Great Article by Kathleen Howley. Mortgage Forbearance is a necessity at this time for millions of American's. Under the CARES Act the Mortgage Servicer's are reporting the credit as current if the homeowner was current prior to starting the Forbearance but CARES Act now needs to address the notated sections of a credit report where it could show "Forbearance". Read below....
Forbearance becomes a ‘Scarlet Letter’ on credit reports
A 'comments section' workaround consumers aren’t being told about
May 12, 2020, 3:22 pm By Kathleen Howley
Mortgages in forbearance as a result of COVID-19 have to be reported as “current” on credit reports.
That’s the law, as laid out in Section 4021 of the CARES Act passed by Congress at the end of March. It says servicers “shall report the credit obligation or account as current.”
But, it turns out there’s a workaround that can make it difficult for people with mortgages in forbearance to get another home loan after the COVID-19 crisis is over – for as long as a year after the forbearance period ends. That can impact their ability to refinance or buy a home when times are better.
The CARES Act doesn’t mention the comments section of credit reports, and that’s where forbearance notations are going.
Any reference to forbearance on a credit report, including in the comments section, can be a “scarlet letter” for an applicant hoping to get a new mortgage, said David Stevens, the former head of the Mortgage Bankers Association who is now CEO of Mountain Lake Consulting.
“I think the intent of lawmakers is that forbearance would not harm your credit, when in fact that label may do just that,” Stevens said. “I don’t believe consumers are aware they have this scarlet letter being reported on their mortgage.”
The way credit bureaus such as Experian, TransUnion, Equifax are reporting forbearance does show the mortgages as current, according to documents reviewed by Housing Wire. In the section that lists how many times a mortgage had late payments, broken out by 30 days to 59 days, 60 days to 89 days, and “90+” days, the documents show all zeros.
That means: No late payments. The loan is, technically, current. The credit bureaus are following the letter of the law.
What some lawmakers may have overlooked, when passing the CARES Act, is that pesky comments section.
Source: Housing wire