Real Estate Pro in Glendale, CA
MVP'08
Contact
It really depends on your personal situation. If you are behind in payments now or if you are preparing for your payments to jump up at a later time.
0 votes Thank Flag Link Fri Aug 1, 2008
Yes but how bad depends on how the lender reports it to the bureaus and what was negotiated.
0 votes Thank Flag Link Thu Jul 31, 2008
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