In January of 2010, Jamie and Nick Jasper of Mounds View inquired about a mortgage modification. They never signed up to receive a mortgage modification and continued to pay their full mortgage. Later they have found out that their credit score has declined 150 points because the Bank of America automatically placed them on the 3-month trail and reported that they were only making partial payments.

Brendan Sullivan, Star Tribune

Mortgage modification hammers credit

  • Article by: LORA PABST
  • Star Tribune
  • August 17, 2010 - 10:38 AM

Unlike thousands of homeowners who have jumped through hoops to lower their mortgage payments, Jamie and Nick Jasper were signed up for the federal mortgage modification program easily over the phone this past January. The only problem: They didn't want it.

Even though the Mounds View couple continued making their full mortgage payment, they found out this spring that their credit score dropped 150 points because Bank of America signed them up after the Jaspers had a single telephone conversation with a bank representative about the program. The bank quickly told credit bureaus that the Jaspers were making partial mortgage payments, even though they weren't.

"We never signed anything," Jamie Jasper said. "You can't just assume people want it."

Bank of America spokeswoman Jumana Bauwens said the company apparently made a mistake on the Jaspers' account.

"We are working on trying to resolve the issue and we will correct their credit report and contact the customer when we have it resolved," she wrote in an e-mail.

While the Jaspers' situation is hardly typical, it shows how mortgage modifications are linked to a complicated credit reporting system and can cause long-term financial harm for unsuspecting homeowners. The code that is widely used when someone signs up for a three-month trial modification signifies a partial payment, even if the person was not delinquent when they started the process.

That code, called AC, could cause credit scores to tumble more than 100 points, making it more expensive to borrow money or refinance an existing mortgage, according to industry experts. "Generally, that's not a good thing to have reported," said Norm Magnuson, spokesman for the trade group Consumer Data Industry Association. "It will take a while for their score to come back up."

The debate over how mortgage modifications will affect credit scores is heating up. California Democratic Congresswoman Jackie Speier introduced the Protecting Homeowners' Credit History Act last month, which would prevent lenders from reporting modified loan payments as late if paid on time. Her bill also would prohibit credit bureaus from listing that information on a credit report.

The U.S. Treasury Department, which oversees the Home Affordable Modification Program (HAMP), has been working with the credit reporting industry to develop new codes that more accurately reflect the status of an individual mortgage, according to a department spokeswoman.

A new code, called CN, was created last year to indicate a mortgage permanently modified under a government plan. That code does not currently impact a credit score, but that's only because the credit reporting industry doesn't have enough data to determine how much of an impact it should have, said Fair Isaac Corp. spokesman Craig Watts. The Minneapolis-based company, creator of the FICO credit score, won't make any adjustments to its formula for at least a year, Watts said.

'Should not be a secret'

Jamie Jasper was trying to avert future problems when she called Bank of America in January to report that her husband, Nick, had been laid off. They weren't struggling to pay their mortgage, but they wanted to give their lender a warning in case their financial situation worsened.

That's when the bank representative on the phone told her the couple were prequalified for a mortgage modification. All they had to do was fill out an application packet and send it back.

After reading the packet, the Jaspers decided they didn't want to deal with the hassle of applying. They were also concerned that their credit score might take a hit, not knowing that the damage had already been done.

Magnuson said consumers should at least be told their credit score could suffer if they sign up for a mortgage modification.

"It should not be a secret," Magnuson said. "The lenders and brokers should be telling that upfront."

The Treasury Department issues sample notices that lenders can give to homeowners. Those notices state that "your credit score may be affected by accepting a trial period offer or modification," but lenders are not required to use those notices. The packet that the Jaspers received from Bank of America does not make a similar mention and Jamie said she was never warned by the representative on the phone.

Jamie Jasper has spent hours on the phone with Bank of America representatives trying to get the lender to correct her record. She's been told multiple times that the codes on the account have been changed, but the couple's most recent mortgage statement still says they are enrolled in a mortgage modification trial plan.

The Jaspers want to refinance their mortgage, but they won't do it until their credit score is corrected. They said they're glad they don't need to apply for credit immediately, but they know other people might not be as fortunate.

"For people who are trying to get a mortgage modification, why would you go screw up their credit?" Nick Jasper said. "That's all they have left."

© 2018 Star Tribune