POWAY, Calif.–Credit unions should start preparing for loan modifications to begin showing up in members’ credit reports. Noting that the Treasury Department’s Home Affordable Modification Program will soon have more lenders working with homeowners seeking to salvage distressed mortgages, an analysis by First American CREDCO here notes that in addition to interest rate reductions, amortization term extensions and even principle forbearance, short sales and distressed refinances will also soon begin appearing consumer credit report files, as a result of the new federal guidelines.
“One of the known variables that can impact credit scores – and will continue to in the foreseeable future – is delinquent payments,” the company noted. “Derogatory information has an impact on consumer credit scores and, based on current guidelines, must be reported. Other historical factors in loan modifications that can impact credit scores are changes in limits and loan amounts, balances, accounts being closed and new trades being opened. These activities are not necessarily negative or positive, as it depends on the overall credit profile.”
It added that whether or not a loan modification affects a credit score depends on the overall composition of the consumer’s credit profile as well as how the new loan modification credit obligation is reported.
