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A Loan Modification May Cost You 50 Points on Your FICO Score!!!

By Bryant Tutas

Real Estate Broker/Owner with Tutas Towne Realty, Inc and Garden Views Realty, LLC BK607690

August 20, 2009 08:26 AM

Florida real estate broker

Hi folks. I just read this and had to share......

"Unfortunately, the “Big Three” credit bureaus – Equifax, Experian and TransUnion – have issued new guidelines that allow lenders to report new mortgage loan modifications as “partial payment status,” a designation that could lower an individual’s credit score by more than 50 points."

It's my opinion that being penalized for doing a loan modifcation is just BS to the nth degree! It's like why bother? Why not just go ahead and do the short sale and move on with your life?

What will they think of next?

Bryant Tutas
Broker/Owner
Tutas Towne Realty, Inc
Licensed Florida Real Estate Broker
http://CentralFloridaShortSales.com

http://ShortSaleSuperStars.com

***The content of this blog is solely my opinion***

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Julia Huntsman

Huntsman Properties - Long Beach, CA

BPOR, CDPE, e-PRO, SFR, Broker

In California I have heard several loan reps say that the short sale may reduce the FICO score from about 75-125 points, with foreclosure being in the 250+ range--however, since many people have stopped paying on their mortgages, there will be consequences for 30-day lates as well. If loan mods are going to cost 50 points, some people might want to consider the short sale (I think)>

Aug 21, 2009 03:40 AM

Anonymous

Russ

A loan modification should hurt your credit rating. A loan mod means you aren't meeting your debt obligations. Why should someone with a loan mod have the same credit rating as someone who is paying their contractually obligated debts?

I don't see anything remotely unfair about it.

The only time I can see this being an issue is that some lenders did "loan modifications" voluntarily whether the borrower needed it or not as a way to drop rates without having to go through a drawn out refinance process. I am not sure that they are reporting that the note was modified though.

Aug 21, 2009 04:08 AM

#61

Nicholas Goraczkowski

Aurora, CO

Your Mortgage Resource - (720) 83-RATES

I had not heard that. Thanks for sharing. It is a good thing to know that we can mention to our clients when we speak with them about options.

Aug 21, 2009 04:14 AM

W. Todd Hess

Five Star Realty - Huntsville, AL

To qualify for a loan mod, you have to be behind in payments. Therefore, your credit is already taking a huge hit. Another 50 points usually doesn't matter by this time.

Unfortunately, lenders and the credit reporting agencies are no friends of consumers. Consider how long it takes to build a credit score and how quickly it takes to ruin it. A bankruptcy takes 200 points off your score. What can you do to add 200 to yours? Nothing....absolutely nothing. If you were to pay off all your debts, you will not be rewarded. In fact, just the opposite will happen. You will have no credit score at all. Oh, and let's not forget how resistant credit reporting agencies and lenders are to correcting your credit report when your identity has been stolen. Credit reporting is constantly under scrutiny from consumer advocacy groups and the federal government, and rightly so.

As mentioned in a previous post, current practices by lenders will only hurt them in the long term. Already, many of my customers are ditching credit cards and refusing to use them any more. Eventually, lenders will start sending out their credit offers once more and find the market is less willing to go in debt as they were before.

Furthermore, credit reporting agencies are seeing more and more competition from alternative sources that track cell phone payments, electricity bill payments, and other non-debt type obligations. It's just a matter of time.

Aug 21, 2009 05:56 AM

Wendy Rulnick

Rulnick Realty, Inc. - Destin, FL

"It's Wendy... It's Sold!"

Bryant - Thanks for the news flash on that.... In the end EVERYONE's credit is getting dinged in this economy!

Aug 21, 2009 10:04 AM

TheMillsTeam YourSebringRealtors

Advantage Realty #1 - Sebring, FL

863-212-5441

Erin, of course the banks knew it. My comment was tongue in cheek.

I'm hearing about loan mods being difficult in some states. For what it's worth, we did a mod on our home in lieu of short selling it and while it took "Countrywide Bank of America" FOREVER to make us a modification offer, we got it done in the end, are now up to date on things.

