You might be able to make your mortgage more affordable if you are behind on payments by using the Home Affordable Modification Program (HAMP). HAMP loan modification, however, may hurt your credit score as a side effect. It can only damage your credit score if you are already behind on payments.
Identification
The HAMP program allows lenders to report payments as being in a federal government loan modification program when the person enters the trial period already in default. The trial period of HAMP gives a person three months to prove he can afford the modified loan. If a person is current on his payment before the trial period, the lender must report the individual as current.
Possible Mistake
Even though HAMP guidelines say that the program should not affect a credit score of a person current with her payments, some lenders still report the account as delinquent because they are unaware of the proper way to handle these accounts. Also, credit experts are uncertain how reporting a loan in a HAMP program affects credit scores, because the initiative was started in 2009 and thus is relatively new.
Considerations
No matter what the status of the loan was before entering the HAMP trial period, the account will have a notation that it is under a federal loan modification program. Lenders can see this and deduce that the borrower could be under financial duress, even if taking part in the HAMP program does not affect a credit score.
Tip
Homeowners should get a statement in writing from the loan officer explaining how the bank intends to report the status of the account during and after completion of the HAMP program. If the lender strays from the wording of the promise, the homeowner can contact a housing counselor, who then directs the lender on the proper way to report the account. Alternatively, the homeowner can try to pay off any outstanding bills before entering the program to make the account current.
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