How do California Home Loan Modification Programs Affect your Credit?

A question many borrowers have is how a California loan modification program will affect their credit score or FICO. There are a number of borrowers that have been able to keep current on all their obligations but know that very soon they will run out of funds. Perhaps they have lost a job and have been burning through savings or retirement accounts or perhaps have borrowed funds from relatives in the hope that conditions will improve. So now they are considering a loan modification so they can reduce their monthly obligations to match their income.

The short answer is that there is short term damage during the trial loan modification, but in most cases the damage over the long term will be minimal. This is because of the way a loan modification is structured.

When a borrower who is current on his or her mortgage submits a request to modify their loan for their primary residence, and sometimes even an investment property or two, along with a demonstrated hardship (job loss, reduced hours at work, sudden medical expenses, or some other reduction in income), and provided the lender agrees to a modification, then the borrow is placed in a trial modification for between 3 to 6 months. During the trial loan modification, the lender may report that the borrower is late in paying the mortgage. Some lenders do not report anything during a trial modification and others will even report that it is receive payments on time.

However, regardless of what the lender reports during the trial California loan modification program, provided the borrower successfully completes the trial modification and the lender places the borrower in a permanent modification, the lender will usually change any reported late payments to on time payments. Therefore in most cases, the borrower who had good credit going into the modification will, after about 6 months have good credit once again.

For borrowers who already have late payments, those will likely remain on their credit even after they enter into a permanent modification program. Typically those borrowers are more interested in simply keeping their home than the condition of their credit.

Please keep in mind that the lenders would much prefer that borrowers simply continue making the payments under the original terms of their loans. Frequently lenders will tell borrowers that a loan modification will hurt their credit because borrowers are concerned about their ability to get loans in the future. This way the lender may not have to modify the loan and perhaps make less profit than they otherwise would. So lenders may be able to stall a borrower a little longer, ultimately to the borrower's detriment who may be spending down retirement and other accounts instead of creating a financial situation that they can live with.

The lawyers at Edwards & Gerlt will be happy to discuss your financial situation with you in a free consultation. We will even conduct a free review and evaluation of your financial documents and advise you on whether we can help. Frequently, there may also be credit card and other unsecured debt that can be reduced at the same time as a loan modification to help give you a fighting chance to survive this recession. For more information contact Edwards & Gerlt who are experienced in California Home Loan Modification Programs and credit negotiations at 877-701-6637 or go to http://www.aboutcalifornialoanmodification.com.

The foregoing is for informational purposes only and is not intended as legal advice.


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