Government Mortgage Help Hurts Credit Rating
Homeowners seeking relief through the Obama loan modification program have a new problem on their hands. Using the program will drop your credit score by at least 100 points, sometimes more. In a financial market that basis everything on a personal credit score, the impact can be devastating.
For homeowners this just adds to the financial crisis they are already in. Homeowners, on the verge of default already, now will suffer with a lower score which can cause them to pay higher interest rates or be denied credit altogether.
Credit scores often affect a person’s ability to get a job. Many employers are now using credit scores as a way to determine if a person will be an asset to their company. A large hit to the credit score can prevent these already financially hurting people from obtaining a job that they need to pay the mortgage.
Housing authorities that counsel homeowners in need from around the country are angry and frustrated. Most homeowners are not even aware that their credit scores will be affected. One mortgage counselor even states that it is a form of punishment for the people who are trying to do the right thing and stay out of foreclosure. Homeowners also feel betrayed by the credit score drop.
When approved for the mortgage modification homeowners are put into a trial period, usually for three months. This trial period is to verify that they can actually make the new payments that have been set for them. At this time the mortgage company automatically notifies the three credit bureaus that the mortgage is possibly in trouble and they in turn drop your score.
The credit bureaus are standing behind this new practice and have stated they will continue to drop the scores when the modification tool is used. They have stated that only people who are having financial problems use that program and other lenders should be aware of the crisis.
The Obama administration has admitted that they know that this practice is happening. They have concluded that while this has bad effects on a person’s credit rating, allowing the home to go into foreclosure would have much steeper penalty
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