How to Ensure COVID-19 Won’t Negatively Impact Your Credit

The Federal Government is Telling Lenders to Lower or Suspend Mortgage Payments   

There may be financial relief for homeowners. The federal government is telling lenders to lower or suspend mortgage payments for those who have lost income or their jobs because of the COVID-19 outbreak. Depending on the homeowner’s situation mortgage payments could be reduced or suspended for up to twelve months, according to Chris Arnold at NPR News Morning Edition stated on March 19, 2020.   

This does NOT mean that homeowner’s can stop making payments on their mortgage. They need to contact their lender to work out a payment relief plan. The homeowner needs to simply call their lender and state they have lost their job or have a loss of income. Due to the urgency to find relief and with things happening so rapidly, documenting these claims will come later.  It is important to understand the homeowner will need to provide documentation later proving they did in fact have a loss caused by COVID-19 outbreak.  

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The mortgages that will be eligible for relief are ones guaranteed by Fannie Mae and Freddie Mac, which accounts for about half of the home loans in the country. Regulators predict the entire industry will adopt a similar policy very soon. “For all of this to work seamlessly lenders will have to follow through with the relief options, providing reassurance to the many people impacted by the outbreak, stated Chris Mayer, real estate economist, Columbia University Business School.  

It is important to understand this is NOT free money. The homeowner and lender will come up with a payment plan to repay once the homeowner recovers financially. Modifications will be based on the facts and circumstances of each borrower and loan. Examples of available options are extending the terms of the loan, freeze on foreclosures and more.  

In addition, Fannie Mae and Freddie Mac are telling lenders not to report the missed payments to the credit bureaus. The primary goal is to give relief to homeowners and avoid mass panicIt would be detrimental to the economy if millions of consumers had their credit scores wrecked because of a pandemic they have no control over,” says Mayer   

Below is a statement by FDIC on financial institutions working with customers affected by the Coronavirus and Regulatory and Supervisory Assistance: 

Financial institutions should work constructively with borrowers in communities and industries affected by COVID-19. The FDIC encourages financial institutions to engage in prudent and proactive actions, which are in the best interests of the financial institutions, the borrowers, and the economy. For example, when appropriate, a financial institution may modify or restructure a borrower’s debt obligations due to temporary hardships resulting from COVID19 related issues. Such cooperative efforts can ease cash flow pressures on affected borrowers allowing them to continue serving customers and paying employees and suppliers, improve their capacity to service debt, and facilitate the financial institution’s ability to collect on its loans. These types of prudent arrangements for borrowers who operate small businesses can contribute to the well-being of local communities. Modifications should be based on the facts and circumstances of each borrower and loan. Prudent efforts to modify the terms on existing loans for affected customers of FDIC-supervised banks will not be subject to examiner criticism. Modifications of existing loans should be evaluated to determine whether they represent troubled debt restructurings (TDRs). According to accounting standards, a modification triggers a TDR only if the institution grants a concession to the borrower which it would not otherwise grant because a borrower is experiencing financial difficulties. This could, for example, include extending the term of a loan for a borrower that otherwise meets the institution’s underwriting standards, but is experiencing a temporary liquidity shortage due to COVID-19 related economic conditions. 

To read the full FDIC’s statement, click here. 

Again, it is very important to understand if homeowners do not contact their lender and work out an agreement and forego their mortgage payments it will negatively impact their credit. The homeowner MUST contact the lender and state they need financial assistance.   

The hold times are lengthy in this time of distress but if you are a homeowner who feels you need help and assistance with your mortgage payment because of the COVID-19 outbreak be sure to set realistic expectations. Be patient and understanding, there are thousands of homeowners who need assistance like you. Lenders are being bombarded with hundreds of calls every day 

Remember that the deferred amount will have to be repaid, so be sure you work with your lender to come up with a plan thais in your best financial interest. 

 

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