Periodically I see an article that laments the spectre of a mortgage loan modification damaging a borrower’s credit score. Invariably, the reporter gets it half right. Unfortunately , the administrators at the big three credit bureaus are recalcitrant and unavailable for comment. The credit score biz is not much more than a computer. If you want real credit score answers, you have to deal with Hal. Everyone should know how that turned out.
The REST Report calculates an unbiased Net Present Value, or NPV that your mortgage investor (as distinguished from your mortgage servicer) uses to see if mortgage modification or short sale is the best solution to your distressed mortgage. Your mortgage servicer has assuredly already calculated that a foreclosure is most beneficial to them. That’s why they drag their feet and lose your file so as to get your house for free.
By getting and submitting the REST Report with your mortgage modification or short sale, you bypass the mortgage servicer and the discussion is just between you and your mortgage investor (as many as eight different investors may have their hand in your mortgage).
There are lenders out there that are advising borrowers to miss mortgage payments. The magic phrase here is “demonstrate imminent default” from published HAMP guidelines. Looking at the situation from the mortgage investor’s point of view, why grant a mortgage modification if all mortgage payments are current? Each lender interprets this phrase differently, and they may change their definition daily.
Here is the bottom line: If you miss payments or make partial payments on the terms of your current mortgage, as in the infamous three month HAMP trial period, your partial, or lack of payments, will be reported to the credit bureaus as just that. What this ultimately means is that the sooner the homeowner starts mortgage modification negotiations, the better for their credit score. It is not necessary to miss any payments to demonstrate imminent default. This is blatant treachery on the part of the mortgage servicer.
Once your modification is accepted, the new terms will be reported to the bureaus. There is no excuse for your lender not reporting new terms. A modification does not in and of itself reflect your payment history. Only your adherence to whatever current terms can be reported.
Pay your new mortgage terms on time and any damage to your credit history will recover. It certainly is better than losing your home, isn’t it? The credit bureaus have special entry notations for permanent mortgage modifications. I advise all my customers to call Transunion 45 days after their first permanent mortgage modification payment and dispute their mortgage entry. That will trigger a legal letter to your mortgage servicer demanding an update. Since November of 2010, the credit bureaus have a special, much less damaging credit entry for permanent mortgage modifications.
A year from now, as all those successful modifications start seasoning themselves in the computer-formerly-known-as-Hal, the nation’s scores will recover. There is a paragraph that more or less reflects this in the referenced article.
A foreclosure is absolutley the worst choice of action. Do a short sale instead. Short sale transaction reports can be ameliorated by a competent short sale investor. (I know several of them, too.) The referenced article correctly states that the secret is getting lenders to report a short sale to the credit bureaus as “paid as agreed.”
Bankruptcies have proven to almost never solve the problem. They just stall the wolf at the door, Granny got eaten anyway.
Click to read more about your Do-it-Yourself Mortgage Modification REST Report
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Originally posted 2009-10-21 23:55:33. Republished by Blog Post Promoter
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More mis-information corrected on Credit Score implications of a Mortgage Modification- http://www.mortgage-mod-monster.com/?p=251
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