You have probably heard about credit flexibility or skipping bills like mortgage or rent payments, car payments, and credit cards during this crazy time. Those options are out there; however there is a process you need to follow to avoid or minimize the damage to your credit rating.
First if you happen to be fortunate enough that you have some staying power and can afford to make your monthly payments you absolutely should.
If you find that you can’t pay some or all your bills (Credit cards, car payment, housing) you must do the following to protect your credit.
Number 1 contact your creditors and advise them you are facing extreme financial hardship due to the Covid 19 pandemic and are unable to make payments at this time. While many creditors are notifying their customers that they are extending payment relief options, it is NOT an automatic. You must contact the creditor to advise you cannot make the payments. Be prepared hold times will be longer than usual. Make sure you have pen and paper. More on that later.
Number 2 ask each creditor what repayment options are available to catch up once you are back to work. Some may want all the payments made up in one lump payment, some will have you increase your minimum required payment by a certain dollar amount to make up the missed payments over time. For example, let’s say your normal monthly payment is $100 and you miss 2 months of payments. By month 3 you are back to work and the creditor allows you 6 months to catch up by paying an extra 34 dollars per month. So, the next 6 months your required payment is $134.00. Once you have caught up, the payment goes back down to $100 per month.
Number 3 ask how this will impact your credit rating. The whole idea here is to protect your credit rating so that if you need to borrow money, buy or rent a home, get insurance, that you are not penalized during this time. As a matter of fact, Section 4021 of the CARES act commonly known as the economic stimulus specifically addresses credit reporting. Under section 4021, any creditor who makes an accommodation to accept partial payments, defer payments, or modify a loan contract shall report the consumer current if they were current at the time of the national emergency. If you were already delinquent, for example 30 days past due, it could not be reported 60 days past due; however, if you are able to bring the delinquent account current, and you get assistance from the creditor, they must report you current. This special provision is only good from January 31, 2020 until 120 days AFTER the COVID 19 national state of emergency terminates. Charged off accounts do not apply to the provision.
Number 4 request the creditor send you in writing what they are doing to assist you.
Number 5 write down all the information from each creditor for your reference. Include the name of the creditor, the full name or employee id of the person you spoke to, the phone number, the date and time, and what solutions you were offered.
Steps 4 and 5 are critical in the event a creditor takes actions you were not advised of such as reporting late payments on your credit report, which can have a devastating impact on your credit score. Ideally having something in writing from the creditor is more powerful than your hand written notes; however if all you have is your notes from the call, you can at least go back to the creditor and give them a recap of what you were advised when you requested the assistance.
Now let’s talk about mortgages for a moment. Section 4022 of the CARES Act puts a moratorium on foreclosures and give the consumer the right to request a forbearance for up to 180 days and may be extended an additional 180 days. The twist is NOT all mortgages are eligible for this special forbearance. Only mortgages backed by Fannie Mae, Freddie Mac, insured by FHA, or Guaranteed by Veterans Affairs or the United States Department of Agriculture eligible under the ACT. Thankfully most of the mortgage loans fall into one of these 5 categories.
There are a couple of ways you can verify what kind of loan you have. Both Fannie Mae and Freddie Mac have a loan lookup tool where you input some information into the tool and it tells you if they own your loan or not. The fannie mae tool can be found at https://www.knowyouroptions.com/loanlookup and the Freddie Mac tool can be found at https://ww3.freddiemac.com/loanlookup/. For FHA, VA, and USDA loans, the best place to look is on the closing disclosure which should be in your copy package of the documents you signed when you closed on your most recent mortgage. If you cannot find that documentation, your mortgage loan servicer will be able to tell you what kind of loan you have. If you find you do not have one of these five types of mortgages, all is not necessarily lost. Your mortgage servicer still may be offering comparable mortgage relief options, its just not covered by the Act.
While this assistance is available, it is NOT an automatic. You MUST contact your mortgage loan servicer to request the assistance. A mortgage servicer is who you are making your payments to. Make sure you have your most recent mortgage loan statement. There you will find the telephone number and your loan number, which you will need to provide. Be prepared to wait on the phone, as many consumers are in need and are requesting the help.
It’s important to note, any deferred mortgages payments still need to be made up so make sure you discuss what repayment options are available to catch up once you are back to work. Work through the 5 steps is previously outlined earlier in the video.
We are here to lend a helping hand. If you have questions about the solutions your mortgage provider is proposing feel free to reach out to us by phone, text, email if you want to keep it private. There is no cost.
Until next time….stay safe and have a great day.