Under the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act, homeowners with federally backed mortgage loans who’ve been affected by COVID-19, regardless of delinquency status, can get a forbearance. Also, even if you don’t have a federally backed mortgage loan, your lender might agree to a forbearance plan. Under the CARES Act, any loan that’s in forbearance must be reported as “current” on credit reports, so long as the borrower wasn’t already delinquent on payments at the time of the agreement. But loan servicers are finding a way to let the credit reporting agencies know about a forbearance while still complying with this requirement: they’re reporting the debt as current and then adding a comment to the borrower’s credit reports as well.
While a notation that a loan is in forbearance won’t damage your credit score, you might have a problem getting another mortgage or refinancing the loan. In fact, any reference to forbearance on a credit report could hurt your chances of getting a new mortgage or refinancing both during the forbearance, and for as long as a year after the forbearance is over. Fannie Mae and Freddie Mac, for example, generally don’t allow borrowers with a loan in forbearance to either take out a new loan or refinance until one year after the loan payments are up to date again. One exception to this general rule is that Fannie Mae and Freddie Mac will purchase a loan in forbearance if the note date is on or before June 30, 2020, as long as the loan is delivered to Fannie or Freddie by August 31, 2020, and only one mortgage payment has been missed. (Note: On May 19, 2020, the Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, announced that borrowers who were in a forbearance may now buy a home with a new mortgage or refinance if they’ve started making payments on their current mortgage again. You can resume payments by stopping a forbearance, or after the forbearance period has ended. If you make at least three months’ worth of payments, the previous guidelines requiring you to be current on their mortgage for at least a year before getting a new loan or refinancing isn’t applicable.)
Even worse, servicers are mistakenly putting some loans in forbearance after misunderstanding borrowers’ simple requests for information about loss mitigation options. In addition to being denied a new mortgage or refinance loan, being erroneously placed in a forbearance plan could also make it difficult for you to make your mortgage payments—even if you’re able to do so. That’s because the servicer’s system might not allow payments for an account that’s listed as in forbearance. To get out of a forbearance you didn’t request, contact your servicer. If you need assistance dealing with the servicer or you feel you’re being treated unfairly, consider getting an attorney to help you. You can also file a complaint with the Consumer Financial Protection Bureau.