Are you considering doing forbearance but wondering how it might affect your credit score? In this video, discuss the topic of mortgage forbearance and what viewers who have filed for forbearance are telling me about the impact on their credit scores.
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How will forbearance affect your credit?
Several viewers have reached out to me to let me know that their credit scores have dropped since agreeing to forbearance with their mortgage lender.
These are people who have said that prior to filing for forbearance their credit scores only varied a few points month over month and have now seen a 40-50 point decline in score and the only thing that has changed was the fact they filed for forbearance.
Remember, just because the lender isn’t reporting negative activity to the credit bureaus doesn’t mean that the forbearance language itself might not affect your score.
Is mortgage forbearance bad for your credit?
Traditionally speaking, yes mortgage forbearance can be bad for your credit but in the case of covid-19, guidelines issued by the Federal Housing Administration and mortgage giants Fannie Mae and Freddie Mac clearly state that banks and loan servicing companies shouldn’t report borrowers who are using disaster forbearance or similar programs as delinquent to the credit bureaus.
The problem with this is that lenders and loan servicing companies are far from perfect. Let’s just say, the lender or the firm that processes the monthly payments may promise temporary debt relief but then fail to update its files. Or, it may be unclear when the mortgage payments are to resume. Either way, the borrower could get reported as delinquent and their credit score could take a hit. To avoid any such issue, make sure you get the forbearance mortgage agreement in writing and fully understand its terms.
Check your credit, for free
Under normal circumstances, people can access a free credit report once per year from each of the three main credit reporting agencies: Equifax, Experian and TransUnion but now they are all offering free credit reports every week due to the covid-19 epidemic.
What is a mortgage forbearance?
A mortgage forbearance agreement is an agreement made between a mortgage lender and delinquent borrower in which the lender agrees not to exercise its legal right to foreclose on a mortgage and the borrower agrees to a mortgage plan that will, over a certain time period, bring the borrower current on his or her mortgage.
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