Impact Of Natural Disasters On The Economy
Major storms can come at a heavy price for certain businesses, including stores and restaurants that depend entirely on a local customer base.
However, research suggests that from a purely economic point of view, the effect of natural disasters tends to be regionaland businesses in the affected area typically recover quickly as they rebuild their property and replenish their inventories. According to Moodys Analytics, even a storm the size of Hurricane Harvey only created an $8.5 billion dent in economic output, a tiny fraction of the U.S. gross domestic product of approximately $19 trillion in 2017.
Did You Know: Credit Reporting And Natural Disasters
sure those who are dealing with Hurricanes Harvey, Irma and Maria have amillion other things to worry about besides their credit reports andcredit scores. But when storm victims, their family members and therelief workers get some normalcy back in their lives and refocus ontheir finances, there will be some things they will want to understandregarding credit reporting. There are, in fact, credit reportingstandards and guidance from the credit reporting industry, whichspecifically address natural and other declared disasters.
Lendersand other data furnishers provide information to the three nationalcredit reporting companies using anindustry standard format called Metro 2. And these data furnishers areinstructed on how to properly report under the Metro 2 format via theCredit Reporting Resource Guide or, as it is referred to moreinformally, the Metro 2 manual. Its important to have a basicunderstanding of the Metro 2 manual because it addresses how naturaldisaster credit reporting is to be handled.
When reporting tothe credit reporting companies, lenders can add a code to their accountsor trade lines which indicates that their customers or borrowers havebeen Affected by natural or declared disaster. If a lender uses thiscode, formally referred to as a Special Comment Code, the notificationabout a disaster will appear alongside the trade line for the customersaccount. Its incumbent on the lender to insert the code initially andto remove the code after the event.
Banks And Regulators Are Loosening Credit Reporting Rules
Over the weekend, bank regulators including the Federal Reserve, the FDIC, the National Credit Union Administration , the Office of the Comptroller of the Currency , the Consumer Financial Protection Bureau , and state banking authorities laid down the law to banks.
Their message? Now is not the time to mess with consumer credit reports.
With regard to loans not otherwise reportable as past due, said the regulators, financial institutions are not expected to designate loans with deferrals granted due to COVID-19 as past due because of the deferral.
“…financial institutions are not expected to designate loans with deferrals granted due to COVID-19 as past due because of the deferral. Interagency statement, March 22, 2019
A loans payment date is governed by the due date stipulated in the legal loan documents. If a financial institution agrees to a payment deferral, this may result in no contractual payments being past due, and these loans are not considered past due during the period of the deferral.
The bottom line: Dont let coronavirus get your credit score down. There may be ways within the credit scoring system to eliminate or reduce credit issues by working with lenders.
Be sure to contact creditors. If you don’t call, the creditor has no way of knowing why a payment is late or missing.
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The Cares Act And Payments To Creditors And Lenders
Under the CARES Act, creditors must make accommodations for people having trouble making payments. This does not mean that you can stop making payments. It means that they must offer you some other type of payment arrangement. You must contact your creditor or lender to make any special arrangements. The arrangements they make with you will vary.
Types of agreements many creditors and lenders are making
- Loan modifications like lower interest rates or loan extensions
- Partial or flexible payments
What Types Of Disasters Apply To Disaster Loss
The types of disasters that have applied to disaster loss have typically been natural disasters including floods, hurricanes, tornadoes, fires, and earthquakes. As mentioned above, only taxpayers who live in an area in the U.S. that has been designated as a qualified federal disaster area by the president and have suffered a loss are eligible to take the disaster loss deduction.
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Record Levels Of Debt Put Us Credit In A Shaky Position
The coming weeks and months are likely to test virtually every American household.
Treasury Secretary Steven Mnuchin has told US senators that the unemployment rate could soar to 20% more than five times the February level.
If the Mnuchin prediction is anywhere near correct, we are likely to see credit score declines. How much they will falter is unclear but decline they will.
Why? Because at the very time incomes are falling, debts are at record levels.
According to the Federal Reserve Bank of New York, household debt increased to $14.15 trillion in the fourth quarter of 2019. Thats the 22nd consecutive quarter with an increase.
Combine falling income with massive debt, and credit issues could easily become a reality.
Place A Credit Freeze
Contact each credit reporting agency to place a freeze on your credit report. Each agency accepts freeze requests online, by phone, or by postal mail.
PO Box 26Pittsburgh, PA 15230-0026
Your credit freeze will go into effect the next business day if you place it online or by phone. If you place the freeze by postal mail, it will be in effect three business days after the credit agency receives your request. A credit freeze does not expire. Unless you lift the credit freeze, it stays in effect.
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Special Treatment For Presidential Declared 2016 Disaster Areas
As part of the new tax law changes passed in late 2017, casualty loss deductions became easier to take form many taxpayers. The change in the law allows for these casualty losses to be deducted even if you take the standard deduction rather than itemizing your deductions as described above.
