Extension of Loan Forbearance for Some Homeowners
Since the coronavirus first started substantially impacting the U.S. economy, millions of people financially affected by the pandemic have entered into loan forbearance or deferred payment plans with their lenders. These programs are designed to temporarily suspend or reduce the amount of your monthly loan payment for a set period. There shouldn't be any fees, penalties or additional interest added to your account through this deferment, but regular interest may still accrue.
A key term to understand here is temporarily. Many of these programs granted by lenders were set up for a three to six-month period and could expire very soon. That means at the end of the period, the temporary deferred payment feature will stop. You will be expected to start paying the loan based on the terms you and the lender agreed to when you initially set up the program.
What if Your Situation Has Not Improved?
Good News! The Department of Housing and Urban Development (HUD) recently announced an extension. The extension allows single-family homeowners with Federal Housing Administration (FHA) insured mortgages to request an initial forbearance through Dec 31, 2020.
Under FHA rules, mortgage servicers must provide up to six months of coronavirus forbearance when an individual requests this assistance. Servicers also need to provide up to an additional six months of forbearance for homeowners who request an extension of the initial forbearance. This means some borrowers may not have to exit the forbearance until the end of 2021.
But you have to make the call and engage with your mortgage loan servicer.
-
Reach out as soon as possible. Explain your circumstances and your need to extend the deferred payment plan or enroll in a new program. Do not assume the program terms will simply auto-renew. It is critical to have these interactions before the program expires. Not doing so could negatively impact your FICO® Scores if you miss a payment. That missed payment could also be reported to the credit bureaus.
-
Do your homework and be prepared to discuss the program's payback structure. Three common structures include a deferment with a lump sum payment, a deferment with partial payments or a deferment with loan term extension. Be sure to document all interactions you have and carefully review any forms or agreements before signing to help prevent unwanted surprises down the road.
If you are enrolling or your forbearance is extended, the reporting of an account being in deferred or forbearance status alone is not considered negative by the FICO® Scores. However, the information your lender will likely update on the account (such as current balance and payment status) will continue to be considered your FICO Score. As such, you should confirm with your lender how they intend to report the account to the credit bureau.
As the coronavirus pandemic continues, reaching out to your lenders and understanding the payback structure helps you be on top of your loans. Join the myFICO Forums to see how others are adjusting to the new normal.
Tom Quinn is the Vice President of Business Development for myFICO and has over 25 years of experience working with consumers, regulators, and lenders regarding credit related questions and initiatives.