From this point forward, mortgage lenders can report a loan modification as “Loan Modified Under Federal Government Plan.” This new way to report a loan modification does not have any negative impact to a consumer’s FICO credit scores.

Keep in mind, however, that this new credit reporting guideline only applies if the consumer seeks a loan modification under the Making Home Affordable plan. If you choose a loan modification program that is not a government plan, you run that chance of ending up with lower credit scores because of the very damaging “partial payment plan” reporting guidelines. A partial payment plan statement on your credit report is considered seriously negative and can do significant damage to your credit.??

The news isn’t all good, however. The only reason the new reporting guidelines do not damage your credit scores is because FICO, the company that created the FICO credit score, has not had a chance to include the new status in their credit score development processes. If, over time, they determine that people who have this “Loan Modified Under Federal Government Plan” status on their credit reports are an elevated credit risk, they can choose to modify their credit scoring models to consider it negative. Of course, if they determine that consumers who have this on their credit reports are not an elevated credit risk, they will probably do nothing. Only time will tell.
This Article is Courtesy of Credit.com

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