The CARES Act authorized forbearance for borrowers with federally backed mortgages beginning in 2020, with programs running through various end dates. Millions of borrowers used these programs. Years later, MLOs still encounter borrowers whose forbearance history affects new loan eligibility. The issues are: whether the forbearance was reported correctly on the credit report, how the forbearance was resolved, and what post-forbearance payment history is required.
How CARES Act Forbearance Was Reported to Credit Bureaus
Under CARES Act guidance, servicers were required not to report payments as late during an approved forbearance period for borrowers who were current before entering forbearance. Reporting practices varied, and some borrowers received incorrect derogatory marks. If a borrower's credit report shows late payment notations during a confirmed CARES Act forbearance period, dispute the notation with supporting documentation: the forbearance approval letter from the servicer and the servicer's own payment history records.
Three Consecutive Payments: The Core Requirement
Fannie Mae, Freddie Mac, FHA, and VA all require that borrowers who exited forbearance make at least 3 consecutive on-time payments before applying for a new agency loan. This applies whether the forbearance exit was a reinstatement, a payment deferral (missed payments moved to end of the loan), or a partial claim (FHA-specific). The 3-consecutive-payment clock starts from the first payment made after the forbearance or deferral was formally resolved.
Payment Deferral vs. Modification: Why It Matters
Many borrowers exited COVID forbearance into a payment deferral program: missed payments were moved to the end of the loan term, original loan terms remained intact, and no modification was executed. This is a favorable exit for future mortgage eligibility. A formal loan modification, where the loan terms (rate, term, or principal) were permanently changed, requires a longer payment history before new agency loan eligibility: typically 12 to 24 months of consecutive on-time payments. Request the complete servicer payment history and loss mitigation documentation for any borrower who mentions past forbearance.
Aria can walk through CARES Act forbearance credit reporting rules, post-forbearance eligibility requirements for all agencies, and how deferral versus modification status affects new loan qualification. Ask at vicariointel.com.
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