Aug 21, 2009 02:26 PM

Faye Y. Taylor

StepStone Realty, LLC - Floresville, TX

Country Living with City Convenience -Wilson Co TX

Pretty soon EVERYONE's credit score will be 212. What with all the credit card companies lowering people's credit limits and all the other things the lenders do to penalize you NO ONE will be immune unless they have NO credit score. American Express is one of the most aggressive limit lowering card company out there but one major insurance company / financial services co / bank is lowering limits on people who DON'T USE or carry very low balances on their card. They figure if they don't use it, they don't need that high a limit and better to lower it now.

Aug 21, 2009 03:48 PM

Dan Quinn

The Eric Steart Group of Long & Foster Real Estate - Silver Spring, MD

Dan Quinn

Severalof my very good friends, hard working people with families are benefiting from these loan mods. Without them, they would have had to go into foreclosure. They are sticking it out and working hard to keep their house. I am thankful that they received the loan mods. I don't agree that they should be penalized with their FICO scores for keeping their house and trying to prevent the foreclosure.

Aug 21, 2009 10:45 PM

Betina Foreman

WJK Realty - Austin, TX

Realtor, C.N.E., with WJK REALTY

A 50 point hit can be devastating to a person. That is a serious hit for someone that is trying to get their financial ducks in a row with a re-fi. What will they think of next?!?

Aug 22, 2009 02:59 AM

Rebecca Gaujot, Realtor®

Lewisburg, WV

Lewisburg WV, the go to agent for all real estate

Brian...I must agree with your lovely wife..It is a conspiracy for sure...

Aug 22, 2009 03:30 AM

Susan Neal

RE/MAX Gold, Fair Oaks - Fair Oaks, CA

Fair Oaks CA & Sacramento Area Real Estate Broker

Hi BB - I thought that the whole point of a loan modification was so that neither the borrower nor the bank loses. It was to help the banks so they wouldn't have so many foreclosure losses, and help the borrower protect their credit and their home. I'll have to write a post on this, referencing yours.

Aug 22, 2009 04:11 AM

Michael Kelly

The Kelly-Norman Team Keller Williams RE - Santa Rosa, CA

CDPE,CIPS,CRS,SRES

If you're saying you get dinged 50 points FOR A LOAN MODIFICATION then what's the BIG? If they've successfuly modified their loan and are able to stay in their home then 50 points is a small pitance. Be on time and clean up your credit cards and get your financial house in order also and the 50 points will dissipate over time.

We seem to have so many Lender,Mortage Brokers, Realtors and Agents who are still pointing their fingers at the reasons' why we all got into this mess and should be taking a long look in the mirror! There is NO FREE LUNCH folks! Let's cut the crap and become part of the SOLUTION instead of the constant whinning and being the PROBLEM!

And in case you haven't figured it out the Bank's have us all on a string nowadays. This is the "market of the moment". You can choose to work within it or move-on. In our area of Sonoma County we have little loan mods happening (but plenty of folks wishing to do them!), Short-Sales solds comparables for the entire county of Sonoma a paltry 86 for July, REO's a two to three week supply of product and forclosures making up 46% of the market! HVCC isssues with appraisals not coming in at our sales prices plus underwriting guidelines tightening and becoming even MORE restrictive. So, who do you THINK is NOW controlling the marketplace?

Juxtapose the above with the go-go market long gone of easy money, lax underwriting and hyper appraisals---Banks were controlling THAT market too! Guys! Tis the market!

Aug 22, 2009 04:41 AM

Leslie Helm

Tennessee Recreational Properties - Jamestown, TN

Real Estate For Trail Riders

I was just notified by CitiBank that my interest rate would be going up...or I could opt to close my account. Since I have never missed a payment, never been late with a payment and have never made anything less than a full payment, I chose to close the account because I refuse to accept punitive measures for exemplary performance. I used to wonder where it would end and now I wonder if it will end.

Aug 22, 2009 04:55 AM

Bill Gassett

RE/MAX Executive Realty - Hopkinton, MA

Metrowest Massachusetts Real Estate

The answer to your question BB is quite simple BB... there are plenty of people who want to keep their homes and not do a short sale.

