photo credit: Mike Licht, NotionsCapital.com

Credit expert John Ulzheimer reports a disturbing development: a decision by the credit reporting industry to report loan modifications as “partial payment plans.”

From John’s blog:

The issue at hand is how very large mortgage lenders, namely Citigroup, Chase, and Bank of America, may report mortgage loan modifications to the credit reporting agencies and, secondly, how that credit reporting impacts the consumers’ FICO® credit scores. According to the Consumer Data Industry Association, the credit bureaus have agreed to guidelines that loan modifications will be reported as a “Partial Payment Plan.”

The problem with this decision is that FICO credit scores interpret the notation of a “Partial Payment Plan” as negative. Consumers will see their scores decrease some amount of points because of such a classification. How much their scores decrease will depend on from where their scores started.

John notes that modifications typically involve a reduction of interest rates, not balances owed, and are often temporary. Since the lender is not losing any principal, it’s hard to imagine how the “partial payment plan” notation is justified

To read his full blog post, CLICK HERE.