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Credit Scores Damaged By Banks In Loan Modification Process

As we hear more and more loan modification stories, we are growing concerned about one of the big issues the Home Affordable Modification Program (HAMP) guidelines failed to address -- how banks report loan modifications to the credit reporting agencies.  As we reported, bank servicers are telling borrowers not to make payments during the loan modification process.  Borrowers are being told this, presumably,  to qualify for a loan modification.

Borrowers are not being told the ramifications of this advice.  Are bank servicers informing borrowers about whether they will be reported "delinquent" for the entire time their loan modification request is being processed?  Under the HAMP, a borrower does not have to be behind on payments to qualify for a loan modification. 

There currently is no specific field on a credit report for reporting on a loan modification.  Original loan, amount, terms duration, terms frequency, scheduled monthly payment amount and current balance are typically reported.  The problem lies in the reporting of "delinquent payments."  How are payments reported before, during and after a loan modification?  It seems like there is no standard answer.  We also know that late fees before and during the 90 day temporary loan modification period are waived based on the HAMP guidelines.  Do those late fees still end up on your credit?  What happens if the bank's servicer told you not to make payments during your loan modification request?  Does the bank continue to assess late fees and do they show-up on your credit?

There are a lot of unanswered questions about how loan modifications affect credit scores.  Until there are some answers to these unanswered questions, borrowers need to vigilantly review their credit reports during and after the loan modification process.