How your credit score is impacted by a loan modification depends on how the lender reports it and what is happening.  If you have allowed your mortgage to go late in order to obtain a loan modification then that is obviously going to impact your scores negatively.  However, if you have been current up until the time of the loan modification your score may be impacted the most.  The reason for this is the higher the score the farther there is to fall. 

 Why are your scores falling?    After your loan modification is approved the lender will put you in a trial period where you make a lower payment.  Unfortunately, because the loan has not officially been modified it is recorded as a “partial payment”.  One homeowner saw his score drop 100 points during the trial period, from 760 to 660.  The trial period is supposed to last three months but  for many homeowners they have dragged on.

 When the modification becomes permanent the mortgage gets reported under a new code which indicates that payments are being made under a plan.  Right now, this code has no effect on credit scores.  FICO is still studying to see if these consumers are riskier as a result of the modification.  This is contradictory to what Treasury officials are saying.  The administration felt that it is important to ensure that people seeking modifications to ward off foreclosures should not be unfairly punished.  However, it looks like the credit score powers may have different plans.

 When your loan modification becomes permanent dispute the listing with the credit reporting agencies and ask that it be updated.  You should see some relief.  Shirley Richards can be reached at 954-345-0995

Yesterday afternoon I listened to a webinar where two mortgage bankers argued with a mortgage broker over which type of business was best.   This webinar was precipitated by many of those in Congress blaming the real estate crisis on mortgage brokers.  The bankers won the debate.  The reason wasn’t because they can give borrowers a lower rate for less money or provide better service or any of the things that might help the consumer.  The reason they won was because mortgage bankers can earn more money without having to disclose it to the borrower. 

What is the difference between a mortgage broker and a mortgage banker?  A mortgage broker is approved with many different lenders to submit mortgage applications in what is called the wholesale market.  For submitting these loans the broker receives a commission from the lender.  The amount of the commission earned depends on the size of the mortgage and the interest rate charged.  The client closes in the name of the lender and the mortgage is approved by the lender.  A mortgage banker has a business line of credit called a warehouse line which funds the mortgages they take.  They have their own underwriters and the loan is approved by the banker and closes in the banker’s name.  After closing the loan is sold to a lender.  The banker receives a commission from the lender again based on the interest rate.  They also may receive a service release premium which is another form of commission. 

For a few years now mortgage broker commissions, called yield spread premiums, have had to be divulged on good faith estimates.  Bankers do not have to divulge their commissions.  Now with the new form of good faith the amount of commission is ever more prominent as it is charged to the client and then subtracted out.  So bankers are earning more money per loan but not having to reveal it to their clients.  Guess what’s happening?  Right everyone’s becoming a banker.  Government intervention at its best.  And don’t for a minute think that your local banking institution doesn’t do this also.  I worked for a small bank that closed in its name and put everything through Citimortgage.  Everyone thought they were getting a mortgage with Bank A but they were really getting a mortgage through Citi.  So ask your loan officer how much they making on your loan.  If you think it is too much, ask them for a lower rate.

If all of this is too much for you and you just need some honest advice as to how to navigate it all we’re going to be holding some homebuyer seminars.  Send me an e-mail at shirl@floridamortgagecenter.com and we’ll put you on the mailing list.

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