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James Carlson
  • Real Estate Agent
  • Denver CO | Colorado Springs, CO
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Will mortgage forbearance affect credit or loan qualification?

James Carlson
  • Real Estate Agent
  • Denver CO | Colorado Springs, CO
Posted Mar 31 2020, 13:08

I have a number of investor clients here in Denver and Colorado Springs worried about coronavirus and their tenants' rent (and therefore worried about their mortgage payments). They're all asking me the same question: Will a mortgage forbearance either A) affect my credit score or B) impact my qualification for a loan in the future? 

I'm seeing mixed messages. I hear other agents advise clients to just dip into their reserves. Totally. That's what we're doing personally. But not everyone has those reserves, especially new investors who just bought. 

Here's what I'm finding. Any lenders out there? Institutional bankers? Thoughts?

Law firm advisories to banking institutions

A little context: in normal times, any loan modification is considered a "troubled debt restructuring," which is a negative on your credit score. I hear some lenders say that after this is all over, loan servicers will then list any forbearance period as a loan modification and that it will be seen negatively. 

But what I read in several advisories sent out by law firms that represent financial institutions indicate something else: 

Like this advisory from Thompson Coburn, that quotes a joint statement put out by all credit agencies (FDIC, etc.): "The agencies have confirmed with staff of the Financial Accounting Standards Board (FASB) that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not troubled debt restructuring."

Other sources

I see the same message in many other law firm advisories (here, and here, for example) and in an FAQ put out this week by the FDIC.

Again, if you can pay, it might be smart to pay to avoid any risk of a hit to your future credit or lending ability. But it sure would be nice to know for our clients, in concrete terms, how a mortgage forbearance would affect them.

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