How Does HAMP Affect Your Credit Score?

Accepting a mortgage loan modification under the Home Affordable Modification Program can have unexpected side effects. A HAMP modification can lower your credit score and affect your ability to obtain a loan or a new job. Your credit rating before enrolling in the program determines how a HAMP modification will affect your credit score.

Payment History

According to the Connecticut Department of Banking, the main reason for the credit score dip is the fact that you pay less than your full mortgage payments during the HAMP trial period, which appears as intentionally late or partial payments when reported to credit bureaus. If you are a homeowner with up-to-date mortgage payments, you will experience the largest drop in credit rating following a HAMP modification. If you are already delinquent in your mortgage payments before HAMP, you will usually experience a milder credit score drop because previous late payments have already negatively affected your credit rating.

Lender Reporting

Credit reporting agencies only require lenders to report loan modifications following the completion of your HAMP trial period. According to the government-sponsored website Making Home Affordable.gov, lenders must identify modified loans as current and "modified under federal government plan" if you successfully complete the trial period, or delinquent and "modified under federal government plan" if you make any payments 30 days past the due date during the trial period. In some cases, if you receive the current and "modified under federal government plan" notation, this notation amends any negative credit reporting that took place due to lower payments during the trial period.

Effects

Not all HAMP participants experience lower credit ratings. However, according to Alan Zibel on The Huffington Post website, a HAMP modification can lower your credit score as much as 100 points if you are current on payments but are on the verge of default. If your credit score is in the range of 700 or above, your score should fall no lower than 600. A score lower than 600 indicates that you are a high risk to lenders and can affect your ability to obtain credit, suggests the Consumer Federation of America "Your Credit Scores" report.

Considerations

Even if a HAMP modification can lower your credit rating, the alternative is more damaging. If you opt out of a HAMP modification, struggling with continuous late payments or losing your home to foreclosure can drop your credit score by at least 150 points according to Alan Zibel. If you experience a drop in your credit rating following a HAMP modification, you can soften the blow by using the extra money saved from lower mortgage payments to pay down other high interest debts.