Credit scores, and the end of mortgage forbearance
As part of the landmark CARES Act passed in 2020, Congress stipulated that mortgages in forbearance as a result of COVID-19 must be reported as “current” on credit reports. The legislation saved millions of homeowners from having their credit scores ruined during the most devastating year in recent U.S. history. But future risk still remains, and much remains undecided about the future of credit scores.
In a credit reporting panel moderated by U.S. Bank’s director of consumer bureau management Cory Patrick, Ethan Dornhelm, vice president of scores and predictive analysis at FICO, noted that 35% of the FICO score calculation is based on payment history. This category takes into account whether the borrower is paying their bills as agreed, if they are delinquent and have missed a number of bills, and how recently they missed them across their different accounts.
The three primary credit bureaus, Experian, Transunion, Equifax, are reporting all mortgages in forbearance as current. In the section that lists how many times a mortgage had late payments, broken out by 30 days to 59 days, 60 days to 89 days, and “90+” days, the documents show all zeros.
That means: No late payments. The loan is, technically, current.
“In short, all of the common accommodation reporting options will not affect the FICO score calculation,” Dornhelm said. “So whether that’s reporting a special comment code pertaining to forbearance, or declaring natural disaster, or loan modification, none of those codes will directly affect the FICO score calculation, nor will reporting a borrower as deferred via the terms frequency value of D.”
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