CDIA Metro 2 Reporting Methodology for Compliance With the CARES Act:
Overall, Servicers (as data furnishers to the credit bureaus) have specific requirements under the CARES Act for the credit bureau reporting of COVID-19 forbearances.
In the month of March, many customers contacted their servicers and requested to be placed on a forbearance plan. For COVID-19, the first eligible payment under any forbearance plan is the April 1, 2020 due payment (March was ineligible), however, the forbearance plan coding was placed on many accounts in March and the appropriate status may have been reported by Servicers in early April by servicers.
It is important to understand that Servicers must report COVID-19 forbearance plan activity in compliance with the CARES ACT and ALSO within the parameters of the Metro 2 reporting requirements as dictated by the CDIA (Consumer Data Industry Association) as follows:
- In accordance with CDIA guidelines, Servicers must report a Special Comment Code of either of AW (Affected by natural or declared disaster) or a CP (Account in forbearance).
- Per the CDIA, both Special Comment Codes “AW” and “CP” are interpreted by the leading score modelers, Vantage Score and FICO as “neutral” such that there should be no negative scoring impact on consumers
- If the mortgage loan was current (the payment was made within the month it was due) as of the commencement of the COVID crisis period in March, 2020, the reporting includes:
- No delinquent payment activity will be reported - Account Status Code reporting = 11 (Current Account)
- Amount Past Due = 0
- Scheduled payment due of 0
- Special Comment code of CP or AW must be reported
- Deferred payment code
- Accounts past due at onset of crisis will be reported similarly except, no further delinquencies will be compiled with the delinquent status at the onset of the forbearance plan (example: 60-day delinquency prior to the period remains a 60-day delinquency throughout the accommodation period – unless brought current)
Complexities for Servicers in Reporting of COVID-19 Forbearance Plans
There are various system challenges to deliver on the CARES Act credit bureau reporting requirements.
- Special Comment Code “AW” (disaster) or “CP” (forbearance) MUST be reported and both are declared as neutral to credit scoring. Customers will see different approaches by different servicers on which code is being used – there is not consistency across servicers
- There is a misconception that an AW is preferable which is not the case. Both AW and CP are neutral to credit score calculations per the CDIA
- Most servicing systems cannot currently accommodate the prescribed credit reporting for loans delinquent going into a COVID-19 forbearance (which states if delinquent in March 2020, consistently report the same state of delinquency throughout the forbearance (example: if 60 days delinquent at onset of forbearance, report 60 days delinquent throughout the forbearance period).
- This methodology does not exist and manipulation of accounts creates high risk for credit bureau reporting errors
- In the absence of this system capability, some servicers are reporting the loans like a current forbearance (with no delinquent payments due)
Potential Servicer Pitfalls and Unknowns with Initial Adoption of COVID-19 credit reporting
- As servicers are initially establishing their COVID-19 credit reporting processes, there is a greater likelihood of mistakes that need to be addressed.
- It is critical that borrowers go to their servicer if there are any questions as to whether their loan activity was correctly reported by their Servicer
- It is possible that as system logic evolves to accommodate this COVID-19 reporting, that there will be changes to the credit bureau reporting methodology used within the span of a forbearance period
- For example, as an account delinquent at the onset of the forbearance period, may be reported as current because of an inability to accurately report the rolling delinquency. That reporting may change once the logic exists to properly report the delinquency status
- Servicers must decide which special comment code “AW” (disaster) or “CP” (forbearance) to report. Although these should be neutral, there are some cases with new credit, where that particular creditor may view one or the other negatively. Overall, Servicers on the whole, have received more requests to remove the AW (disaster) coding, therefore many servicers are opting to report the “CP” (forbearance) but it will vary by servicer
- Servicers do not have visibility into the proprietary method of credit score modelers’ calculations
- Fairway Servicing does not know which COVID-19 credit bureau reporting approach has been adopted by each of the servicers who are servicing Fairway originated loans
- Servicers do not have knowledge on impact to underwriting practices
- Disasters and forbearances are supposed to be neutral by credit score modelers, however there will be contractually delinquent payments on the loan transaction history – do not have knowledge of the long term impact on underwriting for new credit
Retained Servicing Credit Bureau Approach
Fairway and its subservicer ServiceMac (servicing under the Fairway brand) have implemented the following credit reporting decisions:
- Special Comment Code “CP” (forbearance) will be reported (not “AW” Disaster)
- Both loans with a current status and a delinquent status will be reported as “current” with no past due amounts and no scheduled payments due
- When the servicing system bureau provides the logic to accurately report the rolling delinquency for loans delinquent at the onset of the COVID-19 forbearance, Fairway will reevaluate reporting approach
- Although the first eligible payment under the COVID-19 forbearance is April 2020, many forbearances were set up in the month of March and reported to credit bureaus in early April. The majority of COVID-19 forbearance plans in place at March 2020 month-end, had a one-time full credit bureau reporting block.
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