The Making Homes Affordable program is designed to help individuals restructure their mortgages with their lenders. In lowering the monthly payments through renegotiating the terms of the loan, more people are able to avoid short sale and foreclosure situations.

One unforeseen consequence is that the homeowners benefiting from the program may also be taking a 50 to 100 hit on their credit score. The challenge is that lending institutions and banks are reporting the loan modification differently to the various credit agencies. It is this variation in credit reporting that is difference how credit scores are being impacted.

What is important to keep in mind is that a loan modification’s impact on a credit score will be substantially less damaging than a foreclosure or a short sale. In all three cases lenders report the change in credit, but a modification is not reported as a ‘charge-off’. Charge-offs are typically associated with short sales and foreclosures and stay on credit reports for 7 years.  Modification is much preferable to a foreclosure, just make sure you are aware of the potential impacts on your credit.