Many programs are set up to save a home from default but, before entering into any modification program, it is best to check with your lender so that you know what to expect in any future buying decisions.

Credit scores measure future risks. Lenders consider the possibility of a person becoming seriously delinquent in the near future if they are reported as not paying an obligation as agreed.

The Home Affordable Modification Program (HAMP) creates a defined loan modification process through which borrowers who are in default, at risk of imminent default, or in foreclosure can have their loans modified to a more affordable monthly payment equal to a target 31 percent of their monthly gross income.

Consumers are not typically penalized by this program but if the lender reports a loan modification as “not paid as agreed” it could have a negative effect on a credit score.

Deed-in-lieu of foreclosure is a program that allows a home to be directly transferred to the servicer of the loan. Together with short sales and foreclosures, these are generally reported as “Settled for less than full amount” and will have a negative effect on a credit score. Only making partial payments also leads to a lower score.

To get a general idea of what to expect, Steve Tedrow of Windermere Mortgage provided information on new FICO research that sheds light on what actually happens in several scenarios. These may be representative, but are in no way conclusive in all situations. Discrepancies will depend on history, age and number of delinquencies.

Impact to FICO® Score

Source: FICO Banking Analytics Blog 2011

These statistics assume that everything remains constant without any new accounts or outstanding debt.

Of interest is the fact that the higher the score the faster it falls and the longer it takes to recoup. With a lower score originally, buying that new home may be closer than you think.