A recent article in the NY Daily News discusses how the government’s Home Affordable Modification Program (HAMP) can reduce a homeowner’s credit score by as much as 100 points, especially for borrowers who are currently making their payments on time but are on the verge of default. 

So far, the program has failed to meet its initial goals due to a variety of reasons ranging from delays in borrowers submitting the paperwork to long processing times by lenders. Till February, 170,000 borrowers had completed the modification process and according to the report, many homeowners were not informed that their credit ratings would be affected when they applied for a modification. 

Homeowners whose credit ratings have been hurt could find it difficult to get another loan or get a job. While foreclosures would have an even worse effect on a borrower’s credit score, this could act as a deterrent to some homeowners for entering into loan modifications, further hampering the program from meeting its goals. 

The $75 billion Home Affordable Modification Program was created to provide aid to nearly 4 million homeowners. The program provides financial incentives to mortgage companies and investors to modify home loans and prevent foreclosures.  

Under the program, borrowers are first put into trial modifications for three months to ascertain whether they can make the new payments and to give them time to submit the paperwork before the loan modification becomes permanent.