The Unexpected Way Your Future Borrowing Power Could Be Affected by a CARES Act Mortgage Forbearance

In the CARES Act Covid-19 stimulus bill, the only relief that was offered to federally-backed mortgage holders having trouble paying was a fast track to a forbearance. Putting a mortgage into forbearance during any other time would automatically hurt your credit and future borrowing power.

But, under the CARES-Act, loan servicers are instructed to report all forbearances during the pandemic as “current.” That keeps your credit score from being affected. However, it appears that even if your score isn’t affected, a forbearance can still hurt your ability to get a mortgage in the future. 

It seems that when lawmakers were writing the bill, they overlooked the comments section on credit reports. So while loan servicers have to report your mortgage loan as current, they can explicitly state in the comments section that the loan is actually in forbearance.

Already, the damage this can do is no longer hypothetical. Mortgage industry participants are reporting back their understanding of how Fannie & Freddie are handling a forbearance mentioned in the comments section of a credit report tradeline.

Apparently, if automated underwriting systems (i.e. DO/DU or LP) see that on a credit report, the borrower won’t be able to get a new mortgage for at least 12 months. However, reps from Fannie and Freddie did not confirm or deny this when the website Housing Wire reached out to them for comment.

As mentioned before in previous articles, you should put time and thought into deciding whether going into forbearance under the CARES Act is really the right choice for you. There’s still so much ambiguity in regard to how it will impact your credit going forward. The effect it will have on your finances also depends on other variables like what type of loan you have, who your current loan servicer is, and who owns the loan.

Are you thinking about going into forbearance? Before you make the commitment, contact us so we can discuss your specific situation and figure out together if that’s really the best option for you. Email us or gives us a call at (323) 412-9060.

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