Q&A
Credit scores Question:
What happens to your credit score as a result of a foreclosure? I’m sure that scores get clobbered, but are there not special provisions because of the pandemic to protect homeowners from credit score hits?
Answer:
In the usual case, a foreclosure can instantly damage your credit standing. However, in the pandemic, economy things are different. For many Americans, the pandemic economy has led to more saving, less borrowing, and higher credit scores. According to the Fair Isaac Corporation, developer of the FICO-brand credit scoring system, the average US credit score reached 711 in July, the highest average on record. However, with massive unemployment and large numbers of business closings, not everyone has fared so well. The federal Coronavirus Aid, Relief, and Economic Security (CARES) Act prohibits “lenders and servicers from beginning a judicial or non-judicial foreclosure against you, or from finalizing a foreclosure judgment or sale” according to the Consumer Financial Protection Bureau (CFPB). The CARES Act has impacted millions of loans that involve the FHA, VA, USDA, Fannie Mae, and Freddie Mac; however, it does not cover all mortgages. This is why a relatively small number of foreclosures have been reported each month during the pandemic. In addition, the protections created under the CARES Act
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ASK OUR BROKER By Peter G. Miller
will end at some point, potentially exposing property owners without lender forbearance agreements to foreclosure. According to the CFPB, “how your lenders report your account to credit reporting agencies under the CARES Act depends on whether you are current or already delinquent when this agreement is made. These reporting requirements apply only if you are making any payments required by the agreement.” It adds that: “If your account is current and you make an agreement to make a partial payment, skip a payment, or other accommodation, then the creditor is to report to credit reporting companies that you are current on your loan or account. “If your account is already delinquent and you make an agreement, then the creditor cannot report you as more delinquent (such as reporting you as 60 days delinquent when you started out 30 days delinquent) during the period of the agreement. “If your account is already delinquent and you make an agreement, and you bring your account current, the creditor must report that you are current on your loan or account.” The CFPB also says the CARES Act requirement applies only to agreements made between January 31, 2020, and “120 days after the national emergency concerning COVID-19 ends.” The end of the national emergency is something the government can define – and change – at any time. Let’s say you do face foreclosure because protections end or
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that otherwise, the lender is allowed to report your situation to credit reporting agencies. How much damage will be done? “The impact could be anything from considerable all the way down to nothing,” explains Credit Expert John Ulzheimer, formerly of FICO and Equifax. “It depends on what else is on the consumer’s credit reports. If the settlement is the one and only derogatory entry, the impact is going to be considerable. If it’s one of many derogatory entries and/or it’s an older derog, the impact would be minor or nothing at all.” In the case of a short sale – a situation where a home is sold for less than the loan balance with the lender’s permission -- Ulzheimer adds that “if the loan was already delinquent prior to the short sale taking place then the notation that the account has been settled doesn’t add anything more to the impact because the preceding late payments already did that.” The bottom line: If you’re a homeowner having financial problems call your lender as soon as possible and try to work out a forbearance agreement or other arrangement. You can check your credit reports at AnnualCreditReport. com. For additional information, contact such sources as your state attorney general and local housing organizations, legal clinics, and attorneys. Email your real estate questions for Mr. Miller to peter@ctwfeatures.com.
February 19, 2021
