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Mar 19, 2010 11:53 AM by Bea Karnes, News First 5

Loan modification can quickly hurt credit

Homeowners who are making their payments on time but are on the verge of default are finding a hidden whammy in the government's loan modification program.

Once they apply, the mortgage company notifies the three big credit bureaus, which may reduce their credit scores up to 100 points. That makes it harder to get a loan, and may also make it tougher to get a job.

Eileen Anderson of a housing counseling group on Long Island, New York, asks "Why should people's credit be hurt even worse when they're trying to do the right thing?"

But the credit rating industry defends the practice. A spokesman for a trade group says people who sign up for loan modifications wouldn't be asking for help unless they were having severe money troubles.

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