Tuesday, May 5, 2020 / by Vanessa Saunders
From Vanessa Saunders, MBA, MIMC , Broker Owner, Global Property Systems Real Estate.
The Coronavirus outbreak has left many Americans dealing with reduced income or unemployment. In response, the federal government enacted the Coronavirus Aid, Relief, and Economic Security Act (CARES), which in part directs lenders to provide mortgage relief options to affected homeowners. But some lenders are mishandling the program and innocent borrowers are suffering the consequences.
The CARES Act requires lenders to offer borrowers up to 180 days’ forbearance, with the option for borrowers to request an additional 180 days’ forbearance or to stop the forbearance at any time. You can be directly or indirectly affected by the COVID-19 outbreak to qualify for forbearance, and you do not have to be delinquent on your mortgage. You can apply before you’ve missed a payment.
Under the terms of the CARES Act, lenders won’t report forbearance to the credit bureaus. “The lender should report it as "paying as agreed,” says Rocke Andrews, current president of the National Association of Mortgage Brokers. "Once the forbearance is repaid," Andrews says, “in theory, it shouldn’t affect your ability to refinance or purchase in the future.”
Some individual lenders and state governments are also taking independent action to provide mortgage relief to homeowners. All well and good.
But not so fast. One of our company's lender's loan originators called us with some frightening news. The lender reported that a surprising number of closings were falling through. After a little investigation, the lender noticed that nearly all had requested a forbearance of their current mortgage payments according to directions by the CARES Act, The borrowers waiting to close on a new home found their new credit score no longer qualified them for the mortgage they'd agreed to.
How could this be? According to the CARES Act, lenders weren't to report forbearance to the credit bureaus. As Rocke Andrews stated above, lenders were to report it as paying as agreed. But lenders were reporting a "late" instead, causing their credit score to drop.
Whether by human error or a misunderstanding of the CARES Act, there may be thousands of borrowers in the U.S. failing to qualify for mortgages that they would have been able to qualify for and losing homes they could have purchased. Tracking them down and correcting the mistake could take months. Learn more about how mortgage forbearance works.
What to do now?
If you recently took out a forbearance on your mortgage, find your closing documents (either hard copies or electronic versions) and look for the Closing Disclosure. In the upper right of the first page of this document, under “Loan Information,” you’ll see check boxes indicating your loan type: conventional, FHA, VA or other. If you can’t locate this document, try looking at your monthly mortgage statement or contacting your lender at the phone number listed on the statement. Speak to your lender to be sure your forbearance is reported correctly and you will not suffer damaged credit.
Contact us at Global Property Systems for more information, or for help finding your next home.