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Suzanne Griffis has managed to keep current with her mortgage and other bills but now fears a plan to reduce her house payments will hurt her credit.
Griffis, a former registered nurse who is disabled, asked Bank of America for a modification last June, hoping to lower her monthly payment of about $930. In December, she made her first trial payment, about one-third less.
The bank has assured her several times that making the lower trial payments won't affect her credit score. But she's skeptical because she's been getting calls from the bank's collection department about her payments.
"I've tried so hard to make every bill on time," said Griffis, who is 64 and lives in southwest Charlotte.
Credit scores are always tricky to understand, and the impact of modifications is even more complex. The bottom line, Save Your Home has found, is credit scores are likely to suffer during a temporary trial modification, but can be restored when the modification is finalized.
During a loan modification's trial period, the reduced payments can result in a credit score hit close to the roughly 15 percent to 20 percent blow of a foreclosure, said Barry Paperno. He's consumer operations manager for FICO, the leading provider of credit scoring data.
"That means you're having a problem with your payments, so there's a higher level of risk," he said.
The negative impact could be erased for homeowners who successfully complete the trial phase. That's intended to be three months under the main federal modification program, introduced last year in February. Then, if the homeowner has made timely trial payments, the modification is supposed to become long term. At that point, the reduced trial payments will no longer count against the credit score, Paperno said.
However, a final modification won't eliminate credit hits from late payments or other financial problems. And the outcome depends on how the lender reports the event, a factor in all credit reporting.
Increasingly, trial modifications in the Charlotte area and nationwide are dragging on far longer than three months. Some homeowners also are ultimately rejected, despite having made timely trial payments. FICO's Paperno said it's up to lenders how these situations are reported for credit purposes and a "bit of a question mark."
"I'll croak if they do something like that," said Griffis, who is about to make her fifth monthly trial payment. She says she has been "told to continue making trial period payments indefinitely."
Griffis also has been frustrated by the delays, lost paperwork and communication problems that are typical of the modification process. She first requested a modification in June and began trial payments in December.
Her modification is in the last stage of evaluation, said bank spokeswoman Jumana Bauwens. A final decision should be made within weeks. When asked about the delay, Bauwens said Bank of America's first focus last year was seriously delinquent customers, in near danger of foreclosure. In the third quarter, she said, the bank expanded its focus to borrowers like Griffis, who were current but struggling.
"Moving forward, the trial-to-permanent conversion will be more streamlined as our systems are fully operational ...," Bauwens said.
Following Save Your Home questions, the bank found Griffis' loan was "inadvertently reported as delinquent," and the bank has submitted corrections to the credit bureaus, Bauwens said.
"We apologize to Ms. Griffis for this error and inconvenience," she said.
Why does it matter?
Maintaining a good credit score might seem a needless worry, if not an impossibility, for people trying to save their home from foreclosure. Keeping a place to live is certainly a higher priority.
But credit dings can be an expensive problem, making it even harder for distressed homeowners to make the climb back to financial stability. The importance of credit data goes way beyond qualifying for a loan or charge card.
The information, derived from years of data about how millions of people pay their bills, is used by employers, insurers, utilities and others to help gauge risks.
"It bleeds over into other things, like your ability to get a job," said John Ulzheimer, president of consumer education at Credit.com, a credit education and financial services Web site.
Consumers with weak scores also may have to pay hefty deposits for utilities and cell phones. They may be charged higher rates for existing credit cards. Landlords might be unwilling to rent to people with poor scores or require a bigger deposit, both problems for struggling homeowners seeking alternate housing. Auto insurers and others increasingly rely on credit information to set individual rates.
"That could lead to an unexpected spike in insurance costs," said Evan Hendricks, author of "Credit Scores & Credit Reports.
He and other experts also are concerned about confusion over the impact of modifications on credit data. They say lenders and servicers must provide upfront, consistent, clearly worded explanations of the potential credit damage.
"The impact on credit ... basically straitjackets you from making any other credit moves," he said. "Considering how Draconian the consequences can be, it has to be explicitly explained to people so they know."
Worry about higher costs
Griffis, who has been divorced for more than 20 years, has contemplated the potential consequences of damaged credit.
She and one of her two daughters bought the two-story, three-bedroom house new in June 2007 for $190,000. The mother has been disabled by a degenerative disease since 1992 but had savings. She provided all but $1,000 of the $40,000 down payment and $7,000 in closing costs. They took a $150,000 adjustable rate mortgage that resets in 2014.
In 2008, Griffis says her daughter married and the couple moved to Texas, where her new son-in-law was stationed with the Army. This year, her daughter provided the bank with a notarized statement that she hasn't contributed to the mortgage for two years and doesn't intend to return.
That means Griffis has had to make the $930 payment from her disability income of $1,635 per month. She has run through nearly all of her savings. In July, when she turns 65, she says her income will be reduced to $950 per month because her private disability payments will end. She says her car is paid for, and she carries no credit card debt.
Griffis has tried twice to sell her house, both times asking more than $200,000, hoping to recoup lost savings. She hasn't been able to sell amid the steep downturn.
If she sold, she would have to find another place to live, and if her credit is weak, that could cost her more - whether she rents or buys a less expensive home.
For example, the monthly payment on a 30-year, fixed-rate, $125,000 loan in North Carolina would be about $639 for people with an excellent FICO score of 760 or better, say estimates at FICO's www.myfico.com. A borrower with a 620 score would pay $123 more per month, due to a higher interest rate, the site estimates.
"Credit scores affect everything you want to do," said Griffis, who is relying on her Christian faith to carry her through. "To me, there is always hope."
