Will a Loan Modification Affect My Credit Rating?
With so many homeowners going through the worst economic crisis they have known, people are wondering if their credit will also make it through these troubling times.
What's also troubling is, apart from the great depression, most banks have never been through this type of economic crisis either.
So the answer to these questions can be somewhat elusive.
Most banks, if not all of them are unsure how to handle the loan default crisis or how to report different modifications to the credit agencies.
At the moment, there is no standardized reporting criterion.
And since there is so much confusion, Banks have not set firm rules.
So what's the answer to the question, "How does a loan modification affect my credit?" Well, to begin with, if you have fallen behind on your loan and your payments are past thirty days, your mortgage will be in default.
Your lender will have reported this to the credit bureaus and this will already have affected your credit.
How much your credit is damaged depends on the length of your delinquency.
Also, it is important to note, that if you are on a trial loan modification and you have not been making payments previously, your loan will still be reported as delinquent until your trial period is over (which is usually about three months), and the loan modification agreement is fulfilled.
Unfortunately, this will be the case even if you make the trial period payments on time.
Homeowners who are not late on their payments but are struggling with their mortgage, may qualify for a refinance or modification.
So if you are not behind on your mortgage, modifying your loan should not affect your credit rating.
You will simply be changing the terms of your mortgage.
This will be written in legal documentation which will be recorded in the records of your county, but other than that, there would be no other information to report to a credit bureau.
So the short answer to this question is a loan modification will not affect your credit in a negative way! As a matter of fact, a loan modification has the effect of "bringing the homeowner current" on the mortgage! Effectively, a modification of terms is like having a new start, because all the delinquent payments are accounted for! And despite the confusion, most banks will report the loan as current, once it is modified! With so many foreclosures affecting homeowners today it is uncertain whether the credit bureaus and banks will revise their reporting criteria.
This whole loan modification experiment will have to be a case study on its own.
Only time will tell where the chips will fall, and what new financial instruments will need to be created! Imagine what will happen in three or four years time, when families are going to be seeking the American Dream once again! Banks may be faced with a scenario where as much as three out of every five loan files presented to them for a potential mortgage has a previous foreclosure.
Are they going to say no to all these files or look past the foreclosure and see if you have been current on your bills and credit report since the foreclosure?
What's also troubling is, apart from the great depression, most banks have never been through this type of economic crisis either.
So the answer to these questions can be somewhat elusive.
Most banks, if not all of them are unsure how to handle the loan default crisis or how to report different modifications to the credit agencies.
At the moment, there is no standardized reporting criterion.
And since there is so much confusion, Banks have not set firm rules.
So what's the answer to the question, "How does a loan modification affect my credit?" Well, to begin with, if you have fallen behind on your loan and your payments are past thirty days, your mortgage will be in default.
Your lender will have reported this to the credit bureaus and this will already have affected your credit.
How much your credit is damaged depends on the length of your delinquency.
Also, it is important to note, that if you are on a trial loan modification and you have not been making payments previously, your loan will still be reported as delinquent until your trial period is over (which is usually about three months), and the loan modification agreement is fulfilled.
Unfortunately, this will be the case even if you make the trial period payments on time.
Homeowners who are not late on their payments but are struggling with their mortgage, may qualify for a refinance or modification.
So if you are not behind on your mortgage, modifying your loan should not affect your credit rating.
You will simply be changing the terms of your mortgage.
This will be written in legal documentation which will be recorded in the records of your county, but other than that, there would be no other information to report to a credit bureau.
So the short answer to this question is a loan modification will not affect your credit in a negative way! As a matter of fact, a loan modification has the effect of "bringing the homeowner current" on the mortgage! Effectively, a modification of terms is like having a new start, because all the delinquent payments are accounted for! And despite the confusion, most banks will report the loan as current, once it is modified! With so many foreclosures affecting homeowners today it is uncertain whether the credit bureaus and banks will revise their reporting criteria.
This whole loan modification experiment will have to be a case study on its own.
Only time will tell where the chips will fall, and what new financial instruments will need to be created! Imagine what will happen in three or four years time, when families are going to be seeking the American Dream once again! Banks may be faced with a scenario where as much as three out of every five loan files presented to them for a potential mortgage has a previous foreclosure.
Are they going to say no to all these files or look past the foreclosure and see if you have been current on your bills and credit report since the foreclosure?
