BluefoxToday blog : FICO score can take a hit following Home Affordable Modification Program

FICO score can take a hit following Home Affordable Modification Program

This outcome hasn't been discussed much before but now it's out there for everyone to see. Namely that if a homeowner in distress is successful in using the Home Affordable Modification Program, kicked off in March, to lower his mortgage payments, his FICO score is likely to take a hit. FICO is the commonly-used barometer to assess a consumer's credit standing.

That's because many mortgage lenders report the modification to FICO as such. This means that the original terms of the loan were changed, often for less than the full amount, and any time that happens FICO's existing formula regards that as a negative. The score can drop 100 points and more. A perilous dive.

Under current train of thought, the negative impact is entirely reasonable. By how many points it should impact the score is debatable, however. In this deep recession borrowers that are proactive and seek to work things out before falling behind in their payments ought not to pay a heavy price for it. They are trying to achieve a win-win outcome for everyone. It clearly seems excessive to see FICOs tumble 100 or more points.

Not only that, but consumers that have done this have also generally been unaware of the blow to their credit scores. They only find out about it later when requesting a fresh report. Either the disclosure hasn't been there at all, or was buried somewhere in fine print, the usual industry practice. This can predictably slow down foreclosure prevention efforts to the detriment of the entire economy. That, for the most part due to FICO using an outdated scoring model. It should be quickly revisited to reflect the presently difficult real estate market.  



Provided by: 

Esko Kiuru
Mortgage, real estate and apartment industry analyst - syndicated mortgage, housing and property management blog
My cell: 702-499-1006

Comment balloon 20 commentsEsko Kiuru • July 17 2009 07:16PM


Wow, good thinking to post this important information.  How long would it take to rebound the 100 points?

Posted by Monika Depalo, REAL ESTATE Agent/Stager (GAFF'S REFERRAL'S INC.) over 11 years ago

Wow what a hit-I'm with you I bet most of the consumers don't know about the hit or how much it will hit their FICO scores.

Posted by Pat Champion, Call the "CHAMPION" for all your real estate needs (John Roberts Realty) over 11 years ago

So important that the public be aware!  Hope your Las Vegas market is stabilizing.  

Posted by Angela Clark, CRS, Realtor, Broker (Tony Clark REALTORS) over 11 years ago

Thanks for the info Esko.

Posted by Neal Bloom, Realtor CRS-Weston FL Real Estate (Brokered by eXp Realty LLC) over 11 years ago

It should drop.  It is no different than comsumer conseling.  If you are having a  financial problem and your are getting help to reduce your debt by making the lender lose money there should be some negative impact to you too. 

Posted by Russ Ravary ~ Metro Detroit Realtor call (248) 310-6239, Michigan homes for sale ~ (Real Estate One) over 11 years ago

Thanks for supplying us with this vital information on credit scores. We have been subject to a three digit number

Posted by Harry F. D'Elia III, Investor , Mentor, GRI, Radio, CIPS, REOs, ABR (RentVest) over 11 years ago

Thanks for bringing this to light.  I didn't realize that the people that were able to get their loan modified would take such a huge hit on their score!  Seems like the loan modification hits them just as hard as a short sale...

Chanda panda

Posted by Chanda Barrick, in referral (Keller Williams Indy Metro Northeast) over 11 years ago

I was curious of the impact of this on a consumers credit score.  All things considered, if this actually helps keep them in their home and avoid a foreclosure, the 100 points are a pretty good tradeoff.


Ryan Minick

Posted by Ryan Minick, The 2 Mortgage Guys (LeaderOne Financial Corporation) over 11 years ago

Esko, how do they take a hit on the credit score if they do not go late on the mortgage payment.  Are they attaching a code to indicate that a loan modification has taken place???

Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) over 11 years ago


As to recovering the lost points, FICO scoring model may not even have it figured out yet. Good question.

Posted by Esko Kiuru over 11 years ago


Consumers generally not being aware of it is a problem.

Posted by Esko Kiuru over 11 years ago


Spreading the word about this is important.

Posted by Esko Kiuru over 11 years ago


Thanks for coming by. Hope everything is well over there.

Posted by Esko Kiuru over 11 years ago


Dropping is reasonable since the original loan terms were modified, but by how much can be debated.

Posted by Esko Kiuru over 11 years ago


Everyone considering a loan mod ought to be aware of this possibility.

Posted by Esko Kiuru over 11 years ago


A hit over 100 points seems excessive.

Posted by Esko Kiuru over 11 years ago


That's one way to look at it.

Posted by Esko Kiuru over 11 years ago


The lender will report the modification to FICO and its scoring model takes over from there.

Posted by Esko Kiuru over 11 years ago


George's comment highlights an issue.  I hear loan modification "specialists" telling prospective "customers" that since they aren't going to be late on payments, it won't affect their credit score.  You're right.  It's not true.

Mike in Tucson

Posted by Mike Jones, Mike Jones NMLS 223495 (SUNSTREET MORTGAGE, LLC (BK-0907366, NMLS 145171) ) over 11 years ago


If banks report their loan modifications, and many seem to be doing so, to FICO, it'll affect the borrower's score, often negatively.

Posted by Esko Kiuru over 11 years ago