It hardly seems fair.
Those needing help with a bad mortgage that can be blamed on banking industry profit strategies are now faced with the problem of having their credit ratings ransacked as a result of enrollment in a federally-backed mortgage modification program.
The subprime mortgage crisis forced hundreds of thousands of Americans into bankruptcy or foreclosure. As the government realized, despite its public reticence, that it played a tremendous role in the state of its citizens' bleak checking accounts, it announced the creation of the Making Home Affordable program, a concerted effort to offer banks financial incentives to adjust their customers' mortgages at more favorable terms to the customer.
In the program's wake arose countless private organizations and state-run mortgage assistance efforts. However, deep under the surface of the seemingly endless field of good will grows a bitter small seed of realization that your credit rating will experience increased erosion by entering into a mortgage modification plan... As if the impact of missed home payments and additional debt wasn't already hard enough to swallow.
Jason Axelrod, a Chicago city employee, was one of many Americans who recently realized that seeking mortgage help would lead to negative consequences. He enrolled in a trial modification a number of months ago, at which point he sustained a reputable credit score of 750. With overtime cut and a quick jump in property taxes, it became increasingly difficult for him keep his monthly payments on track. The mortgage modification adjusted his payments by $565.
Trial modifications are generally intended to last a few months while banks and program representatives collect paperwork and gauge the homeowner's ability to handle the new payments.
Eight months later, Jason remains in a morass of confusing paperwork and has yet been able to provide his lender with the appropriate paperwork to finalize the trial plan into a permanent one. Oh, and his credit score, despite no additional big ticket items or debt troubles, has dropped by more than 100 points. He was recently offered a car loan at 12 percent interest. He had previously enjoyed a low rate of 4.7 percent.
It is during the trial period that industry guidelines require lenders to report information on those enrolled. Specifically, the credit bureaus want to know a borrower's status before entering the program. And it is in this reporting effort where the less-than-above-board practices of the credit bureau come into play. Essentially, to the folks at Equifax, Experian and TransUnion, the mortgage modification enrollment process is simply another credit checkpoint, supplied by the government, that they use to collect information on consumers. It's like shooting debtors in a barrel.
A jointly devised coding program was installed to signify a borrower's status as a "partial payee." The presence of this code alone is enough to negatively impact credit standing. The full scope of its impact is based on a number of mortgage payment factors, such as number of missed payments before enrolling in the assistance program.
However, according to the Treasury Department, even those who were current on their mortgage could see their credit score cut by 100 points, simply because they chose to enroll in a program offered by the government.
At the start of September 2009, 24,000 people current with their mortgage entered into trial modifications. Just after Thanksgiving, the total number of trial modifications was just under 700,000. That's a lot of credit reports. And most likely, a lot of frustration.