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