Government shutdown victims: late mortgage payment
Of course, any of us can find ourselves in impossible financial difficulties where we face a late mortgage payment. But things are worse than usual.
That’s because, at the time of writing, up to 800,000 government employees and countless workers for government contractors are enduring a furlough that is already in its second week.
We went through this last year too. And shutdowns and threats of shutdowns are a reality in the US. No reason to believe that periods without paychecks could become a recurring fact of life for many public servants.
So how should you react if you’re a victim or potential victim?
What a furlough means
When a partial government shutdown occurs, it impacts hundreds of thousands of Americans. It’s not just those who work directly for the government. Many who are employed by government contractors can also be laid off.
Chances are, those who work directly or the government will eventually get back pay. That’s not guaranteed by law, but recent furloughs have seen government employees fully compensated for lost salary when they’re reinstated — whether they’ve worked for free through the funding gap or have been sent home for an idle period.
There’s little reason to think that will change this time around. Even so, many workers are employed by government contractors. Not only do they typically have no expectation of any income during shutdowns. They may also not be due back pay once a federal furlough is over.
Your late mortgage payment and the furlough
Whether you work directly for the government or are employed by a contractor, you may face making a late mortgage payment. Indeed, you may have to skip one or more altogether, although even a greatly reduced payment is much preferable.
Let’s face it, furloughs aren’t the only situations in which we may face the prospect of making a late mortgage payment. Most of us should be ready to address such dire circumstances.
Hope for federal employees
In 2013, many lenders expressed a willingness to help furloughed federal employees who had problems keeping up with mortgage and other payments. Some, such as TD Bank, introduced special programs that allowed you to defer payments with no interest or late-payment penalties.
Others, including Bank of America, Chase, Discover, U.S. Bank and Wells Fargo, promised to work with furloughed workers on a case-by-case basis, according to a 2013 report from CNN. And it’s likely many banks will be as sympathetic this time around as they were the last.
Talk to your lenders
However, their sympathy will likely depend on your being upfront with them. The most important thing for you to do is call your landlord or mortgage and other lenders as soon as you anticipate issues.
And that should be before the payment falls due. Wait until after that date and you risk doing damage to your credit.
You’ll likely be more successful if you can make some reduced payments rather than skip one or more completely.
The Office of Personnel Management (OPM) offers official advice to furloughed employees. You should:
- Speak to your lenders/landlord in person or by phone and only after that follow up in writing
- Address your follow-up letter to the person to whom you spoke, confirming your request for a reduced or deferred payment
- Include in your letter all pertinent information: name, address, account number, your telephone number and the arrangement you reached with the lender
- Keep a copy of your letter and send the original, if appropriate, by certified mail
All of this advice works just as well for anyone who ever faces making a late or reduced payment.
The OPM suggests various sample follow-up letters for you to send to your creditors. The one it proposes, you would mail and/or fax if you’re facing a reduced or late mortgage payment reads:
Dear (Name of Company or individual with whom you have spoken),
This is to confirm our conversation of (date) in which we discussed a temporary reduction in my mortgage payment.
As we discussed, I am a Federal employee who has recently been furloughed due to a lack of funding of my agency. Because of this, my income has been severely cut and I am unable to pay the entire cost of my mortgage, along with my other expenses.
As we had agreed in our conversation, I will be able to make regular payments in the amount of $_______. I realize that I will be responsible to pay the remainder of the payments and, when I return to work, I will contact you immediately to work out a plan to take care of the reduced payments. Finally, I will also keep in touch with you to keep you informed about my income status.
I appreciate your willingness to work with me and your understanding during this difficult time.
However, you may wish to add another paragraph, explaining the exact specifics of your situation.
Credit report issues
One of the biggest dangers you face by making reduced or late mortgage payments (and those on other accounts) is the risk to your credit report and score. And a poor score can mean your next loan may be more expensive. Or it could even see your application turned down altogether.
So, when you speak to your lender, ask explicitly for it to not record your modified/skipped (as agreed) payments as negative items on your credit report. Your score is wholly a product of your report. So if you protect the latter, the former will take care of itself.
Your lender doesn’t have to record late or part payments as negatives. But it also doesn’t have to oblige you. So frame your request so it’s clear you’re asking a favor. And then confirm that your lender agreed not to harm your credit in your follow-up letter.
If things go wrong
Sometimes, lenders’ bureaucracies get stuff wrong. So you need to be sure your late/part payments are recorded on your credit report as you agreed.
You have a legal right to get a free copy of your credit report from each of the Big Three credit bureaus once a year. So, once the nightmare’s over, get copies of yours from annualcreditreport.com to make sure everything’s straight. And, if it’s not, very politely request that your lender amends its entries in line with your agreement.
Come on! You work for the federal government. You know that mistakes happen. And you know that remedial action can sometimes depend on how nicely someone asks for it.
Add to your report
If you can’t persuade a lender to protect your credit, you have a right to add your own explanatory narrative to your report. This won’t help your credit score.
But it might in the future assist a lender to recognize that you had good reasons for making late/part payments. And it’s certainly better than leaving unexplained black marks on your report.
Keep your note brief. Just say that you were a furloughed federal employee at the time the negative items arose, that you reached arrangements with your lenders in advance of due dates and that you fully complied with those arrangements. If you wish, you can add that one or more lenders reneged on their promises not to report those payments negatively.
Recovering from a credit score hit
It may be that, in spite of your best efforts, your score ends up taking a hit. This is serious. But it’s not the end of the world.
True, you can’t just shrug off a late mortgage payment. And it can take up to four years for a score to fully recover from a missed payment on any credit account. But in that scenario, we’re talking about getting back up to the highest level.
Yours will begin to recover as soon as you get your finances back into good order. And, if they never were in good order, you could see this a chance to start afresh.
Let’s face it, it would be nice if some good were to come out of this debacle.