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Some Consumers Blame Federal Program for the Drop in their Credit Score

By Sally Maison
Published: Monday, January 4th, 2010

Homeowners across the United States are finding it difficult to meet their mortgage payments, making foreclosure almost imminent to a large number of families. Upon seeing the plight of those homeowners, the federal government immediately came to the rescue, offering them a chance to modify their home loans so they can meet its terms and avoid adding to the already enormous delinquency rate this year. However, some consumers who had their home loans modified are not so happy about the results, saying they were not told that a modification could cause their credit score to drop by as much as 100 huge points.

Some Consumers Blame Federal Program for the Drop in their Credit ScoreInstead of taking them out of their misery, some homeowners claim that the trial loan modification made available to them through the Making Home Affordable program of the federal government is making their plight even worse. With as many as four million Americans currently facing foreclosure, the federal government decided to intervene but homeowners claim that it was not made clear to them that their credit score would suffer if they decide to have their loan terms modified.

According to industry specialists, mortgage lenders take note of homeowners who modify their loans through the program. But some do more than that by reporting the payments made during the modification as “partial,” which explains the hit those consumers take on their credit score. Data from the Treasury Department revealed that consumers could see their credit score drop by as much as 100 points even if they have an excellent credit history and have remained current on their mortgage payments. Greater damages are expected for those who already have poor credit ratings and are behind their monthly payments. Specialists noted that the severity of the impact depends on how many times a homeowner paid late prior to the mortgage modification.

As of November, the Treasury Department has recorded more than 728,000 home loan modification offered by the federal government through the Making Home Affordable Program. Homeowners are saving an average of $500 each month after they received modification on their loan terms.

Among those who enrolled in the trial modification, only 31,382 homeowners across the country decided to continue with it and make it permanent. Federal officials say they will work with creditors in order to encourage homeowners in making their home loan modification permanent.

Meanwhile, some homeowners say they are happy about their decision to have their loan altered, saying they do not mind seeing their credit score drop just as long as they could keep their homes.

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