Mortgage Forbearance Impacting Credit Score?

Question

Hi All,

I still can't seem to get a clear answer on exactly how loan forbearance will impact credit reports (not scores). I understand it will not impact my score, however, banks will see that I am in forbearance (which has a negative connotation)

Here is my situation - I have my primary loan with Wells Fargo, an investment property with freedom mortgage, and I just closed on a lot loan with US Bank. My investment property is in Hawaii and unfortunately sitting 100% empty now. I am going to convert my lot loan into a construction to perm in a few months to build a house, likely with US Bank.

While I *can* make all three payments, it will be painful until COVID restrictions are relaxed and I start getting income from my investment property. I put all three of my loans in forbearance recently, under the guidance that there will be no impact to my report. This sounded like a great option to help me sleep at night.

I just got off the phone with a loan officer at US Bank and he said that forbearance will be marked on my account, which is perceived as a negative when applying for the construction loan. They also have a policy that prevents refinancing within 15 months of a forbearance which would prevent me from getting a construction loan with them.

This was a huge shock to me. He said I should immediately call US Bank and get them to cancel the forebearance (my next payment isn't due for another few weeks). Is he correct on this? Should I remove it on just my lot loan? Or all three?

Any advice would be appreciated.

James Mc Ree · Answer

You have an answer from your bank on how it impacts your future loans.  Why are you asking a bunch of people not involved with your situation what will happen?  For sure, you will get a bunch of answers like, "I'm not a banker, but here's what I think..."  Go with what your lenders tell you.

If you think about it, an impact on immediate loan applications makes perfect sense.  You told your bank you can't afford to pay your 3 loans.  Why would they give you another one when you can't afford what you already have?

Luke Reninger · Answer

I look at it from a hard money lender perspective,  you can pay but chose not to.l because of being cautious or whatever. You still put the burden on the bank instead of yourself. I wouldn’t like seeing a forbearance note on anyone applying for a mortgage. Apparently your bank doesn’t like it either.

Chris Seveney · Answer

@Jeremy Segermeister

While it may not impact your score, your score is not the only thing the underwriter looks at. They will look at pay history as well and a forbearance will show up because those months will be marked where you were in forbearance on the report and not showed as paid.

If you have 3 mortgages in forbearance that shows a lender that you have no reserves and for investment or a construction loan you would be a very high risk.

So while it may not effect your score in can have a huge impact on borrowing. People have to realize it’s not just what the number says.

Account Closed · Answer

@Jeremy Segermeister I used to review 10+ credit reports a day back in my lending days. Forbearance shows up in big bold letters in the same place they list Foreclosures. It probably won’t affect your score but most, if not all, lenders will be shy to lend to you for quite some time. Don’t do it unless you absolutely have to.

Jeremy Segermeister · Answer

@Alex Olson I actually don’t think it will impact the score at all. I’m more concerned about the underwriter at US bank not approving my construction loan in a few months because they see I was in forbearance. I have perfect credit and never intended to impact my ability to secure another loan.

Jonah Freedman · Answer

Nobody seems to know the true answer. I live in a college town and with all the kids gone. Many of the banks are offering forbearance. I work with two small local banks. I am refinancing about 10 loans with one of them and at the same time put  8 loans in forbearance with the other bank. Both banks assured me that this would not mess with the refinance or my future ability to borrow from them. Why would they say this if this was not true? Keep in mind I have about a 10 year relationship with both banks.

So maybe small banks and credit unions will look at this differently?  After reading on here that it could be a problem I called my loan originator and asked him if I could just pay the payments now and push the forbearance to next month if I really need it. He said since it is already in the system, I should just bank the money so that I have it after the 3 months are up and assured me again that it will not affect my ability to borrow from them in the future. To me it seems like each bank will look at this differently. Any other thoughts or similar expierences?

Jeremy Segermeister · Answer

@Chris Seveney thanks. I’ll keep all my payments up to date then.

Jackie Cramer · Answer

Loan originators are not loan underwriters. If it were me I would pay as agreed until unable to do so.

YMMVZ

Joe Splitrock · Answer

Of course it is negative. As you said, even though you can pay, you are choosing not to pay. If you were lending money, who is a higher lower risk? The person who made all their payments or the one who chose not to?

It will not affect your credit score, but lenders are equally interested in payment history. Forbearance shows you were undercapitalized (not enough cash to run your business).

Jeff Hubert · Answer

My bank said I will NOT be impacted as the Federal Gov't lay this out in the act.   I have two properties that my tenant lost their jobs so I regretable went with the Forbearance.  I also found out if the Fed's allow the rent to be forgiving they will do the same with our mortgage payments if in Forbearance.  NOW we never now this is not a definite, It's just being knocked around in congress.   Anything can come out of this ...   Bottom line...If you really need to do it then you have to do it.  Just make sure you put the money aside to pay back the lump sum when due.  That's the most important thing about it.

Mortgage Forbearance Impacting Credit Score?

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