Loan modification does not necessarily have a negative effect on credit scores. In fact, before the government plan was announced, there were very few reports of drops in credit score due to modification. Now that the CDIA has come out with new reporting guidelines for modifications under the Making Home Affordable plan, people are seeing drops in score.
Since you don't have a Fannie or Freddie loan, you can't participate in MHA. You'd have to negotiate a modification outside the plan, which isn't necessarily harder, but it is true that in general the major lenders are swamped with requests, leading to a backlog.
My modification did not affect my credit score. At least not yet. I'm waiting to see if the reporting changes in the future.
