Q: After multiple requests to our mortgage company, our big box lender finally agreed that my husband and I may qualify for the federal government’s Making Home Affordable Loan Modification Program. They mailed us an application.
In reading through the information, I’m very worried about the “Trial Period Plan”, where we are required to make payments while modified loan terms are being finalized. It’s not specified how long this trial period may be, and the application further states “During the trial period, we will report your loan as delinquent to the credit reporting agencies even if you make your trial period payments on time. However, after your loan is modified, we will only report the loan as delinquent if the modified payment is not received in a timely manner.”
This is very concerning to me, as even though we have had a few payments late greater than 30 days, we’ve been trying very hard to make our mortgage payments on time every month so our credit rating isn’t affected as much.
I’d like your opinion on whether you think this is a good program and your advice on whether we should go ahead with the application.
A: All loan modifications under the Obama Making Home Affordable Loan Modification plan are done on a trial basis. The trial tends to last 3 months, but the loan modifications under President Obama’s Making Home Affordable program cannot be made permanent until you have made at least 3 modified payments in full and on time. At that point, the trial modification under the plan can be made permanent.
I am disturbed that your lender says it will report your loan as “delinquent even if you make the trial period payments on time.” Many lenders are reporting homeowners in loan modification program as paying on time or “paid as agreed,” which is what you want to improve your credit history and credit score.
But I have heard from several readers that different lenders are placing the loan payments in an escrow type account but are showing those borrowers as delinquent on their payments. When they report these payments late or delinquent, those borrowers credit history will suffer and their credit scores will go way down. Later when the loan modification is approved, they start showing the loans as paid on time.
If the lender is going to show you as delinquent during the initial states of the Obama Making Home Affordable plan process, it seems grotesquely unfair. You should contact the folks who are running the Making Home Affordable department at the Treasury and don’t forget to send an email to your representatives in Congress and to the White House. The Making Home Affordable Plan was intended to help homeowners get back on their feet and give them a chance.
However, if when you applied for the loan modification under the Making Home Affordable plan and you were already late or delinquent in your payments, the lender can continue to report your account as delinquent. But if you have come to the lender current on your payments, the lender should not then report you as delinquent when they process you through the plan.
But if lenders are reporting their borrowers as delinquent during the process that the Obama administration has promoted, their actions seem counterproductive and will hurt those borrower’s credit history and credit scores.
If the lender is going to report borrowers as delinquent on their loans during the loan modification application process even though they are following the direction of the lender in working through the loan modification process, they seem to be giving an incentive to borrowers to stop paying altogether and wait for the lender to respond to the Making Home Affordable Plan loan modification application and then resume payments.
(Not to be cynical, but you have to really wonder if the increased payments made to lenders for delinquent borrowers over on-time borrowers comes into play. It really seems as though the Obama Administration is sending the wrong message.)
You should certainly go ahead with the application if you believe you are getting a good deal and you know that you will get a good deal but know that if you make payments that are less than what is owed on your loan, your credit history and credit score will be severely hurt.
I don’t think the Making Home Affordable Plan contemplated having lenders ding their borrowers during the loan modification process. At least, I hope not.
Congress and the White House, are you listening?