Home Affordable Mortgage Program Effect on Your Credit Score
Borrowers who are opting for a mortgage modification pursuant to The Home Affordable Modification Program (HAMP) must go through a three month trial period before the lender will approve the modification lowering their mortgage payments to 31% of their gross monthly income. While this sounds great, if you were in default before you entered the program, your lender can continue to report you as delinquent until the trial period is completed. This means that you would have several months of delinquent mortgage payments on your credit report which would negatively affect your credit score.
Your lender could still continue to report negative items after your modification is approved such as reporting only a partial payment. Be sure to find out exactly what the terms of your modification plan entail before you sign anything.
How Mortgage Modifications Work
A mortgage modification basically modifies the terms of your existing mortgage by lowering the interest rate and changing your loan term. Your lender generally adds the arrearages on to the back end of your loan. Mortgage modifications are short term and are used to help borrowers who are facing a temporary financial crisis. So if you don’t have enough income to pay the reduced mortgage payment, you won’t qualify or a mortgage modification.
“Homeowners need to understand the difference between the trial and permanent modification. At my office, we have a department that follows up on the paperwork that is needed to complete the trial modification. Banks always want documentation after the trial period is up to make sure the borrower will be able to make payments in the future,” says, Joel Jacobi, loan modification attorney at American Residential Law Group.
American Residential Law Group thinks millions of homeowners are paying too much for their mortgages. This law firm specializes in loan modification, which is a form of renegotiating a home finance term—even in the event of foreclosure.
Benefits of Hiring an Attorney
A real estate attorney is an expert in mortgage and real estate laws. The attorney may be able to negotiate with the lender that they refrain from reporting any negative items or delinquencies to the credit bureaus so you don’t damage your credit further. The attorney can also help negotiate the rate and other terms of your mortgage modification. In addition, the attorney can review your loan documents to make sure your lender complied with truth and lending and disclosure laws. Any violations can be used as a negotiating tool against your lender to get them to cooperate in approving your mortgage modification. They could face stiff fines and penalties if the violations are reported to federal agencies. You could even rescind the loan in some instances. So it is to the lender’s benefit to cooperate with you and your attorney.
Improving Your Credit
It takes time to improve your credit score so it is best if you pay your bills on time and dispute any negative items that have been reported or paid. Keep in mind that a mortgage modification or short sale is not as damaging to your credit as losing your home to foreclosure.
Before you decide to participate in any mortgage modification program, you should make sure you understand the terms and conditions of your loan, and have your real estate attorney review the document to make sure it is okay. The attorney can also advise you about other options that may be available.
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We are in a trial modification right now – just made the first payment on March 1, 2010. Our payment has gone UP about $200 per month, and it totals 48% of our pretax income. Yeah. AND, we had to start making the payments without ever having been told what the principal balance will be, or what the interest rate will be (our original loan was a neg. amort. and the modification may include taking the principle down to the original amt….or somewhere in between?) We need help, but having the payment go UP is not feeling real helpful right now.
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