UNCONVENTIONAL
When Will Americans Know The Score?
As payments are delayed and reporting restricted, credit scoring is looking at an unstable future.
JAMES CHARLET
BY JAMES POTTER CHARLET | CONTRIBUTING WRITER, NATIONAL MORTGAGE PROFESSIONAL
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veryone who’s appraising 2020 is looking at things like the presidential election, the Covid-19 outbreak, and the lack of sustainable outdoor seating at restaurants. We’re all focused on things like Zoom kindergarten classes and whether racial justice will ever come to our country. So it’s no wonder that we’ve collectively missed seeing the big bomb that may be ticking away. Credit scoring, for many, many consumers, is really screwed up now. This is critical, because whether people can afford to buy new clothing, upgrade their wheels or, more importantly, qualify for a home mortgage, all depends on their credit score. And almost every factor that’s used to predict the way we borrow, earn, spend, invest, and save money left 2020 looking far different than the way it arrived on January first.
| NATIONAL MORTGAGE PROFESSIONAL MAGAZINE
THE REAL ON REAL ESTATE We’re not even talking about basic economic upheavals, such as unemployment. We’re talking about the national credit rating agencies’ ability to predict the creditworthiness of borrowers, based on past indicators. If those underlying facts actually become facts that lie, the ability to adequately score a consumer’s credit becomes exponentially more difficult. Let’s look, for example, at what’s happening with housing. Housing has, rightfully, been at the forefront of many economic discussions during the pandemic with the focus on the immediate peril of those facing imminent evictions and foreclosures. As this was being written, President Biden was extending housing relief rules at least through June. I don’t know how we will overcome this looming crisis, but I know there will be yet another predicament waiting for us when we are forced to address it. Currently, there are millions of mortgagors that have paused delinquency and foreclosure by moving payments they could not make to a future date through an agreement with their lender, a process called forbearance.
This increases the total amount of interest paid as well as the amount owed. It can also negatively impact several numbers that constitute credit scores, such as consumer debt ratios. Right now, to their credit, most mortgage loan servicers haven’t reported these COVIDimpacted loans as delinquent to credit reporting agencies. When will the reporting of past due payments resume? Will 2020 payments ever be recorded? Do forbearance accounts need additional documentation? What will Freddie and Fannie change for underwriting purposes? How will FICO calculations adjust to accommodate for these changes? These are only a small sample of the inevitable queries.
STUDENT STATS Counterintuitively, both Experian and Fair Isaac released studies to the public in December 2020 reflecting a surprising decrease in delinquency rates, as well as increase in average credit score during the year. How did that happen? Because we’re turning a blind eye, that’s how. We all witnessed unprecedented increases in unemployment and devastating reductions in consumer retail spending, so many forecasters had grim expectations for the
No American has had a missed student loan payment recorded on their credit report now for twelve reported months.
