By AnnaMaria Andriotis and Ben Eisen
U.S. consumers are facing what could become the biggest credit
crunch since the Great Depression. Lenders and credit-reporting
firms aren't sure what to do about it.
As coronavirus spreads, thousands of wait staff, bartenders and
airline employees are out of work and could be on the brink of
missing payments on mortgages, credit cards and other loans.
Lenders have yet to report a spike in missed payments, but the
impact could be considerable. If borrowers start defaulting, they
could lose homes and cars. In the longer term, those delinquencies
could get factored into their credit reports, hurting their ability
to borrow for many years.
Some lenders already have announced programs meant to help.
Citigroup Inc., for example, is increasing spending limits for
certain cardholders on a case-by-case basis, including those with
rising out-of-pocket medical expenses. JPMorgan Chase & Co. is
delaying due dates for some borrowers on cards, auto loans and
mortgages. Goldman Sachs Group Inc. is allowing borrowers who have
personal loans from its consumer bank, Marcus, to sign up to delay
their payments for a month.
Still, the expected economic slowdown could devastate many U.S.
consumers, who already were overstretched before the coronavirus
pandemic. Americans have been falling deeper into debt over the
past decade as costs have climbed but incomes have largely failed
to keep pace. Consumer debt balances, including credit cards, auto
loans and student loans, are around record levels.
Lenders and credit-reporting firms are still reviewing what they
might do for consumers. Some think relief should be offered to all
borrowers, or all who ask for it. Another option, requiring people
to prove they were directly affected by the coronavirus, could be
impractical given the virus's far-reaching economic effects. That
also would become logistically harder if companies have to move
customer-service representatives from call centers to work from
home.
Lawmakers and others have asked the main U.S. credit-reporting
firms, Equifax Inc., Experian PLC and TransUnion, what they can do
to limit the damage to consumers' credit standing if they miss loan
payments. Representatives from the White House National Economic
Council have been in touch with credit-reporting firms, according
to people familiar with the matter. So have staffers representing
Sen. Mike Crapo (R., Idaho), Rep. Maxine Waters (D., Calif.) and
Sen. Mitt Romney (R., Utah).
Generally, lenders submit information about their borrowers,
including missed payments, to the credit-reporting firms. Those
firms in turn compile and sell that information back to lenders to
help them decide whom to lend to. That information also is used to
help calculate people's credit scores.
Most lenders haven't said if they will avoid reporting missed
payments to the credit-reporting firms as the pandemic spreads. And
the credit-reporting firms as of now plan to continue including
missed payment information they receive on credit reports.
An exception is Discover Financial Services, which said it won't
report missed payments to credit-reporting firms for some borrowers
for at least two months. That will cover loans including credit
cards, personal loans and private student loans, and will mainly
apply to consumers who have previously been on time with
payments.
The Consumer Data Industry Association, which represents
credit-reporting firms, says it is evaluating ways to serve
consumers and the economy. Consumers who have concerns should
contact their lenders, it says.
Government officials also have been in talks with mortgage
companies about how they can help consumers, according to people
familiar with the matter. In response, the industry has been
working on plans tailored to the current crisis that could be
enacted quickly.
Mortgage companies already offer so-called forbearance plans in
certain situations, in which borrowers can temporarily stop making
mortgage payments and make them up later.
Federal regulators can require mortgage companies to consider
this option for consumers who can show they are facing some sort of
hardship, such as a lost job, if the loan is backed by the
government. The Federal Housing Finance Agency, which regulates
Fannie Mae and Freddie Mac, and the Federal Housing Administration
highlighted this option to servicers last week.
Regulators also can require mortgage companies to consider
letting borrowers pause payments when a natural disaster hits. The
policy typically applies within a defined geographic area.
Fannie and Freddie said Wednesday they would expand forbearance
options so that borrowers affected by the coronavirus can request
to pause payments. The two mortgage giants and the FHA will also
suspend foreclosures for 60 days.
Many housing experts say the current set of tools to help
struggling homeowners is ill equipped for the coronavirus. For
example, some homeowners say that accepting pause-payment plans
after a natural disaster left them worse off, The Wall Street
Journal has reported.
Mortgage industry players say they want a plan that would
streamline approval for offering relief to borrowers hurt by the
pandemic, and in a way that doesn't hurt borrowers' credit
scores.
"This shouldn't be involving a credit hit for people," said Ed
DeMarco, president of the Housing Policy Council and the former
head of the FHFA. "Everyone was living their lives and doing their
jobs and this is a health emergency."
The industry is also suggesting a liquidity facility that would
allow servicers to bridge the gap between borrowers who aren't
making payments and mortgage investors who still expect to be paid,
according to Bob Broeksmit, president and chief executive of the
Mortgage Bankers Association.
Write to AnnaMaria Andriotis at annamaria.andriotis@wsj.com and
Ben Eisen at ben.eisen@wsj.com
(END) Dow Jones Newswires
March 19, 2020 05:44 ET (09:44 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
JP Morgan Chase (NYSE:JPM)
Historical Stock Chart
From Mar 2024 to Apr 2024
JP Morgan Chase (NYSE:JPM)
Historical Stock Chart
From Apr 2023 to Apr 2024
