A bill introduced by California Congresswoman Jackie Speier earlier this month aims to protect the credit scores of homeowners who accept loan modifications.
Currently, even on-time modified mortgage payments are treated as “delinquent” or “incomplete” by the banks and mortgage lenders who extend the relief.
As a result, homeowners who accept the terms of a loan modification may also see their credit scores plummet, making it difficult to obtain subsequent loans, credit cards, and even a job.
The “Protecting Homeowners’ Credit History Act,” otherwise known as H.R. 5743, would abolish the practice by prohibiting banks from reporting such modifications as negative events and banning the credit bureaus from including such information in consumer credit reports.
“Homeowners shouldn’t have their credit scores damaged for doing the right thing,” said Speier, in a release.
“Rather than rewarding responsible homeowners who modify their mortgage payments to keep their homes, the credit reporting system punishes them.”
Of course, those seeking payment relief (whether current or not) could easily be categorized as higher credit risks, so it’s hard to say whether this legislation will actually stick.
And those who are already delinquent before applying for a loan modification will see their credit scores fall regardless, based on the late payments alone.
There’s also the question of whether it would be retroactive to account for the millions who already applied for loan modifications.
Back in November, Fico said government-sponsored loan modifications wouldn’t adversely affect homeowners’ credit scores, at least not at the moment.
The company said loan mods completed via a government plan would include the phrase “loan modified under a federal government plan” (instead of “partial payment”) on the associated credit report.