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Question for the Money Doctors

Question submitted on Jul 13, 2011.

Question

My husband and his brother co-own a house in MD. We moved to California and are currently making half of the mortgage payments. We have never been delinquent, but foresee difficulty in making payments in the future.

Does a home loan modification negatively affect his credit score? What options allow him to reduce the monthly mortgage payments while maintaining his good credit score? He doesn''t qualify for refinancing because he lost his job due to injuries and is currently receiving benefits under workers compensation.

Thanks for your help!

Answer

Unfortunately, I believe it will negatively impact his credit score. Basically, the modification means that the lender is willing to accept terms that are less profitable than the current mortgage. However, the lender may accept new (less profitable) terms because it will be better than a foreclosure where the bank would get the property back. Banks don''t really want property - it''s a big headache for them so in a lot of cases, if they see hope in an alternative, they may be willing to accept it.

Although the modification isn''t an optimal solution for the bank and the borrower, it may be the best alternative for both parties. Since he is currently not working and can''t refinance, this may be the best option. Just make sure that he understands the benefits and consequences of a modification. Again, while not an optimal solution, it may be the best that exists.


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