Loan Modification and my credit score under the Making Home Affordable Plan

I was just notified by my bank that I qualify for a loan modification under the Making Home Affordable Plan. The bank told me that during the trial period of 4 months I will need to pay my much reduced mortgage payment on time by the 1st of each month. Then they told my that, by the way, this modified payment during the trial period is going to show up as a rolling 30 day late payment on my credit. I am concerned because I have great credit, 775 currently and wonder will this affect me long tern? I'm sure there will be other people wondering the same thing as the plan continues to roll out. Any advice would be much appreciated.

Elizabeth – Yes, the rolling 30 day late payments will have a serious negative impact to your scores. If I understand you correctly your mortgage will show up as being 30 days past due for 4 straight months. This is a great illustration of the disconnect between these mortgage relief plans and the realities of credit reporting. Is there any way I can get the documents that outline the credit reporting aspect of their offer? I’d love to comment directly to them as well: AskJohn@credit.com

Best, John Ulzheimer

I am in the same situation of being close to a modification with my lender under the Making Home Affordable Plan, and my lender informed me at the last minute that participation in the program would adversely impact my credit score (which is quite high like Elizabeth's). The specific explanation is as follows:

The federal program requires three "trial" payments before the loan can be modified. These PITI payments are required to be submitted to the lender by the first of each month. The reason that I would be considered deliquent on my current mortgage is that the modified trial payments are less P&I than my current loan (approx $400 less each month). Therefore, I would have a rolling deliquency on my payments of $400 the first month, and then when the next trial payment is submitted, the deliquency of $400 would be made up but I would have a new deliquency in the second month, and so on, until the loan is modified.

I asked my lender if I could just pay the trial payments plus the $400 for the three trial months-- in an effort to enter the program and still maintain my good credit by staying current on my present loan. They said no, because if you make the full mortgage payment during the trial period, then you do not qualify for the program.

The lender said that "Treasury Guidelines" do not allow the lender to waive the negative credit reporting.

The lender said that the Treasury has instructed the banks that this is a way to "weed out" people who truly need help from those just looking to participate in the program to lower their rates.

I am wondering if it would be advisable to wait to participate as the federal program is more fully and completely defined.

It's really going to depend more on whether or not you can afford to wait. The guidelines for the Making Home Affordable Program have only been defined for those homeowners that are currently at risk and behind on their mortgage. Guidelines for homeowners that are underwater but able to manage on-time payments have not been clearly defined...

I'm going to play devil's advocate on this one and say from a lender's (and scoring model's) perspective, a loan modification will probably continue to include some type of negative reporting indicator. Why? Because even though the payments were made on time, a loan modification would mean that the borrower was unable to stick to the original terms that were agreed to.

Having said this, I will say that a rolling 30 day late is MUCH MUCH easier to recover from as far as your credit scores are concerned. Yes, the 30 day lates are going to sting and you'll most likely see a significant drop - especially while it's being reported as 'currently late'. However, it will not be nearly as damaging as a 90-120 day late. And certainly not as damaging as the other alternatives: a short sale or foreclosure.

John wrote an in-depth article that explains how late payments impact your credit scores. If you read it, you'll see that an isolated incident of a 30 day late, might not be as detrimental as you think. Again, it'll hurt initially and you should avoid it if possible, but it's not something that is going to ruin your credit for the next 7 years. If you're interested you can read it here: Late Payment Secrets Revealed

My loan is owned by Freddie Mac who has been appointed (along with Fannie Mae) to oversee compliance with Home Affordable Modification Program. During April 2009 Freddie Mac published guidelines (Publication 800), for Servicers to follow for Freddie Mac owned/guaranteed loans which read as follows:

Servicer Reporting & Remitting:

Report a “full-file” status report to the four major credit repositories during the Trial Period as follows: Borrowers who are current when they enter into the Trial Period and make payments by the 30th day of each month, report as current, but on a modified payment.
Chase Servicer has told me I will be reported 30 days late at end of 3rd payment applying the rolling method described by previous forum users.

