Credit History Reported Delinquent During Making Home Affordable Loan Modification Trial Period
Added August 13, 2009 by Ilyce R. Glink
Summary: Credit history and credit score ruined by lender while borrower applies for loan modification under the Obama Making Home Affordable Plan. While applying for the Making Home Affordable Loan Modification Program some lenders may require borrowers to make temporary payments into escrow or hold accounts while their applications are being reviewed. But the lender will also report those borrowers as late or delinquent to credit reporting bureaus and borrower's credit history and credit scores will suffer.
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?
For more information on the Obama Making Home Affordable Loan Modification Plan read the following articles:
Refinancing Mortgages Under Obama's Making Home Affordable Plan
Refinancing Mortgages With Falling Home Values and The Obama Making Home Affordable Plan
See more articles on this topic by clicking on the "RELATED ARTICLES" above and to the right.
We have over 5000 articles on Real Estate Advice, Personal Finance Advice and Consumer Advice on our site. We encourage you to look at these articles. As always, if you have a comment on our articles, don't forget to post your comment below. We thank you for coming to ThinkGlink.com.
© Ilyce R. Glink. All rights reserved. This content may not be used, distributed, syndicated, compiled or excerpted in any medium or form without written authorization from Think Glink, Inc. For information on syndicating ThinkGlink.com please contact us.
Additional Topics
(View All Topics)FHA loans HUD consumer advice credit history credit score foreclosure home loan ilyce glink loan modification mortgage mortgage lenders mortgage loan personal finance advice real estate advice refinance mortgage
Related Articles
Related Blog Entries
Top Rated Articles
Related Videos
How Does Negative Information Affect Your Credit Score?
Your credit score is determined by looking at a co...(4:39)
Who Has An 850 Credit Score And How Do You Get One?
Credit scores, on the scale assigned by FICO, rang...(4:39)
What Will Canceling Credit Cards Do To My Credit Score?
Which credit cards should you cancel to have the l...(4:39)
Comments
HAMP Trial Period - Current Borrower says
I entered the Trial Period Plan under HAMP with Chase, Freddie Mac owned loan effective June 1, 2009. I have made all 3 Trial Period Plan payments timely. The payments are held in a "suspense" account. Chase has reported to Credit Bureaus as CURRENT during the entire process.
joanne says
It is not news that there are hundreds of thousands of troubled homeowners in the country. It is not even news that the lenders refuse most who request help. But, are you aware of the fraudulent practices that the lenders are using to deny loan modifications? Here is my story: In July 2007, we re-financed with Countrywide in order to get out of an ARM that was about to go up astronomically. In order to get the loan through, the value of our home was appraised over what is was really worth. In addition, only my husband's name was put on the loan since the credit cards are in my name. The loan is an interest only arm that does not include taxes and insurance. The payment is $3407 and my husband takes home $1300 per week. I am a stay at home mom with 2 young children. In September of 2008, we were struggling to pay our bills. The value of our home was plummeting. We weren't behind yet, but were about to be. We pro-actively contacted Countrywide in October 2008 and asked for help. Here is a time-line of events: October 2008 - Sent Countrywide hardship letter. Husband withdraws $25K from his retirement fund to pay bills. This money must be repaid quarterly - $1000. December 2008 - Countrywide refuses loan mod without a reason. March 2009 - Obama plan underway. Contact Countrywide again. They say they can't help because we make too much money. Because they added husband's net income to his gross income and used that figure! Request that they re-open our case. May 2009 - Told by Bank of America rep John McFarland that they will not help us since it is not their fault we are over-extended. July 2009 - Contact Bank of America's Barbara Desoer to request a loan mod. Cannot pay August mortgage payment. Faxed new hardship letter and required documents. August 2009 - Assigned Bank of America Negotiator Melissa Henderson. August 21, 2009 - BOA Melissa Henderson calls to inform me that our request is being denied. She informed that we meet all of the requirements under President Obama's HAMP program, however, because my husband borrowed money from his retirement plan (which is depleted and we are still repaying), we do not qualify for a loan modification. She said that we are current on credit cards and car payments and therefore do not fall under the guidelines for assistance. This is outright fraud. The HAMP stipulates that retirement accounts cannot be used to determine financial status and in addition, being behind on anything (credit cards, mortgage, etc.) is not a HAMP requirement. Think I am only one person? Wrong, go out to www.loansafe.org and read the thousands of horror stories. The lenders feet must be held to the fire! If we continue to let this happen, our country will be in worse shape than it is now!
