Will federal mortgage loan assistance hurt your credit rating?

Filed in archive credit problems on May 18, 2009

For homeowners struggling to make their mortgage payments, the federal government's new Making Home Affordable program — which lets homeowners refinance their existing mortgage loans or modify them to make their payments more affordable — might be a blessing.

The federal government estimates that from 7 to 9 million homeowners who otherwise couldn't refinance their mortgage loans may qualify for the program.

There is a fear out there, though, that working with the Making Home Affordable program may hurt the credit scores of homeowners.

The truth is, as you can read in this story in the Mail Tribune newspaper in Oregon, no one knows for certain just how this program will impact credit scores. The consensus, though, is that credit scores will not be lowered because of the program.

This is especially true for those homeowners using the program to simply refinance their existing mortgage loans. Refinancing a mortgage loan under normal circumstances will not harm a homeowner's credit score. Homeowners refinancing under the program more than likely will have solid credit, because one of the requirements to participate is that these owners must not have any missed mortgage payments in the last year.

There is more question about the impact loan modifications — a more serious step than a refinance — will have on homeowner credit scores. For one thing, it's not yet certain how or if these modifications will even be reported to the credit bureaus.

However, homeowners who do qualify for the loan modification arm of the Making Home Affordable program have already suffered serious dings to their credit reports. If they don't take advantage of this federal program, and continue to miss mortgage payments, they will only suffer additional harm to their credit reports.

Norm Magnuson, an official with the Consumer Data Industry Association trade group, is quoted in the Mail Tribune as saying that working with the federal program might actually improve a homeowner's credit score in the long run beause it will help them return to making regular, on-time mortgage payments.

If you're worried about the impact that Making Home Affordable will have on your credit score, visit the government Web site for the program. If you're still not satisified, call your mortgage loan officer. This is an opportunity you shouldn't miss out on because of worries that may be unfounded.