Who should I believe, written Freddie Mac guidelines or oral conversation with Servicer Chase?

I also found that same federal guidance document and forwarded it to my lender. We agreed that the previous guidance received by the lender contradicted the April 2009 federal guidelines for program implementation.

After receiving the federal guidelines (sent by me!), my lender reviewed the document and called me back the following day and agreed that they would not need to report my loan as delinquent. FYI - my lender is a major national financial institution, not a little local bank.

I would suggest forwarding the federal guidelines directly to the lender and pointing out to them that they are contravening these guidelines by reporting you as 30-day rolling late.

Alternatively, if you are reported as late, you have a mechanism to dispute the late report directly with your credit agency.

Best of luck!

We love to hear success stories - especially the fact that after forwarding the federal guideline documentation, your lender changed the way they were planning on reporting the account!

Would you be interested in sharing your story with a reporter? We're looking for consumers that have been able to complete a loan modification under the Making Home Affordable Program. If so, please email us at tidbits@credit.com!

Could you be kind enough to post a link to the guidelines that you sent your lender?

Thanks!

This is the same type of response I'm getting from my loan servicer about reporting my loan late even though my loan is current now. I see the post above for the Freddie Mac loans amd a document that could help. Has anyone found the same type of document for Fannie Mae loans?

Bwilley

There is an administrative website for servicers of the program with tons of documentation. The website is the Administrative Website for Servicers - Home Affordable Modification Program or https://www.hmpadmin.com/portal/index.html

Based on the "Supplemental Directive 09-01" document, the guidelines for reporting the account to the credit bureaus are as follows:

Credit Bureau Reporting

The servicer should continue to report a “full-file” status report to the four major credit repositories for each loan under the HAMP in accordance with the Fair Credit Reporting Act and credit bureau requirements as provided by the Consumer Data Industry Association (the “CDIA”) on the basis of the following: (i) for borrowers who are current when they enter the trial period, the servicer should report the borrower current but on a modified payment if the borrower makes timely payments by the 30th day of each trial period month at the modified amount during the trial period, as well as report the modification when completed, and (ii) for borrowers who are delinquent when they enter the trial period, the servicer should continue to report in such a manner that accurately reflects the borrower’s delinquency and workout status following usual and customary reporting standards, as well as report the modification when completed. More detailed guidance on these reporting requirements will be published by the CDIA.

“Full-file” reporting means that the servicer must describe the exact status of each mortgage it is servicing as of the last business day of each month.

If you're going through a loan modification under the Making Home Affordable Program, and having trouble with your loan servicer, this site and the documentation is great resource.

I also found the same verbiage about if the loan is current upon entering, it will still be reported as current. I found it on a fannie mae related website. Maybe it will be helpful to others.

https://efanniemae.com/sf/mha/mhamod/rpt/

I still need to confirm with my loan company that they truly understand this part of the process. Anyone else having luck in this area?

bwilley

HAS ANYONE EVER HEARD OF PARSA LAW GROUP IN ORANGE COUNTY, CALIFORNIA? ARE THEY LEGIT? TKS.

Thank you for the posts stating where lenders are required to report modified loan payments under the trial period. We are current on our loan and were disturbed to find a statement in the trial period offer about our payments being reported delinquent during the trial period.

Hi,

I was just approved for a loan modification under the Obama programa. The bank agreement says that they will report me deliquent during the 3 month trial. I contacted the bank and they told me that if I pay the full amount instead the partial payment, they will not report me delinquent, but they will report that I'm in a partial payment agreeement to the credit bureau. My question is, how it will affect my credit, if the bank reports that I'm in a partial agreement to credit bureau?

Thank you,

The 'partial payment' narrative is going to hurt while your lenders are reporting it because it's considered negative. Partial payment technically means that you're unable to pay the loan at the terms that were originally agreed to. There was a write up about this very topic in the news recently. If you're interested in reading more about this issue, read the article: Credit Reporting Industry's Decision on Loan Modifications Boxes in Consumers