Loan Modification Zone: In a series of blog posts, I would like to address the challenges we are facing due to the housing crisis with the purpose to uncover as much as possible the domino effect this has on people’s lives, their finances, and eventually on the US economy as a whole.
Let us start with the loan modification topic. When your application as a homeowner for a loan modification is denied, the resultant domino effect can be very damaging. Here are a few of the possible consequences:
How applying to a loan modification may affect your credit:
There’s a strong chance that when you are ready to pursue a loan modification that you stop making payments on your mortgage based on instruction from a staff member at your bank who informed you that your application would not even be considered if you haven’t done so. Whatever the source of this instruction/information, you stop making your payment and your credit rating therefore takes a hit. Additionally, in some cases, even if you have been approved for a loan modification, the trial payments get reported to credit bureaus as partial payments until the permanent payment schedule has been approved. It’s quite astounding actually. These partial payments negatively affect your credit.
Whether you have been approved or denied for a loan modification, your credit could now be damaged. This fact leads to further negative consequences:
- A bad credit rating – the extent of the damage depends on how many months you are behind with your payment prior to receiving a trial loan modification offer.
- Refinancing becomes impossible until your credit has been repaired.
- Many of your credit cards (if not all of them) may be cancelled, even if you have never missed a payment on any of them.
A damaged credit score leads to all sorts of other problems:
Similar to a falling pattern of upright dominos, a struggling homeowner can watch in dismay as his/her dreams and hopes come crashing down as a result of a credit report that reflects negatively on him/her. Along with the previously mentioned adverse impact on your chances of receiving loan approval, and not to mention the impact on the interest rates that you qualify for, a poor credit rating can also ruin your chances of investing in a property, of launching your own business, and of purchasing a vehicle with the assistance of a car loan.
You may even experience something as simple as opening a bank account becoming an insurmountable challenge. This reality has left many people with no other choice but to approach high-cost check cashing stores because of the fact that they don’t have an available checking account. Of course, this means that further burdensome fees are added to the shoulders of the struggling homeowner. All these things can lead to a downward spiral which can seem impossible to escape from. Bad credit results in you sinking underwater, and that same bad credit makes it incredibly difficult to get your nose above the water-line once again.
The following are some real life consequences that people have experienced:
- A family attempting to get a college loan for their son/daughter is no longer qualified to do so.
- An individual desiring to further or complete their education can encounter similar frustrating limitations. This of course means that their ability to enhance their income earning potential is severely compromised.
- Getting affordable car insurance – In many states, insurers impose higher premiums on drivers with low credit scores.
- Financing a car becomes impossible for many, impacting their ability to honor work commitments, earn a stable income, and consequently pay off their suffocating debts.
- Leasing an apartment or a house without a large security deposit becomes extremely difficult. Some renters are being called upon to pay three months of rent in advance before being allowed to move into their new home.
- Launching a new business or expanding an existing one becomes a very frustrating endeavor due to the inability to secure the necessary line of credit.
- Even the prospect of securing a promotion in the workplace can be significantly compromised. In reaching these decisions, some employers do include the employee’s credit score as part of their evaluation process.
It goes without saying … circumstances such as these can easily equate to a downward spiral from which escape can often seem impossible. What is this doing to our American dream?
PS: Here is a snapshot of the subprime Mortgage Crisis domino effect:
|I am CEO and Founder of MyCaal (Mycaal.com) keen on helping American homeowners save their home, save their dream. If you need help with your loan modification, visit www.mycaal.com to see how Caal assists you in pre-qualifying your loan for approval, as well as preparing and printing your loan modification package online.|