Literally thousands of homeowners are anxiously awaiting or applying for a mortgage modification. What many fail to realize is that these modifications can devastate one’s credit score while the modification moves through the trial period.
The trial period is the time during which the homeowner will make the modified payment that was pre-established by the lender. It will last for at least 3 months but I have heard of homeowners making the trial payment for much longer – still without official modification approval. The purpose of the trial is to see if the homeowner can meet the requirements of the new mortgage. A trial period is required under the Obama Loan Modification guidelines.
Borrowers who were previously current on their mortgages can see their FICO scores fall about 100 points during the trial period. Homeowners who were late or missed payments before the trial even started will see their scores fall by much more.
The longer a borrower is in the trial period, the greater the impact on their credit scores. After the modification is approved, the mortgage status will be updated as current and the score should improve. But it is anyone’s guess as to how well lenders will stay on top of the credit reporting. It would be no surprise if credit reporting becomes a nightmare a few years into the modified loan.
Only time will be our answer.
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