While a loan modification may save your house, currently it can be disastrous for your credit. This is because many lenders and loan servicers report loan modifications that they have accepted and approved to the credit bureaus as “partial payments” so that the borrower’s history reflects the fact that they were not able to make payments to which they originally committed. However, a new bill in the House of Representatives introduced by Jackie Speier, a democrat from California, would change this.
Speier introduced legislation yesterday that would “shield” borrowers who successfully navigated the home loan modification process so that their credit is not damaged. She believes that this will encourage people to deal with their mortgage issues rather than strategically defaulting or simply succumbing to repossession. Given that loan modifications are a mandatory process for many homeowners, even if they do not want to modify, but wish to pursue another form of resolution on their property debts, this does not seem unreasonable to me. However, it needs to be managed correctly so that the process is reflected in some manner on credit history. Otherwise, in the future lenders will not have access to all relevant information when they are deciding whether or not to loan to a particular individual.
Do you think loan modifications should ding your credit score?
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