Loan Modification

[Trying_to_climb]

Hello and thank you in advance for your response.

I am thinking about applying for a Loan Modification; however I believe I read somewhere (I think it was MoneyCNN.com) that people who have done this their credit scores have plummeted anywhere from 80 to 100 points.  Anyone has had experience with this?

My mortgage payments are current.  I have a 6.375% fixed APR but I live in California and a State worker whose salary has been reduced by 15% due to the furloughs.  The reduction in pay started 1 year ago February 2009.  I was doing ok with all my payments and the reduction in salary but now its beginning to catch up (no more savings).  So, I'm afraid pretty soon I will have to make a decision do I pay the credit cards? Utilities? Mortgage? something is going to give.  My net reduction is about $600.00 so that's about how much.

[homerunstacy]

I have a pretty detailed post about my experience so far here:

http://ficoforums.myfico.com/fico/board/message?board.id=loans&thread.id=62879

I went from the 700's to the 500's but you also have to factor in my increase in credit utilization plus the 60 day late on the mortgage.

I felt I had exhausted all other options first.

Good Luck!

[Imhotrodcrazy]

---

@Trying_to_climb wrote:

Hello and thank you in advance for your response.

I am thinking about applying for a Loan Modification; however I believe I read somewhere (I think it was MoneyCNN.com) that people who have done this their credit scores have plummeted anywhere from 80 to 100 points.  Anyone has had experience with this?

____________________________________________________________________________________________________________________

I do not believe this is true and I will tell you why.  I have some close  friends and they also live in Calif.  They were current on all mortgage payments but they had a variable rate that was due to adjust upward.  When the variable rate was due to take effect they would have lost their home because they would not have been able to make the higher payments.  When they originally got the variable rate about 5 yrs back they planned on re-fi before the loan adjusted up.  However, as we all know, the market crashed and they had no equity left in the home to do a re-fi.  They wrote to the bank and explained their situation and within 6 weeks or so the bank modified their loan with a fixed rate, that was two points points below their variable rate, and dropped their monthly payments by a thousand dollars.  They kept their original loan number and their credit report does not show any loan modification info on it.  They did not have a negative change in their fico score.  So, while I know every loan mod is different I think it is well worth it to at least write a letter, or call  your bank and explain your situation and seek help if possible.  It is far better than not saying anything and possibly going into foreclosure.  Good luck to you. 

Message Edited by Imhotrodcrazy on 02-26-2010 05:06 PM

[Lel]

The drop in credit score is a well-described phenomenon, but as mentioned it doesn't seem to affect everyone.  The ones who seem to be at greatest risk are those who go through the Making Home Affordable program, because the Consumer Data Industry Association (the trade group that represents the the credit reporting agencies) has specified that loans in an MHA trial period are supposed to reported with a code that has a negative impact on scores.  However, if the modification is finalized, there is a different code that indicates that it has been modified under a federal government plan.  At present, this new code (just went into effect in November) is not being factored into the FICO score, because Fair Isaac does not have any data about the predictive nature of this designation.

Loan modifications are hard to come by, but they can be very nice if you get one.  I think a lot of people would rather keep their homes with lower payments even if it comes at the cost of a lower FICO score.  But the answer isn't all that straightforward, because lower scores can make other aspects of one's credit life more difficult.

[Anonymous]

I am going through NACA for assistance in reducing my mortgage payment. After 9 months of waiting i was just notified today that because i have a USDA Rural Development loan that my chances are slim to none! Why is this? If I had known that this type of loan disqualified me from EVERYTHING I would have rented another apartment instead of buying a home. This is bull s#@$. Someone tell me WHY this type of loan cannot be modified? And who do I talk/complain too..??

[Anonymous]

First off, The need for a future modification should never be expected so factoring that into a loan decision makes no sense.

Second, USDA is a very specialized program that is most often used by people who have little or no other options (same with NACA).  This is obviously not always the case, but it's flexible credit standards, zero down payment, income restrictions, and location restrictions generally limit it alot more to certain buyers.  The loan is already done at a low rate comparable to other loans at that time and is a fixed rate loan.  In most cases, they wouldhave to do some sort of a principle reduction to save you much money and most banks are not doing that except in rare cases.  The fact that you do not qualify for a modification (and i have no knowledge if it is srtictly due to the USDA loan, lack of proper paperwork, NACA, or just that you do not have the hardship and necessity to qualify), is not any bank's or lenders fault.  No bank or loan program has to do loan modifications.