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Starting 1st, 2009, people can have a little more assurance when it comes to affiliate loan mod company and how they impact credit numbers in a bad way.

In the past, the effects of a loan modification company on one’s credit scores was something of a mystery. Some financial institutions would not report late or partial payments to the credit bureaus during the trial change process while others would. This led to confusion among borrowers, leaving many afraid of further damaging their credit with a home loan change.

Thanks to new guidelines set forth by the Consumer Data Industry Association, loan changes under federal programs Making Homes Affordable and the Home Affordable adjustment Program are to be listed on credit reports as, “mortgage modified under a federal plan”. This notification on the credit report will not have the same negative impact previous entries such as “partial payment” have had. In many instances, a report of a partial payment during the trial attorney adjustment period could drop a borrowers credit score as much as 100 points.

For the time being, FICO has agreed to take no action on these new entries… yet. Instead the credit reporting agency plans on studying the long term outcome of these loan s and then making an appropriate score assessment based on the success rate of modified note s. As it stands now, serivers are supposed to report the home mortgage as current if the home owners is current on their normal mortgage payment and is current through their trial. However, if a homeowner is behind on their payments as they begin the trial process, their late entries on their credit report will not be expunged. When the permanent home mortgage adjustment is approved and implemented that is when their mortgage will be brought current, but the late that are currently on the credit report will continue to report on the credit report.

It is important to note that these new guidelines only apply to attorney alterations under the umbrellas of the federal attorney change programs MHA and HAMP. Individual serivers loan changes do not qualify and the serivers will report to the credit agencies based on their specific policies. In addition, even if the home owners credit score is not affected by the “loan modified under a federal plan” entry will still be visible on a home owners credit report, which may affect a lender’s decision somewhere down the line.

Ultimately, the decision still rests with the homeowner on how to proceed with their specific situation. While a home loan alteration may or may not have an impact on credit reports, the impact of a foreclosure or short sale on credit scores will most likely be far more severe.

Finally, FICO will wait one year in order to gather data on this new ruling to see if they will retroactively decide to report negatively on the borrowers credit report. This of course will be an across the board decision. And yes, they will retroactively ding your credit if they decide that is the appropriate course of action. However, any creditor that pulls your credit will still see some type of term listed on the credit referencing a home mortgage alteration. This means the new creditor will be aware of the modification, which may impact their decision.

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