We previously blogged about the push among lawmakers and regulators to encourage or force financial institutions to cease providing adverse credit reporting on consumer loans where the delinquency or default may be related to the outbreak of COVID-19. Given the rapidly changing environment, it is not surprising that there have been some material changes in the past two days.
On March 18, Fannie Mae issued a Lender’s Letter directing servicers to suspend credit reporting “during an active forbearance plan, or a repayment plan or Trial Period Plan where the borrower is making the required payments as agreed, even though payments are past due, as long as the delinquency is related to a hardship resulting from COVID-19.” Similarly, the Veterans Administration has issued a bulletin directing servicers to suspend adverse credit reporting for “affected” loans. Servicers should follow Fannie Mae’s and the VA’s guidance as to any applicable loan where the servicer has a basis for believing the default or deficiency is related to the virus outbreak.
Mortgage servicers may want to consider implementing broader suppression policies that would cover loans that are delinquent or in default but for which the servicer has not received a request for forbearance or other indication that the delinquency or default is related to COVID-19. Such an approach would anticipate even more rigorous restrictions on adverse credit reporting, such as those envisioned in Representative Maxine Waters’s March 11 letter or in New York Governor Andrew Cuomo’s March 19 announcement indicating that any adverse credit reporting related to the failure to make a mortgage payment for the next 90 days would be suppressed. Each servicer will need to review its own system and assess whether suppressing reporting for all accounts would avoid inaccurate reporting without creating significant operational issues.