Surprise! Loan mods lower your credit score

Among the many other less-than-desirable features of the mortgage modification program known as HAMP (Home Affordable Modification Program) is the revelation that, according to this AP report, your credit score will probably be lowered soon after you apply for help.

For borrowers who are making their payments on time but are on the verge of default, the Obama administration's loan modification program can reduce their credit score as much as 100 points. That makes it harder to get a loan and can present a problem when applying for a new job.

Housing counselors say it's unfair, especially because the news often comes as a surprise to homeowners.

"Why should people's credit be hurt even worse when they're trying to do the right thing?" said Eileen Anderson, senior vice president at Community Development Corp. of Long Island, a housing counseling group in New York.

And many homeowners are angry that a program designed to help carries such a penalty, said Kathy Conley, a housing counselor with GreenPath Inc., a nonprofit group in Farmington Hills, Mich.

"It's a feeling of being duped," she said.

Apparently, Treasury Department guidelines require that mortgage companies notify credit bureaus at some early stage of the process, though it probably doesn't say this on any of the HAMP application forms.

Of course, from the point of view of the credit agencies, this all makes good sense, however, it does seem like a double-standard. When the big banks got their big backing from the government when they ran into trouble, the ratings agencies thought that was swell, but, after the little guy gets his little bailout, his credit gets hit.