Though loan modification program could provide debt relief, it could also reduce a credit score

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Though loan modification program could provide debt relief, it could also reduce a credit score

Thursday, Dec 31, 2009
By Lance Piper

Many people may have turned to a government program that offers home refinancing and modifications in order to seek debt relief, though they may end up making a dent in their credit score.

According to a recent report from CNNMoney.com, some people who have sought modifications through President Barack Obama's Making Home Affordable program have also found that their credit scores went down as a result.

When homeowners first enter the program,they are put on a trial loan modification. During that time, which can take a number of months, consumers have to prove they can afford the new plan while also giving lenders time to collect the proper documents.

Though lenders are required to report a person's status to credit bureaus based on what it was before the modification, there is also a code attached that shows they've applied for a partial payment, which could affect a credit score.

"Those who were current in their mortgages could see their scores fall up to 100 points, according to the Treasury Department," CNNMoney.com stated.

According
to the most recent numbers from the Treasury Department, more than 728,000 trial loan modifications have been offered through the government's program through November, while around 31,000 have been converted into a permanent modification.

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