How the HAMP loan modifications affect your credit score
For many consumers, their existing home mortgage obligation has outpaced their ability to pay it back. Many homeowners have suffered some form of a hardship, be it from the loss of a job, an illness, a divorce, or other similar type of situation. For those in such a situation, many have turned to President Obama’s loan modification program called the HAMP program. This is a great program because it allows a reduction in mortgage payments for 5 years. However, what many Consumers need to understand is how this program may or may not affect their credit score.
Many mortgage companies are reporting the modified mortgages to the credit bureaus as a “rolling 30-day late” while the modification are in its 90-day trial period. Homeowners are deemed “delinquent” during the trial period because the modified payment amount is less than the original mortgage payment amount, but the homeowner is not yet officially in the modification program.
THIS IS NOT HOW A LOAN MODIFICATION SHOULD BE REPORTED
Homeowners who are current on their mortgage when they enter into the trial modification period should not be reported as late, according to servicer guidelines for Fannie Mae, Freddie Mac, as well as other loans (”non-GSE loans”) being modified by HAMP-participating servicers.
Homeowners who were delinquent when they entered the modification trial period, however, will continue to be reported as delinquent during the trial period. See below for more detail.
If your loan is owned or guaranteed by Fannie Mae, see page 12 of Fannie Mae Servicing Guide Announcement 09-05R for information about credit reporting for HAMP-modified Fannie Mae loans. It says:
“If a borrower is current when they enter the Trial Period, the servicer should report the borrower current but on a modified payment if the borrower makes timely payments by the last business day of each Trial Period month at the modified amount during the Trial Period. If a borrower is delinquent when they enter the Trial Period, the servicer should continue to report in such a manner that accurately reflects the borrower’s delinquency and workout status following usual and customary reporting standards. In both cases the servicer should report the modification when it becomes final.”
“Borrowers, who are current when they enter into the Trial Period and make payments by the 30th day of each month, report as current, but on a modified payment. Borrowers, who are delinquent when they enter into the Trial Period or do not make payments by the 30th of each month, report according to borrower’s delinquency and workout status. Notify when borrowers have completed the modification.”
If your loan is NOT owned or guaranteed by Fannie Mae or Freddie Mac, see page 22 of “HAMP Servicer Supplemental Directive 09-01? for information about credit reporting guidelines for modified non-GSE loans. It specifies the following:
“The servicer should continue to report a “full-file” status report to the four major credit repositories for each loan under the HAMP … on the basis of the following: (i) for borrowers who are current when they enter the trial period, the servicer should report the borrower current but on a modified payment if the borrower makes timely payments by the 30th day of each trial period month at the modified amount during the trial period, as well as report the modification when completed, and (ii) for borrowers who are delinquent when they enter the trial period, the servicer should continue to report in such a manner that accurately reflects the borrower’s delinquency and workout status following usual and customary reporting standards, as well as report the modification when completed. More detailed guidance on these reporting requirements will be published by the CDIA.”
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