Mortgage Modification and Credit Reports

Modifying your mortgage may help with the financial trouble you are in, but voluntarily going into default so as to become qualified for a modification may have some unforeseen downsides.  Consider a person who is not in default that wants to use the modification system to try to lower their interest rate to that wonderful “2% rate my friend got.”  After learning that she must be behind in her mortgage before qualifying for a modification, the consumer purposefully begins to pay less than the full amount of her mortgage each month.  After making the lowered payments, the homeowner is horrified to learn that her credit report had been damaged.

There are certain reporting guidelines that the credit industry (and the Federal government) has agreed to use to address the mortgage modification explosion.  But exactly how mortgage modifications situations are going to be “scored” on consumer credit reports is not perfectly clear. More importantly, it is not clear how potential new lenders are going to view someone who modified their mortgage.  How much is a “credit score” going to be decreased because of a mortgage modification?  Even if the credit scoring companies, (FICO, etc) don’t consider modifications as a negative,  will new mortgage lenders refuse to lend to someone who participated in a mortgage modification?   These answers are not yet clear.   What is clear however is that consumers should consider these issues when making decisions about mortgage modification.

If you are having an issue with improper credit reporting, you are welcome to contact the Law Office of Joseph Mauro to discuss your situation.