Kimberly Austin says
I entered the Trial Period Plan under HAMP with Citimortgage because I was having a financial hardship. I just recently found out that the told me a lie when they said they would report me as current. When I tried to apply for a rate reduction on my credit account, I was denied because I was late two mortgage payments. I was not aware of this change until then. I was told by CitiMortgage that I would be reported as currect since I was current up to that point. I called CitiMortgage about this today and they told me, "I apologize for this but you were told incorrect information. Even though you were on a modified payment you would be reported as deliquent." That's not fair for someone that pays on time and contacts the bank because you see yourself having difficulty and they approve you but then force you to be deliquent. I would like to contact whomever I need to because I believe this is wrong.
Monica says
Kimberly, I am in the exact same boat with Citimortgage. They swore up and down that they would not report as delinquent and now, not only my credit, but my dad's credit who is the co-borrower is screwed. Had I knowed it would affect his credit of 800+ I would not have gone through with it. I do not know what to do anymore.
marina says
I am doing loan modification under HAMP (Obama) program with SAXON and my (3) trial payments reported as partial, late, and mising on my credit report right now. My score went down to 625 because of that. However, it didn't happen to me before, when I did loan modifcations with Ocwen and GMAC. My assumption, because that loan modfication was done under my actual lenders programs and not under Obama program, it DID NOT effect my credit report.
carol says
If you look at the Supplemental Directive of the Obama Making Homes Affordable Plan, you'll see wher it directs the lenders on how to report your modification to the credit reporting agencies. If you were current on your loan when you entered the trial period, they are directed to continue to report you as current. Bank of America told me that they were aware of the law, but were going to continue to report me as delinquent (now 120 days). I sent them a certified letter, attached the Supplemental Directive, and attached 3 letters: 2 to my congressmen and one to the attorney general of my state. I've received a call from my state senators office, and they are working on resolving it. Everyone should do the same until the banks stop doing what they want and disregard the law.
Monica says
Carol, Where can I find the Supplemental Directive for the HAP program?
Brian says
Ok I am getting confused and would not like to see our good credit get trashed because of this. April of this year I lost my job. We owe 155k on our home that is now worth 120k we tried to refiance our mortgage that is now 9% cant so the lady at BoA transfered us to the loan Modificaiton Dept. This was in June. They took all of our info plus asked to send in pay stubs, unemployement verfication, hardship letter. Did not hear boo until I called in Aug. They said they are still reviewing it. I just carried on with my life but then two weeks ago the Fed-ex man showed up with a package in that was a trial payment this was 500 dollars less, it also said more info to follow. Yesterday Nov 2 another one showed up with instructions of documents, it said your trial payment is due Dec 1st. I have not yet made my Nov payment and now my online feature is blocked so I called down to BoA got tossed around a bit to diffrent people I asked about the Nov payment he said dont worry about it and got me set up for my trial payment that starts Dec 1. I asked about my credit rating he said your credit in no way shape or form would be affected by this. Now after researching this hearing people are getting reported late now thinking I should call back and get these coversations recorded or put in writting. When I was layed off from work I got a offer from a credit card giving me a check from my line of credit giving me 4.99% till the balance is paid in full. I will drop kick them if it dose get reported as that credit card will go into the universal defaut rate.
Monica says
Sadly, Brian, I heard everything you have heard. "No it won't affect you" "Don't worry about your payment." Not to mention, these lenders will not take ANY responsibility for the inccorect or lack of information that they will be giving you throughout the long dragged-out process. I wish I would have recorded some of those conversations, so even if it sounds extreme, I would suggest it. Good luck.
Vanessa says
I contacted Citimortgage in June to do a loan modification. They took all of my information and told me that I qualified for a modification. I was told not to make my June payment and to start making a lowered payment in July, which would be the beginning of my trial period. I was told the trial period would be July, August, and September. However, when I received my paperwork in August it stated that my trial period would be October, November, and December. I pulled my credit report today and my mortgage is showing past due since June. My score has dropped significantly because of this. It has a note on the saying "arrangements made with credit grantor to make partial payments." What good is that when it showings past due for several months and a negative effect on my score. I thought this program was to help. And I'm sure that will not be removing the negative information once the trial period ends.
Leland says
We were current on our mortgage with Wachovia Mortgage but struggling and borrowing on credit cards to make payments and make ends meet. In May, we were entered into the HAMP program at reduced payments for a 4 month trial period. Since we were current when we entered the plan we were told that we would be reported as current. 3 payments were made to Wachovia and the suppossed 4th and final payment to Wells Fargo -which purchased Wachovia. When inquiring about the permanent modification documents in late October - we were told that they (Wells Fargo) were behind in getting all the agreements processed - so we should make a 5th payment on Nov.1st. Have found out that Wachovia did keep reporting the loan as current. But, Wells Fargo, on October 1st, reported it as being 120 deliquent. On top on that, yesterday received call from WF that they will not issue permanent modification documents because loan does not meet their "guidelines"