When you asked for a deferment during the COVID 19 pandemic, mortgages and other creditors will report this status on your credit report. If you are not seeking new financing but used the CARES Act to assist you during the pandemic to help your credit rating, ultimately the program will protect your credit scores and stabilize your overall credit. During these uncertain times, it is recommended to monitor your credit, which allows you to see how the creditors are reporting your accounts.
Difference between Selecting a Forbearance versus Selecting a Deferment
Forbearance accrues interest, even when you are not making payments for a certain amount of time, the total lump sum is due at the end of forbearance period. A deferment may accrue interest, however, the amount owing after the deferment expires is paid when you sell, refinance or pay off your home, automobile or boat. It is always best to initiate a call with your lender and explain your hardship. Fannie Mae and Freddie Mac have step by step options assisting homeowners who have been affect by the pandemic, such as a new deferment program that starts July 1, 2020 besides a 12 month forbearance option and relief of any late payment fees. If you have a positive cash flow in your business or household, it is unnecessary to utilize deferment programs with your lenders.
COVID 19 Deferments Affect Your Loan Approval
When applying for new credit, lenders will seize the application process once they review your credit and identify accounts that are in deferment by your lenders. SBA, mortgage lenders and auto lenders will require you to exit out of your deferment before you proceed with new financing. SBA will not approve your business loan, if your mortgage lender states “deferment” on your mortgage account, even though you have impeccable credit. For example: A client has impeccable credit, he decides to take advantage of the CARES Act deferment program but immediately changed his mind and opted out of the arrangement and made his mortgage payments, all on time, current. Yet, the mortgage lender continued reporting the account in deferment status. As a result, he contacted our company and provided documentation to his mortgage lender and the credit bureaus that he was out of deferment, this resulted in removing the deferment status off his credit report and allowed him to finance his SBA loan. Furthermore, mortgage lenders are imitating SBA and conforming business lending, they will not proceed with financing your home loan if your current mortgage or mortgages state “deferment” in the comment section of your trade line.
Post CARES Act Equals No Deferment
Most lenders are no longer providing deferment programs, even though your city shuts down again like the boroughs of New York City. For example, a client participated in a deferment program with his auto lender, Los Angeles County is nowhere near opening at full capacity. As a result, our client needed an additional deferment assistance with his auto lender, and the response was “we are no longer providing extensions on deferring payments…you are only allowed four.” Banks are no longer able to provide additional deferments, even though some counties and cities are shutting down again. So now what? Lenders are in trouble if they continue a path of not collecting receivables, taking losses, which will result in another financial meltdown worse than what we had that started in 2007 thru 2009. As one presidential candidate states he will shut down the country again to defeat COVID-19, he is wrong, banks and small business cannot afford Biden’s plan if he is elected in office.
If you are unsure about your financials, make a plan to downsize or reduce your debt that you had prior to the pandemic.
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