The impact of loan modifications on credit scores is minimal as long as other factors remain intact. In other credit reporting activity, all three credit agencies are on board with the latest version of FICO, the government won more than $40 million in judgments against credit repair firms and America's collective credit score is above 670.
A recent story published by Bloomberg suggested that loan modifications can destroy credit scores. The story highlighted one borrower who saw his credit score drop to 619 from 740 after entering the trial period for a modification using the Home Affordable Modification program.
While media representatives from the other two credit reporting agencies didn't respond to requests for comments, Experian spokeswoman Roslyn Whitehurst told MortgageDaily.com in phone interviews that the impact from modifications on credit scores depends on how lenders report them. Some report modifications just as they would a refinance, while others report the same loan reflecting changes to the balance. But in either case, the impact is minimal.
"In a vacuum, it would probably have very little [impact] if we're looking at just a straight modification," Whitehurst said -- adding that this assumes the payment isn't delinquent and other factors haven't deteriorated.
FICO mostly agreed with Experian that the external factors -- and not the modification itself -- most impact the score.
"Whether any loan event effects the borrower's FICO score depends on the way the lender chooses to report that event to the credit bureau," FICO Public Affairs Director Craig Watts said in a statement to MortgageDaily.com. "If lenders choose to report mortgage modifications to credit bureaus using codes that indicate 'not paid as agreed,' that information will likely have a negative effect on the borrower's FICO score. The weight such information is given by the FICO formula depends on other information in the consumer's profile, such as any reports of delinquent payments, or high utilization rates on credit card accounts"
An advisory opinion issued by the Federal Trade Commission clarified that creditors do not violate the Fair Debt Collection Practices Act by contacting a borrower who previously asked not to be contacted if the creditor is investigating a disputed credit item, ACA International announced this month. ACA, which is the Association of Credit and Collection Professionals, said it was only the fourth time in FTC history that the agency released an advisory opinion.
The FICO 08 credit score is available at all three credit-reporting agencies, a July 22 press release said. Since the first agency launched the latest score early this year, more than 400 lenders, "including five of the seven largest U.S. banks," have started using or testing it.
FICO said its latest version is "expected to provide up to twice the improvement in predictive power compared to FICO's previous revisions to its FICO scoring model." The biggest improvements made addressed derogatory histories, newly opened accounts and consumers who are relatively new to credit. In addition, FICO 08 helps prevent authorized-user account 'piggybacking' while factoring in authorized-user data that was not the result of abuse.
Scores still range from 300 to 850, while reason codes, minimum scoring criteria and the treatment of inquires remain unchanged, FICO said.
Minneapolis-based FICO developed the Credit Capacity Index, an analytic risk-management tool that "rank-orders" prospective borrowers based on their ability to take on future debt, a July 21 news release said. The new solution utilizes data from Equifax to provide an "extra dimension" for the BEACON credit score. It can help predict how an adjustable-rate borrower might handle rising payments.
A 30-minute online study course was developed by FICO and AllRegs to educate credit decision makers about the fundamentals of FICO scores, according to a recent announcement. The $95 course includes a review of a sample credit report, an examination of FICO credit score components and an education about the effects of consumer behavior and credit inquiries.
Between December 2008 and March 2009, 43 percent of consumer credit scores increased, Credit Karma recently reported. Just over one-quarter declined and 30 percent were unchanged. The average increase was 14 points, while the average decrease was 14 points. The average for all U.S. credit scores was 678.
VantageScore has been integrated into Standard & Poor's Ratings Services' 6.6 U.S. mortgage analytical model, a recent news release said.
The Federal Trade Commission announced last month a settlement with Michael Singer, Gerald Roth, Melvin Kessler and a number of entities operating under the "Ace" brand. The settlement includes a $21 million judgment against Singer and Roth and another $21 million judgment against Kessler -- though both judgments will be suspended as long as Singer and Roth pay $5,000 each. The suspension was due to the inability of the defendants to pay the judgments.
The FTC said it filed the lawsuit in October 2008 as part of "Operation Clean Sweep" for promising to remove negative but accurate credit items for an initial fee of $59.95 and monthly fees $59.95. They even claimed bankruptcies could be removed. But dispute letters sent to credit reporting agencies failed to improve credit reports. As part of the settlement, the defendants are barred from violating the Credit Repair Organizations Act by charging advance fees or claiming they can permanently remove negative items.
Consumer attorney Christopher E. Kittell of the firm Merkel & Cocke, P.A., announced on July 20 the launch of a blog that explains the Fair Credit Reporting Act, 15 U.S.C. § 1681 et seq and covers federal court opinions interpreting FCRA. The online journal said it covers credit industry issues, credit-related legislation and identiy theft and credit scams.
Advantage Credit Inc. of Colorado has joined Mortgage Spirit's Gold Member Services Program -- a forum and a think tank, an recent statement said.
Free credit repair software was announced by Credit-A Software. The service was created through a venture with TrialPay and is supported through advertisements.
Federal Trade Commission v. Ace Group, Inc. a Delaware corporation, also d/b/a American Credit Experts, Inc., The Ace Group, Inc., The Ace Group, and Ace, Legal Credit Repair Center, Inc., a Florida Corporation, also d/b/a LCRC, Michael Singer, Melvin Kessler, and Gerald Roth.
Civil Action No. 0:08-CV-61686-PAS, FTC File No. 082 3172 (United States District Court Southern District of Florida)