Are You A Denver Homeowner Considering Loan Modification? Be Aware That Your Credit Score Can Be Hurt

While finding an alternative to foreclosure is certainly a good thing for many struggling Denver homeowners, some who sign up for the government's mortgage-assistance program are receiving a nasty surprise in return: lower credit scores.  Before you decide on this route, be aware of the facts so you aren’t surprised later.

If you happen to be delinquent already on any of your payments, damage to your credit has already been done.  However, if you are a borrower who has been making your payments on time, but you’re on the verge of default, the Obama administration's loan-modification program can reduce your credit score as much as 100 points. That can make it harder for you to get a loan in the future, and can present a problem when you apply for a new job.

To enroll in the Obama administration's $75 billion "Making Home Affordable" program, borrowers enter a trial period in which they make at least three payments. But some are finding out that their credit score takes a dive during this trial phase. It happens once their mortgage company notifies the three big credit bureaus — Experian, Equifax and TransUnion.  This happens because a request for a loan modification is the first sign of difficulty for previously stable borrowers.  This means a sharp drop in their credit score.

Even so, the impact of loan modification is far less severe than a foreclosure, where borrowers typically find their credit is in tatters for years. That's due to the cumulative impact of many months of missed payments and the foreclosure itself, which drags down a homeowner's credit by 150 points or more on a scale of 300 to 850.

The good news is that if homeowners get accepted into the Obama program and have loans permanently modified, lenders update the credit bureaus on the new status of the loan.  This neither hurts nor helps the credit score, but over time, borrowers who maintain their new loan payments can see their score increase. 

If you’re a Denver area homeowner facing foreclosure do you still have questions about the best route for you and your family?  Contact the Bandy Team for expert guidance during this confusing and challenging time.  We have helped many others who’ve faced the same struggles and we’d love to help you, too!  We are your local Denver area real estate pros, and we’re here for you.

Marianne Bandy
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