“Loan aid leads to drop in credit scores: Many homeowners angry that program carries hefty penalty” is on MSNBC.com this morning.
The article reports that some who participated in the Federal government’s loan modification program have seen their credit scores fall by as much as 100 points. The arguments for and against the credit score reduction are presented. From, it’s not fair because participants aren’t informed and are doing their best to improve their financial situation to, of course it’s fair, other lenders need to know about the financial risk presented by homeowners who can’t afford their payments.
I think most people will make the decision to seek loan modification based on their immediate financial needs and not their credit score. the article points out that a loan modification will impact a credit score by about 100 points and a foreclosure will drop a credit score by 150 points or more.
If you apply for assistance through the Obama administration’s loan modification program and are accepted, your reduced credit score will slowly rise over time as you make monthly payments. However, if you apply and are not accepted, you face a double-whammy, you receive no relief AND your credit score takes the hit. Ouch!
