debt

Before mortgage modification, pay on time

Steve BucciQuestionDear Debt Adviser,
We finally received a modification on our mortgage, which was no easy task, before our May 2010 payment was late. The terms of the modification stated that our payment was not due until July 2010. I checked our credit report and our bank reported our May payment as late. That is detrimental to anyone's credit report. A mortgage modification changes the terms of the loan. Per the modification, we were not due. How can they report us late? Can the bank legally report our payment late under these conditions? This is wrong. Can it be fixed and how?
-- Melody

AnswerDear Melody,
Congratulations on successfully navigating the long and winding road of a mortgage modification. I know how difficult it can be to get a resolution with a seemingly endless army of mortgo-crats saying your information was lost, incomplete, on the wrong form and more. Assuming you are able to afford the monthly payment under your new mortgage loan, you definitely did the right thing by applying for a loan modification rather than experiencing the financial, credit and emotional pain of a foreclosure, deed in lieu of sale or short sale of your home. Plus, you have the bonus of not having to go through the added trials and expenses of moving.

I do not have the paperwork for your mortgage modification, but from what you have told me, I believe the fact that your first payment is due in July 2010 means that it is for the month of June. Mortgage payments are usually made in arrears or for the previous month. Your mortgage modification does not affect your payments under the original mortgage loan, which had the full and original payment due under your old schedule. To have kept up to date, you would have needed to continue to make payments on the original loan until the new mortgage modification loan took effect. So, yes, the fact that the bank reported your May payment as late is most likely accurate. The reason? The bank is expecting a full contractual payment every month -- new loan, old loan, it doesn't matter.

My recommendation is for you to not worry about your credit history right now and concentrate on making good financial decisions moving forward. For example, start by making your mortgage loan payment and all other debts on time each month. Also, if you do not have a spending plan in place, now is the time to get one. I want you to be in control of where your money goes each month. The best way to accomplish that is to have a plan for spending your discretionary income -- money left after required monthly bill payments.

In addition, if you do not have an emergency savings cushion of six months' of living expenses, I recommend you begin saving as much as possible right away. Unwanted and unplanned expenses always seem to occur when you can least afford them. To help keep those expenses from causing financial trouble, you need a savings cushion.

One last word on your credit history. Once you get around to checking your credit report again, my guess is that you will see another negative item on your mortgage trade line. Most banks will report your mortgage loan modification as just that, a modification of the original loan. This is viewed as a negative because you were unable to meet the terms of the original loan. The end result is a credit ding. From their point of view, you failed to live up to the original agreement. The bank agreed to modify your original loan, but that doesn't mean that they are happy about it.

By the way, I think that a lender's happiness should be the least of your concerns right now. However, your credit report blemish is not nearly as damaging a hit on your credit as a foreclosure would have been. Again, don't worry about your credit. In two years or so, you will have added enough positive information to your credit report that the late mortgage payment and loan modification will have a much less negative effect.

Good luck!

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