The question has been asked by many as to why should people’s credit be hurt even worse when they are trying to do the right thing? This is what is making homeowners around the county angry when a program that is supposedly designed to help, carries such a penalty.
However, foreclosure is worse on your credit than the loan modification, as a homeowner’s credit can be lowered as much as 150 points or more on a scale of 300 to 850 and is far more severe in a foreclosure situation, which tatters your credit for years. This is due to the results of many months of missed payments and the foreclosure itself.
If a home owner enrolls in the Obama administrations $75 billion “Making Home Affordable” program, you will enter a trial period in which you make at least three payments. During this time your credit score will take a dive during the trial phase. This occurs when the mortgage company notifies the three credit bureaus – Experian, Equifax, and TransUnion. If you fell behind prior to this on your loan, the damage was already done.
If you as a homeowner are having financial troubles but managing to pay your bills, a request for a loan modification is the first sign of difficulty. This results in a sharp drop in your credit score and the credit rating industry defends their reasoning saying that people who sign up for the loan modification would not be asking for help unless they were having severe money troubles and noted that they wouldn’t be going into the program if they were not in a financial bind and as a result, other lenders need to be made aware of that.
Since the Obama loan modification program was launched last year, 170,000 homeowners had completed the process as of February, 2010. Hundreds of thousands more are still in limbo. The consequences of the program have been plagued with problems and disappointing results and the credit score issues are a problematic consequence of the program.
Now here is another twist to the already tangled mess. The impact is far worse for borrowers who enroll in the Obama program and are then ruled ineligible. The other side of the coin is, if homeowners manage to get accepted into the Obama program and have their loans permanently modified, lenders update the credit bureaus. The new status neither hurts nor helps the borrower’s credit score.
It takes time to see credit scores increase. “The best way to build credit back is to continue to pay bills as agreed, to use credit wisely,” said Tom Quinn, vice president of scoring solutions at Fair Issac Corp., which designed the well-known FICO score system. “As time goes on, the score gradually increases.”
So be prepared to take a hit on your credit score and prepare for the change. Continue with your payments and eventually your credit score will start to repair itself as creditors report your payments to the credit bureau agencies. As with everything in the mix, it took a period of time to get where you are now from various circumstances that put you behind with paying your bills on time and it will take time to rebuild.
Based on article written by Alan Zibel, AP Real Estate Writer, On Friday March 19, 2010, 11:25 am EDT
