With the economy teetering from the coronavirus, many consumers face declining income from lost hours and even losing their jobs. Many employees in customer service industries, including waiters and waitresses, hotels, airlines, taxies, tutoring, along with a host of others. Many inquire about the possibility of skipping loan payments on their homes or auto from the loss of income. Is this a possibility – and will it impact your credit report / FICO® scores?
There are several monthly payments the average consumer must pay: Mortgage, auto loan, student loan, credit card, and utility to name a few. Is it possible to request any lender the option to skip a payment? Possibly? Let's review the different loan programs and lenders, and identify possibilities.
The following is a list of several lenders on March 20, 2020 and what programs they are offering to skip a payment. Please click for more information.
The rules of different for each type of loan. Let’s take a look.
Most mortgage loans go through Fannie Mae, Freddie Mac, Federal Housing Administration (FHA), Veterans Administration (VA), and USDA (U.S. Dept of Agriculture). One may think since they are paying Wells Fargo, Bank of America, PennyMac or some other bank or lender, that is the owner of their mortgage. It is not. In most every case, such companies are taking the loan payments in behalf of the investors who own the note to your mortgage. It creates a lot of complexity.
You have the mortgage payment servicing company (or lender / loan servicing company) you are making your mortgage payments to (say Wells Fargo), the company who insures the loan to make sure it conforms to certain loan requirements (say Fannie Mae), and the owners of your mortgage, the investment company, who purchase your loan in pools called mortgage-backed securities. The investors are usually unknown to the borrower. They lend you their money and you make payments back to them.
From this complex setup, it is extremely difficult to skip a payment. Mortgage payments must be paid on time. Any 30-day or more late payments are reported to your credit report. Any demand notices will be sent requesting missed payments are made up.
If any mortgage payments are behind, the lender – say Wells Fargo in our example – will usually make efforts to have you bring your loan current. A payment plan may be offered to bring the mortgage current, or to bring it current within a few months in the future.
On March 19, 2020 Governor Anrew Coumo, governor of New York, stated in a press conference that all New Yorkers can bypass their mortgage payments for 90 days. A word of caution here. Governor Cuomo does not have the final say or authority on skipping payments on mortgages. He has a big bully pulpit. But the ultimate authority stands with three parties, President Donald Trump, Congress and the Federal Housing Finance Agency (FHFA).
For this reason, it is strongly suggested that any homeowner contact their mortgage lender and identify options available to you. ADDITIONALLY YOU NEED TO ASK IF ANY SKIPPED PAYMENTS WILL IMPACT YOUR CREDIT RATING.
When payments are usually 3 months or more past due, the lender could start the foreclosure process. They will usually send a 30-day demand letter requesting you to bring the mortgage current or they will start formal foreclosure proceedings which could take several more weeks to complete.
PRESIDENT TRUMP HAS AUTHORIZED THAT ALL FORECLOSURE ACTIVITY WILL BE SUSPENDED UNTIL APRIL 30, 2020.
Loss Mitigation Application
If a borrower files a loss mitigation application at least 37 days before a foreclosure sale, the lender must halt foreclosure and allow the applicant to pursue options through the loss mitigation application. Such options include loan modification (rework the payment amount and payment schedule), short sale (sell the house for less than the full amount of the mortgage owed) and deed-in-lieu (voluntarily sign over property to the servicing company to release the borrower from obligation).
What about Emergencies?
President Trump has announced that all foreclosure proceedings for those borrowers who are behind on their payments and in foreclosure to have a period of time to postpone any foreclosure proceedings for 60 days.
To read about this action, please click on the following link.
Any delay will temporarily halt foreclosures until the end of April.
This presidential action does not necessarily allow borrowers to skip payments. If there are difficulties making a payment, contact your lender / servicing company and you could possibly come to an agreement to a payment schedule, or work through a loan modification plan.
Any missed or reduced mortgage payments, even with a loan modification, will usually report on your credit report as a late payment – that is until the mortgage payments have been made current. The late payments will remain on your credit report for seven years.
Any additional changes or authorization to skip any mortgage payments will have to come from Congress and the U.S. government. There will probably be additional updates as the U.S. Government works through this crisis – and we will keep you up to date to any changes.
Many student loans have the most workable options of any type of loan. Contact your student loan servicing company and ask them for a forbearance, which allows you to reduce your monthly payment of forgo from making a payment until you are back on your feet financially and can make payments again.
In most cases, a forbearance does not show up as having late payments on your credit report.
President Trump has also just announced this week that all student loan payments (federally-backed) will be suspended for 60 days. Other private student loans may follow this direction. Please contact your student loan lender and get any action in writing.
Auto loans usually are financed through lenders who are usually more flexible. This does not mean that you can automatically skip an auto loan payment if you so choose without impacting your credit report. Rather, in natural disasters and other emergencies, many auto lenders, especially local banks and credit unions, have shown in the past to be more flexible to work with consumers. Arrangements have been made to skip an auto loan payment without impacting a consumer’s credit report.
Large and some national auto lenders can be less flexible, but still may make adjustments when a borrower is facing an emergency. If there is a trend in the auto lending industry to help consumers skip a payment during a national crisis, more lenders should be more flexible in working with you on upcoming payments. It is worth the time to call and ask your auto lender.
Credit Card / Lines of Credit
Credit card companies may reach out to you and work with you when a financial crisis hits. That doesn’t mean that they will automatically agree to skip a payment without that showing up on your credit report. It usually will.
One thing to think about. If a credit card company knows you are under financial stress from lost hours or unemployed, they could close your credit card. Letting a credit card company know that you need help may help you in the short run, but could hurt you from losing the use of the credit card in the future.
Hopefully, you do not face the loss of income. If you do, hopefully, it is only for a brief period of time. For mortgage, auto and student loan lenders, it is worth to see what possibilities you have to skip a payment. Always ask if it will report to your credit report as a late payment. If the lender will not report the missed payment as late, this is good news so you can focus on your other loans. If a particular lender will report a missed payment as late, try to keep that loan current.
Most utilities do not report to the credit bureaus and will not impact your credit report / scores. There two exceptions: Allowing an unpaid utility bill go for as much as six months can show up on your credit report as a collection. Collections usually drop FICO scores more than a late payment – upwards of 80 points depending on the amount.
Second, if you are utilizing the Experian Boostäprogram, utility payments could show up as late and lower your Experian FICO score. Experian allows consumers to utilize utility payments on your credit report. If you miss payments, it could lower your scores.
For your information, any 30-day late payment will some impact on your FICO Scores for up to seven years. A 60-day late payment will have a substantive impact for up to four years – and as much as 7 years. FOR THIS REASON, PLEASE HAVE ANY AGREEMENT FOR PAYMENT SUSPENSION IN WRITING. DON'T AASUME, ALWAYS VERIFY TO PROTECT YOUR SELF.
Better to know than not to know what options you have.