Loan modifications could cause credit score damage
HOUSTON It may not be the first thing on the minds of those looking for help with a foreclosure, but the credit score hit is certainly something that they need to know about. The foreclosure crisis gets little attention these days, but the problems are still out there. "We are still getting lots of calls from people who are still needing assistance," said Sherrie Young of the Credit Coalition. She is a Department of Housing and Urban Development certified housing counselor. The free services she provides can help someone get a loan modification or a reduced monthly mortgage payment. Young recently helped a family that had not missed any payments through their temporary loan modification process, but the family's credit score was affected anyway. "Their score, they said, it did take a hit when they went into the trial payment. They were current prior to. The hit was about 60 points," said Young. Because loan modifications are reported as partial payments instead of full payments, it results in a person's credit scores going down. But Young says for those desperate to stay in their home, they will be able to afford to stay in their homes, even though their credit scores fall. "What his family received out of it far outweighs the reduction of the credit score because now they are back on time and the score will start to build again through on time payments," Young said. Housing counselors say many of the people looking for a loan modification already have credit problems. "Unfortunately when people get to us, they are already several months behind and they have already taken hits on their credit," said Andrea Cooksey of NID Housing Counseling. She is also a HUD approved counseling agent, and she says the credit hit should not stop someone from seeking help if they need it. "You need to save your home. I think you have got to stay focused on that," said Cooksey. The credit score hit can be as much as 100 points, but credit counselors say homeowners who successfully get through a temporary modification plan can begin the process of getting that score back up by making their modified and reduced mortgage payments on time.