Question:
Dear Steve,
Although I am not in a bad position during this pandemic, I am wondering if those who are falling behind in mortgage, student loans, car or credit card payments will have an adverse effect on their credit reports?
Mary Louise
Answer:
Dear Mary Louise,
You ask a great question. I’m going to base my answer on my experience in helping people with debt issues since 1994.
There are emergency temporary programs that allow people to skip some payments because of the pandemic. Technically these missed payments should not be reported negatively to the credit bureaus.
However, I would bet some creditors will report the missed payments incorrectly and they will negatively impact credit reports. I also feel fairly confident that some consumers may spontaneously stop payment because they “believe” their account is covered by some special program. That would be a giant assumption that will come back to bite them.
No payment should be discontinued without first obtaining the program terms and conditions in writing.
I’m fearful the bigger issue is going to be demand for payments following the payment holiday. The very people that could not afford the payment and took the break are not going to have the money to make up those missed payments.
The Consumer Financial Protection Bureau has some good advice on mortgage payment suspension.
“A new federal law, the Coronavirus Aid, Relief, and Economic Security (CARES) Act, puts in place two protections for homeowners with federally backed mortgages:
- First, your lender or loan servicer may not foreclose on you for 60 days after March 18, 2020. Specifically, the CARES Act prohibits lenders and servicers from beginning a judicial or non-judicial foreclosure against you, or from finalizing a foreclosure judgment or sale, during this period of time.
- Second, if you experience financial hardship due to the coronavirus pandemic, you have a right to request a forbearance for up to 180 days. You also have the right to request an extension for up to another 180 days. You must contact your loan servicer to request this forbearance. There will be no additional fees, penalties or additional interest (beyond scheduled amounts) added to your account. You do not need to submit additional documentation to qualify other than your claim to have a pandemic-related financial hardship.
If you don’t have a federally backed mortgage, you still may have relief options through your mortgage loan servicer or from your state.”
And here is the warning I just gave you about missed payments. The CFPB agrees this can be an issue and says, “Forbearance doesn’t mean your payments are forgiven or erased. You are still required to repay any missed or reduced payments in the future. Make sure you understand how the forbearance will be repaid. There can be different forbearance programs or options, depending on the type of your loan.” They also say, “At the end of the forbearance, your options can include paying all of your missed payments at one time, spread out over a period of months, or added as additional payments or a lump sum at the end of your mortgage.”
Only mortgages that are federally backed are protected by that particular program. Not all mortgages are federally backed.
Here is the bottom line: It’s just going to be a freaking mess and a lot of credit reports will be hit.
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