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How loan modifications affect credit scores

Author

Listed:
  • Prabal Chakrabarti

Abstract

Homeowners who receive loan modifications and successfully avoid foreclosure may face another issue, one that is not well understood. It turns out that participation in loan-modification programs may adversely affect credit scores. 1 The magnitude of the impact is unclear because many factors affect what lenders will report about borrowers who seek modifications, and other factors affect how much the credit-reporting agencies, credit-score providers, and lenders will penalize borrowers who have loan modifications on their credit reports. Although both the U.S. Treasury and credit-scoring agencies have tried to clarify the issue, the outcome is still murky.

Suggested Citation

  • Prabal Chakrabarti, 2010. "How loan modifications affect credit scores," Communities and Banking, Federal Reserve Bank of Boston, issue Fall, pages 25-27.
    • Handle: RePEc:fip:fedbcb:y:2010:i:fall:p:25-27
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    File URL: http://www.bostonfed.org/commdev/c&b/2010/fall/Chakrabarti_loan_modification.pdf
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