We recently came across an interesting and now unfortunate series for a borrower:
One well known national lender informed their borrower, a year ago, when all he wanted to do was refinance because he had a reduction in income, that he would not qualify and they recommended that he do a loan modification and the it would NOT affect his credit. Having never missed a payment, either before the loan modification or after, he recently had his credit pulled in order to do a cashout refinance on a different property that he owned free and clear. His income had increased and all debts were in good standing so it looked like something we could do.
The credit report entry for the loan that had been modified by the nationa lender stated "paying under partial payment agreement" for the mortgage tradeline. When running it by the underwriter, she concluded that it would not be an approvable loan due to the negative connotation regarding the loan modification.
We checked around with ALL our lenders and not one will do this loan. They said they consider a loan modification the same as a pre-foreclosure. He will have to wait anywhere from 4-7 years for a conventional loan and 3 years to do an FHA loan and those are subject to change.
So what do you think? Are loan modifications A Negative Hit On Your Credit? Appears that this year and the foreseeable future, it will be. Be careful what you tell your buyers and borrowers.
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