I have asked my home lender for a loan modification. They have agreed and asked that I execute an agreement that reduces my payment by 1/3 for the next 3 months. I have until 10/1 to return the signed doc. The paperwork states that I will be "paying a partial payment as agreed". Does anyone know what this might do for my scores? They range from 767-805. I am upside down on the house to the tune of $250,000-300,000. One of the options that I am considering is to return the house to the lender because I have an interest only loan that resets in 16 months. I would need to come up with about $400,000 to refinance. (Not an option).Does anyone have any experience with this type of thing and as to whether a permanent agrreement that would be executed after the 3 month trial mod is over, how that would affect my score as well? I am wondering if it would be best to return the house now and take the BIG hit to my scores or potentially end up with a low score even after going through with the mod process.
Is this loan being modified through the government's Making Home Affordable plan?
Based on what you have quoted about being on a partial payment plan, there is a reasonable likelihood that your loan will be reported to the credit reporting agencies as "paying under a partial or modified payment agreement". For others, this has resulted in drastic drops in score of 100 points or more. Since your scores are already quite high, you could possibly experience a drop of at least this much.
The other option you mentioned - deed-in-lieu of foreclosure - would also drastically affect your credit score, probably much worse than the notation that would come with your loan modification. It may drop your score just as much as a foreclosure. Like foreclosure, a deed-in-lieu would prevent you from obtaining a new conventional mortgage for as much as four years. If you have a second loan on your home, a deed-in-lieu may be much harder to negotiate.