Want to modify mortgage? Get a trial run

6. Can I earn Home Affordable Modification incentive payments during the trial period?
Fannie Mae's guidelines specify that incentive payments don't accrue during the trial period, but they will be made up in the first month of the mortgage modification. That means if your trial period lasted three months and was successful, you'd accrue four months of incentive payments in the first month of the mortgage modification after the trial period.

7. How will credit bureaus report my payments during the trial period?
The answer is complicated and may depend on whether your mortgage modification is part of the government's program, the status of your loan at the beginning of the trial period, whether you make the modified loan payments on time and the terms of your mortgage modification agreement.

Fannie Mae's and Freddie Mac's guidelines seem to suggest that if your loan was current at the start of the trial period and you made the modified payments on time, the servicer should continue to report your loan as current. If your loan was delinquent at the start of the trial period, the servicer could continue to report your loan as delinquent during the trial period even if you make the modified payments on time.

Loan servicers may have some leeway in how they report the status of a loan during a trial period. It's unlikely that you'll have much, if any, say in how your loan servicer handles this matter.

It's helpful to understand that a credit report doesn't capture all the terms of a mortgage modification. Instead, the important facts are the payment and whether you made the payment on time, says Cynthia Baker, a spokeswoman for the Experian credit bureau. A change in the interest rate on your loan wouldn't be reported, but a change in the payment likely would be reported.

How lenders will report trial periods and mortgage modifications to the credit bureaus is far from clear, says Craig Watts, public relations director for FICO.

For instance, whether the trial period will affect your credit score will "depend on how the lender has chosen to represent that on (your) credit report," Watts says. "What none of us knows yet is how lenders as a group are reporting the various varieties of mortgage modifications to the bureaus."

8. Are there any other pros or cons of a trial period?
A trial period can help the loan servicer and borrower, but the concept isn't without a few caveats.

Borrowers who begin but don't complete a trial period will have only postponed the inevitable and spent scarce cash on housing-related expenses they might have avoided had they not attempted the trial period, says Gail Cunningham, vice president of public relations for the National Foundation for Credit Counseling in Silver Spring, Md.

Yet even an unsuccessful trial period may give borrowers a measure of comfort since they'll be able to feel they did as much as they possibly could have done to avoid the loss of their home -- and then they can quit being hard on themselves, Cunningham says.

"I never like to think of the consumer beating themselves up down the road," she says.

9. Is the loan servicer required to complete the mortgage modification if I meet the requirements of the trial period?
If your mortgage modification is part of the Making Home Affordable program, your servicer won't receive payment for the modification from the federal government until it's completed. That's an incentive for the servicer to finish the process. If your mortgage modification isn't part of the government's program, the servicer's obligations, if any, should be spelled out in the agreement. Some of these agreements put all the responsibility on the borrower and little, if any, on the servicer.

10. What happens if I miss a payment during the trial period?
If your mortgage modification is part of the government's program, you'll be required to make three payments during the trial period. There may be some leeway for late payments, but you'll have to make all the payments before the trial period ends. If you haven't made all the required payments by the end of the trial period, you'll no longer be eligible for this program. You may still be eligible for other mortgage modification programs offered by your loan servicer, or you may be able to consider a short sale or deed-in-lieu as other alternatives.


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