Restructuring plans on a mortgage, whether in the form a forbearance, modification or short sale, have a relatively insignificant effect on the consumer’s credit score, said Sarah Davies, vice president of VantageScore, at the Loan Modifications Conference now underway in Dallas, Texas. VantageScore measures the generic consumer’s credit score and his or her likelihood of slipping into 90-plus day delinquencies on a scale of 501 to 990. Three of the top 10 loan originators and eight of the top 25 financial institutions in the industry use VantageScore’s services. If a servicer reduces a consumer’s original loan amount from 10-to-30%, the consumer’s credit score is only increased by three to 18 points, depending upon the consumer’s initial standing. Borrowers in the top-tier of credit scores, averaging an 862, receive only a three-point increase. Lower tier borrowers, in the 625 range, can receive an 18-point jump. The credit score increases because the total amount of debt owed is reduced, and the borrower becomes more reliable – and risk deflates, Davies said. However, foreclosure and bankruptcy can more severely affect the consumer’s credit score. If a borrower, who maintains good credit, is foreclosed, his or her credit score can decrease by as much as 140 points. Bankruptcy for someone in good credit standing results in a reduction of 365 points from the consumer’s credit and a mark on the file for seven to sometimes 10 years, Davies said. “Delinquency on a mortgage account has a far greater negative impact to credit scores than loan modifications,” Davies said. Loan modifications cause a small change in the score unless the lender establishes a new loan as part of the restructure. Credit scores take the biggest hits from short sales, foreclosures and bankruptcy, but if a consumer can bring delinquent accounts to a current status, his or her score can recover in as little as nine months, Davies said. “When you can, let’s avoid bankruptcy,” Davies said. Write to Jon Prior.

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