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Credit Issues From Forbearance Bear Watching
Credit Issues From Forbearance Bear Watching
BY PAMELA M. MARRON | CONTRIBUTING WRITER, NATIONAL MORTGAGE PROFESSIONAL
Clients need mortgages now, whether for a purchase or refinance. Even though uncertainty about COVID 19 looms, many are still cautiously purchasing homes or refinancing.
Need is the driving force in spite of the coronavirus. For home purchasers, the need is a deadline date: that their lease is ending or their existing home is closing, or their landlord is selling the home they rent. For those who refinance, cashing out on some of their existing equity for reserves or reducing payments for tighter budgets is the reason.
FORBEARANCE FACTS
Know the facts about mortgage options for those who may temporarily struggle to pay. You are going to need this information when you can provide these same clients with a mortgage as soon as they get back on their feet.
A massive number of job losses have occurred. Many homeowners are still employed, but hours may have been drastically cut. Both Fannie Mae and Freddie Mac issued forbearance policies that allow a temporary suspension or reduction of mortgage payments, and FHA provided similar policy with a partial claim option (see HUD Mortgagee Letter 2020-06).
The Federal Housing Finance Agency recently announced that Fannie Mae and Freddie Mac borrowers in forbearance can apply for refis and new purchase mortgages once their loans are current, thus waiving its previous mandatory wait of 12 months.
KEEPING A CLOSE WATCH ON CREDIT
Under the CARES act, borrowers in a forbearance plan should be reported to credit bureaus as current.
I asked Terry Clemans, director of the National Consumer Reporting Association Inc. how we could trust that delinquency during the forbearance period would be reported correctly. My concern was due to credit issues during the last housing crisis.
Terry reminded me that there was no national emergency proclaimed during the housing crisis. A national emergency proclamation was issued effective March 1, 2020, prior to the forbearance directives. There is specific credit code for accounts affected by a natural or declared disaster. As long as loan servicers apply the code correctly, borrower credit should not be negatively impacted during publicly-stated forbearance periods.
TIMELY NEW RESOURCE
During my time on the HUD Housing Counseling Federal Advisory Committee (HCFAC) from 2016-2019, I learned a great deal about how much HUD housing counselors and certified credit counselors could do to help challenged clients, both pre- and post-purchase.
That realization is what started a path to connect loan originators and real estate agents to housing and credit counselors to get challenged clients “Mortgage Ready.”
A website, Clients2Homeowners. com, was developed to provide steps to connect and resources for credit help, down payment assistance and budgeting for clients. Industry professionals will be on the call. Loan originators, real estate agents and housing counselors … this is open to all of you!
Pamela M. Marron is a senior loan originator with Innovative Mortgage Services Inc.
