A Home Loan Modification can help you stop foreclosure and stay in your home. But if you?re like most homeowners, you?re probably wondering how it will affect your credit, and whether in a good or bad way. Unfortunately, there?s no single answer?it all depends on how far behind you are and the kind of mortgage loan modification you?ll be granted.

Best-case scenarios

Technically, since you?re not borrowing any money, a home loan modification won?t hurt your credit score. If you?re paying less in interest, you have a smaller debt burden. And since most lenders prefer an interest rate reduction, there?s a pretty good chance that a Home loan modification will improve your credit score.

The implications are even better if your lender forgives part of the principal, although this is less common. If they write off $50,000 from your loan amount, it will show up on your report as a smaller loan, which can increase your credit score.

The lender factor

Unfortunately, it doesn?t always happen that way. It also depends on how your lender reports the home loan modification to the credit bureaus. Many of them will consider it paid for less than the original amount owed, which will count against your score. If you?re already in foreclosure, the impact on your credit can be substantial. Of course, compared to a short sale or a foreclosure, a Mortgage Loan Modification is still the best way to maintain your credit standing.

Tax implications

One of the early problems with Loan modification is that the amount forgiven is usually taxable. That means if your debt is reduced by $50,000, the IRS views it as income and imposes the corresponding tax. This can catch homeowners off guard during tax season, as many of them don?t know the tax implications at the time of the modification.

To avoid such incidents, the IRS announced in 2007 that Loan modification would no longer be classified as ?prohibited transactions.? This applied to all loans originated from January 2004 to July 2007, the peak of the sub-prime boom, and those due to adjust from January 2009 to July 2012. If your mortgage falls under these categories, you won?t have to file a 1099 declaring the change as taxable.

A loan modification is much like going to court: you can save your money and get a court-appointed lawyer, or you can invest in professional representation and get the best mortgage assistance. Your loss mitigation won?t happen overnight, but if with a capable Loan Modification Attorney, you can be sure you?re in good hands.

Homeowners hoping to get a loan modification with Countrywide may want to rethink their options. Countrywide Financial, best known for excessive lending practices that led to widespread defaults, now has so many bad debts on its books that it may have to tighten up its loan modification service.

Home Loan Modification allows defaulting borrowers to work out new terms with Countrywide, so that they can avoid foreclosure and stay on track. Countrywide began offering the service through their Home Retention Department at the height of last year?s real estate bubble. However, due to the volume of requests coming in, many cases were delayed and resulted in foreclosure. The company hit an all-time low in 2008 and was recently bought out by the Bank of America.

In line with the change, the Loan Modification Department of the Law Offices of Marc R. Tow is also taking measures to protect its clients. The firm, one of the leading loan modification services in the country, will only negotiate modifications with Countrywide for clients with viable cases and those who are in serious financial trouble.

Changes are also expected in national Loan Modification policies. While loan modification is still open to borrowers not in default, new laws may soon limit the service only to those in bankruptcy or serious delinquency. This will allow lenders and loan modification companies to focus their attention to clients who are most in need.

The firm will continue to help clients with loans serviced by other companies. Besides loan modification, the Law Offices of Marc R. Tow also offers assistance with loss mitigation alternatives such as short sales.