One of the largest concerns shared by many homeowners who have missed several mortgage payments is what choices are available to them, and how each option can change their credit rating. While these owners know that their credit has deteriorated rapidly due to the foreclosure situation, they also want to preserve as much as possible their chances of borrowing money in the future.
Loan modification is the newest trendy method to stop foreclosure, with numerous government programs subsidizing financial institutions and homeowners. Thousands of foreclosure consulting companies offering to help borrowers negotiate with the banks (for a fee) have also sprung up all across the country.
While changing the terms of a mortgage can be a great plan for some borrowers, few people have really questioned how a modification will be reported to the credit agencies. They are somewhat similar to refinancing a property, entering into a forbearance agreement with a lender, and even filing a Chapter 13 bankruptcy.
Government rules, until very recently, have also been foggy as to how lenders should report a loan modification on clients' credit histories. Some lending institutions would have the record state "paid as agreed," while others would account for the payments as "partial payments." Some would even just keep the loan in a state of "foreclosure" until the temporary modification or repayment plan was completed.
All of these different approaches had widely varying effects on a borrower's credit score. Having a loan shown as "paid as agreed" was clearly the best solution. Partial payments is considered a negative to prospective lenders and would cause a drop in the credit score. Having a credit report show a foreclosure would be almost as bad as just having filed bankruptcy and discharged all of the debt.
The new regulation requires that banks report a mortgage modification to the credit rating agencies as "loan modified under a federal government plan." Another necessity is that this designation will have no effect on the owner's credit (FICO) score. This is partly due to the relatively small number of people who have received a modification to avoid foreclosure.
When there are more mortgages with the federal government designation, then the credit rating agencies will be able to decide how to change the debtors' scores. This will mandate more modifications to go through and past ones not to fall back to foreclosure status.
Author Resource:-
Nick writes articles designed to help consumers understand how various methods to stop foreclosure work, and which may be most appropriate for them. He writes about such issues as how to hire the right personal bankruptcy lawyer, the dangers of a deficiency judgment after foreclosure, how to delay a sheriff auction, and more. Visit his site if you need help understanding how foreclosure and bankruptcy work, and what other alternatives you should consider when the bank is trying to steal your property: http://www.mypersonalbankruptcylawyer.com/
![[Valid RSS feed]](http://www.newworldproducts.org/Articles/images/icon_Rss.png "XML Feed For RSS"){kind=icon}
Category Rss Feed
Print This Article
Add To Favorites