Wednesday, August 05, 2009
Loan Modifications
Dear Mr. Ulzheimer, I must respectfully disagree with your column about Partial Payment Plans not being scored negatively by credit reporting agencies. A prospective lender has every right to know whether or not someone has modified a real estate loan. This is an indicator of debt overload and inability to service current debt. I do not think that your proposal does the borrower any great favor because the credit score artificially propped up will permit the borrower to get in further over his or her head than would currently be the case. Part of the housing problem is that the soundness of mortgages was overrated. Your proposal would contribute to the same problem of overrating the ability of the individual borrower to service new debt. A Partial Payment Plan should have some negative impact. I say this as a consumer/borrower myself. I have had 25 years of debtor bankruptcy experience as a small-town attorney, although I have not represented debtors under the 2005 amendments.
This article should not be interpreted as legal advice or testimony. It does not represent any conclusive opinion of the author or any of the credit experts from ExpertCreditWitness.com.
Comments:
Disagreements are always welcome and I fully respect your opinion. What got me going on the topic is that the decision was arbitrary, which isn't how credit scoring impact is supposed to be determined. It's supposed to be empirically derived and demonstrably sound, neither of which were determined beforehand. If after the research FICO determines that people who have modified their loans are, in fact, a greater credit risk and a score hit is justified then that's fine and I'll print a follow up story saying as much. The credit score being "artificially" propped up was not ever determined. Credit scoring is science, not an art. There was no science that drove that decision. The Partial Payment Plan "code" was created many many years ago, well before loan mods were ever thought of. I believe the CDIA tried to fit a round peg in a square hole with this.
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