Many servicers are reporting the modified mortgages to the credit bureaus as a "rolling 30-day late" while the modification is in its trial period.
(The "trial period" is generally a three month period during which the homeowner must make all payments on time under a proposed modification plan. If the homeowner does so, he or she will be offered a modification under HAMP.)
Homeowners are deemed "delinquent" during the trial period because the modified payment amount is less than the original mortgage payment amount, but the homeowner is not yet officially in the modification program.
So, the credit reporting system interprets this as the homeowner's making a partial mortgage payment each month. Consequently, a new 30-day late is reported each month during the trial period.
Some servicers have told homeowners they are required by the Treasury Department to report the modified mortgages this way.
How HAMP-Modified Loans SHOULD be Reported During the Trial Period
Borrowers who are current on their mortgage when they enter into the trial modification period should NOT be reported as late, according to servicer guidelines for Fannie Mae, Freddie Mac, as well as other loans ("non-GSE loans") being modified by HAMP-participating servicers.
Homeowners who were delinquent when they entered the modification trial period, however, will continue to be reported as delinquent during the trial period. See below for more detail.
Information to Forward to your Servicer if It's Reporting Incorrectly
If your loan is owned or guaranteed by Fannie Mae, see page 12 of Fannie Mae Servicing Guide Announcement 09-05R for information about credit reporting for HAMP-modified Fannie Mae loans.
If your loan is owned or guaranteed by Freddie Mac, see page 5 of Freddie Mac Publication 800 for servicer instructions re: credit reporting of modified loans.
If your loan is NOT owned or guaranteed by Fannie Mae or Freddie Mac (a "GSE loan"), see page 22 of "HAMP Servicer Supplemental Directive 09-01aEUR? for information about credit reporting guidelines for HAMP modified non-GSE loans.
All three publications state that borrowers who are current when they enter into the trial period and make payments by the 30th day of each month, report as current, but on a modified payment. Borrowers who are delinquent when they enter into the trial period or do not make payments by the 30th of each month, report according to borrower's delinquency and workout status.
What if I am Thinking about Applying for a HAMP Modification?
To help minimize damage to your credit report and score, you should apply and try to get into a trial period while you are still current on your mortgage.
You do not have to be behind on your mortgage to apply for a HAMP modification.
What if I Have Recently Applied for a HAMP Modification?
Verify that your lender or servicer understands how it should be reporting your modified loan. Do this before starting your modification program, if possible.
Several homeowners have told our office they had to send a copy of the relevant HAMP credit reporting guidelines to the servicers, who were apparently unaware the guidelines existed.
Will the Reporting of "Current on a Modified Amount" Hurt my Credit?
It is impossible to say for sure because FICO does not publish its scoring model.
But, "current, but on modified amount" might ding your score a little. This reporting is telling the credit bureau you are currently paying as agreed, but less than the original amount you contracted to pay.
The FICO scoring model may not give you full credit for paying as agreed. But, this will not be nearly as damaging as rolling 30-day lates.
What if my Modification is not through HAMP?
The credit reporting guidelines above apply only to HAMP-modified loans. If you have arranged a non-HAMP modification with your lender or you have modified your loan through another mortgage relief program, these credit reporting guidelines will not apply.
Be sure to negotiate the credit reporting with your serivcer as part of your overall modification package. Even if the servicer insists on reporting your loan negatively, at least you can make an informed decision as to whether a particular modification package will work for you.