Will a modification affect my credit score?

Rodney,

My wife and I were in the Home Modification Program thru our bank and they just approved us for a rate reduction mortgage program. If we do decide to accept the offer will this show up on our credit history? Our credit is in the 700’s. Any suggestions?

Thank you,

Ryan and Barbie

Hi Ryan and Barbie,

Unfortunately, you may take a hit to your credit score if they do not correctly report the modification to your credit.  Lenders use special codes to let credit bureaus know what customers are borrowing and whether they are paying on time. Anyone that is in a modification have a special code showing up on their mortgage trade line (AC). This signals, however, that the borrower is paying only a partial payment which has a significant impact on the borrowers credit scores. A Treasury Department spokeswoman estimated that scores can fall 30 to 100 points (I’ve even seen them fall much further).

The credit bureaus are looking to change the code to CN, which signifies that the modification was done under a federal government plan, which will have no impact on the credit scores. The problem is getting FICO to make a decision on whether the modification will have a predictive role in late payments or other derogatory items that can show on your credit report.  Even after that, the lenders will have to make a conscious choice whether to report with the new code or not.

Ultimately, Ryan and Barbie, my suggestion is to monitor your credit monthly and try to get a letter from the lender that states the modification will not be reported negatively on your credit report. This will save you lots of time and headaches in the future. By monitoring your credit report monthly, you will be able to catch any discrepancies immediately and deal with the problem before it snowballs into something that will cost you time and money to solve later down the road.  Also, if you decide to sell and buy or refinance later on you can have a difficult time. So be careful!

I hope this information helps you with your decision.

Rodney

CNBC - FHA’s new guidelines

Co-signing to refinance

Hello Rodney,

I am trying to refinance my home for a lower interest rate and I have been told due to our debt to income ratio being to high that we would have to have a co-signer. We have been in our house for atleast 3 years and our interest rate on our home right now is at 7%. Our credit scores are in the 700’s. My mother in law bought her house a couple of years ago and would like to co-sign for us. How would that effect her if she tried to refinance her own house? Does that show her debt to income ratio being too high as well? We have never been late on any monthly payment or any other bills.

Thank you,

Barbie (Kennedale, TX)

Hi Barbie,

It depends. My suggestion without seeing any of the necessary information would be to have your mother refinance her house first (assuming she is trying to lower her payment) and then to refinance your house with her co-signing. In theory, that would be the best route to go. My suggestion would be to call my office so we can get some more detailed information to determine what the best route would be. You can call 972-985-5208 anytime.

Thank you,

Rodney

Credit Cards vs. Cash Out Refinance

Hey Rodney,

My wife and I have been prolonging our decision to refinance. We need to decide before rates go up. Here’s our situation: We owe about $60,000 in credit card debt and are aprehensive to do a cash-out refinance to pay off the debt. We have been in our house for 7 years and do not want to reset our loan. What do you think? - A. Wilson, Rockwall TX

Mr Wilson,

I believe that a cash out refinance is an opportunity for you and your wife right now. If your credit card rates haven’t increased yet, they most likely will. If the credit card companies haven’t cut your credit lines yet, they most likely will. In either event, your financial situation will negatively change and could prevent you from having this same opportunity at that point. My suggestion would be to do the cash out refinance into a 15 year fixed rate. The difference in payment might even match what you are paying out now for both your credit cards and your mortgage. If you would like me to run numbers for you and your wife, just call my office at 972-985-5208 or 1-800-EXPRESS.

Thank you,

Rodney

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