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Sunday, May 23, 2010

On Loan Mods and Credit Scores

by Calculated Risk on 5/23/2010 08:58:00 AM

From Carolyn Said at the San Francisco Chronicle: Loan modifications often damage credit scores

Struggling homeowners who get a loan modification to reduce their mortgage payments are often unaware that it can seriously ding their credit score.
"A lot of people don't understand that by making the payments due on their temporary loan mod they're reported as delinquent immediately," said Margot Saunders of the National Consumer Law Center in Washington. "It's a huge misunderstanding."
"A lot of lenders are reporting these modifications as paying under a partial payment plan. FICO regards that status as a serious delinquency," said Craig Watts, a spokesman for FICO ...
And on short sales:
Watts said it is a "widespread myth" that short sales and deeds in lieu of foreclosure have less impact on credit scores than do foreclosures.

"Generally speaking, when you can't pay your mortgage, in the eyes of the FICO score what matters is that you were not able to fill your obligation as you originally agreed and that failure is highly predictive of future risk," he said.
There is much more in the article ...