Aug 22, 2009 05:29 AM

Fernando Herboso - Associate Broker MD, & VA

Maxus Realty Group of Samson Properties - Clarksburg, MD

301-246-0001 Serving Maryland, DC and Northern VA

Another clear example where the consumer gets the shaft. . . with Government supplied Vaseline for all the bankers!

Aug 22, 2009 05:35 AM

Bryant Tutas

Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL

Selling Florida one home at a time

Sorry guys.....I have been swamped and haven't had a chance to make it back here. I have however read every commenr and as always appreciate you stopping by.

Michael, This would all be different if we didn't give the banks trillions of dollars in bail out money. It just seems the ones getting the shaft are the consumers. I completely agree in accountability. I also believe that accountability needs to be a two way street but unfortunately it's not. This is the reality....not blame.

Aug 22, 2009 06:48 AM

Lori Young

Young Realty Group, Inc. - Naples, FL

Broker/Owner

Seems to me you can fight that on www.annualcreditreport.com by making an online dispute. If the borrower was never late and the loan is reporting paid in full dispute the entry and ask for an investigation of the file. I would not let this fly on my credit report and taking the proactive approach to your credit will be the only recourse to help your credit. Maybe it will take every month for six months of fighting with the top three but you will eventually win.

I have had several customers go back and fight credit entries and have cited fair debt collections act and had files corrected. Again, the customer has to do this not the Realtor. Best if we stick to selling and not the credit repair business. No issue with providing the reference but let them get mad at the lender over this BS not us.

This is a really difficult time for all borrowers and the lenders sure make you wonder "who is getting all these modifications" and "just how many lenders are really keeping families in their homes". I work with all walks of life and I see small reductions in cases where the lender should slash interest or cut principal. Not going to happen this year and more and more folks are going to be on the street.

Aug 22, 2009 07:00 AM

Sharon Simms

Coastal Properties Group International - Christie's International - Saint Petersburg, FL

St. Petersburg FL - CRS CIPS CLHMS RSPS

Why not just do a short sale? I think your credit score is dinged a whole lot more than 50 points when you do a short sale. Will the lender negotiate that reporting in the process of the Loan mod?

Aug 23, 2009 05:31 AM

Todd Clark - Retired

eXp Realty LLC - Tigard, OR

Principle Broker Oregon

I think if they love the home the loan modification could be good, but if not, I agree move on and get an even better deal than your bank is offering you!

Todd Clark - www.LivingBeaverton.com

Aug 30, 2009 10:01 AM

JoAnna Jensen

Volo Law & Legal Realty - San Jose, CA

Hi All,

Im new here. so lets think about this 50 point deal here for the Loan Modification. I am a paralegal and a realtor and I work for an Attorney/Broker. Some clients may be current when they modify their loan but some are already late. So when you have one late payment your credit score already goes down.

I find this interesting that Realtor think why keep the home if your are going to get a 50 point ding on your credit that may go away after 6 months of paying on time.

Lets think about it as if it were your home. You put down $100,000 your hard earned savings. Now your income dropped so your having a hard time affording the payment. Some realtors who dont do loan modifications and dont know that much about them prefer to do the short sale for their benefit not the clients. But for the homeowner, they do want to keep their home. My clients dont care about their credit. And lets face it if you cant afford your mortgage why will you be buying a car in the near future.

I have gotten incredible results for my clients becuase I know how to do them. I just got a client approved last week for the Making Home Affordabl Program. His home dropped $100k as well as his income. However I got his new payment to 31% of his current gross income including PITI and that includes HOA if they have it. So his new payment is half of his old payment. Lets take off our realtor hats and commssion hats when thinking of others who are in financial distress. Think about truley having a client for life!! 98% of my business comes from referral from happy clients. I have about a 60% success rate on modifications.

So i honestly think before you say they should just short sale their home find someone who successfully does loan mods and work with them on a referral basis. We do that as well, if we can modify then we do the short sale after as many attempts as the homeowner wants.

I just had a hard time listening to other realtors saying that the only option was short sale..

JoAnna Jensen

Volo law

Realtor Paralegal

California

925 699 5041

Sep 04, 2009 02:57 PM

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