To take a casualty loss deduction in conjunction with the standard deduction, your net casualty loss that exceeds $500 is added to your standard deduction amount.
In addition to allowing the use of the standard deduction for these losses, the law also allows for special treatment of qualified disaster distributions from eligible retirement plans including:
- Paying the money back to the retirement plan
- Spreading the amount to be included in income over a three year period unless you elect out
You should contact your retirement plan administrator for the details associated with making these withdrawals.
These changes are only for 2016 Presidential Declared Disasters but they can affect your tax returns in other years.
Remember, with TurboTax, we’ll ask you simple questions about your life and help you fill out all the right tax forms. With TurboTax you can be confident your taxes are done right, from simple to complex tax returns, no matter what your situation.
Check In On Your Credit Score
Once you have an agreement in place, you’ll want to keep an eye on your credit report to double check that lenders are not marking any accounts as delinquent. It will take about a month for any missed payments to affect your credit score, so you should check in on a monthly basis.
You can set up a free monitoring service through sites like and , which will send you alert emails about any recent activity on your TransUnion credit reports. You can also annually request a free credit report from each of the three major credit bureaus.
“Consumers have to be persistent,” Wu says.
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What Does A Natural Disaster Mean For You And Your Mortgage
Whether you live in one of the states hard-hit by Hurricanes Harvey and Irma or not, its difficult to ignore what a natural disaster might mean for your home and mortgage. Mother Nature is not shy about showing us the devastating power of hurricanes, floods, and earthquakes. Catastrophic events can happen anywhere at any time, which is why it is important to be prepared and to take steps to protect your property from costly damage.
Prepare for the Worst: Insurance
Wind and water can be destructive forces that can leave your home in ruins, so the first step is to ensure that you are adequately insured before anything happens. If you live in a flood-prone area and have a mortgage on your home, federal law may require you to carry flood insurance. Flood insurance from the National Flood Insurance Program is only available in participating communities. Find out whether your community participates in the NFIP by contacting your insurance agent.
Who to Talk to in the Aftermath
Try to Keep Up with Your Bills
Mortgage AssistanceSome mortgage servicers may waive fees and offer breaks on loan payments in the wake of a disaster. If you have a VA loan, there are special steps to take. Mortgage giants Fannie Mae and Freddie Mac both have mortgage relief options for homeowners affected by natural disasters if the loans are owned by either GSE. Eligible homeowners who are having trouble paying their Fannie Mae- or Freddie Mac-owned mortgage may qualify for:
Keep Paying Bills On Time If You Can
The one sure way to maintain a strong credit score is to pay bills in full and on time without fail.
There are obvious benefits to keeping up with your regular payments:
- You control your credit report destiny. If you pay in full and on time a creditor has nothing negative to report. Youve carried out your end of the bargain
- If you pay in full and on time you dont have to pay late fees. The money you save stays in your pocket
But in practice, keeping up with bills can be hard or impossible at a time like this. In that case, its important to prioritize.
Take a look at the programs listed above. Talk to your lenders to figure out which loans might be exempt from credit reporting due to COVID-19, and which ones could still bring down your score.
For example, if you can eliminate one of your large debts for the time being you may loosen up your budget to cover other necessities.
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Natural Disasters Becoming More Common
While dangerous weather events have always occurred, government data suggest that theyve been happening more often over the past several years. According to the National Centers for Environmental Information , 2020 was the sixth consecutive year in which 10 or more climate and weather events that cost $1 billion or more impacted the United States. From 2018 to 2020, there were 50 such events that, together, caused a total of $237.2 billion in damage.
From 2010 to 2019, there were 119 climate and weather events that cost $1 billion or more, causing an average of $80.2 billion in damage per year. The decade before that saw only 59 billion-dollar events in the United States, at an average cost of $52 billion. And the 1990s saw even fewer large weather crises: 52, which cost an average of $27 billion per year.
A number of factors are contributing to that uptick, according to the NCEI, a division of the National Oceanic and Atmospheric Administration . For one, Americans simply have more physical assets in vulnerable locations than in decades past. Much of the recent housing growth has occurred in coastal regions and river floodplains, which are at greater risk when hazardous weather events occur.
The NCEI also suggests that global climate change is making these occurrences more common than in decades past. This shift can have a wide range of effects in the U.S.including drought and increased wildfires in the West and greater rainfall in the East.
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What Is The Cares Act
The CARES Act is the Coronavirus Aid, Relief, and Economic Security Act enacted on March 27, 2020. It is an over $2 trillion relief package. The CARES Act is to help the American people with the economic impacts of COVID-19.
The CARES Act aims to help:
- American Families and American Workers
- Small Businesses
- State Governments and Local Governments
Impact Of Natural Disasters On Taxpayers
Just how big of an effect do these payouts have on federal taxpayers? According to a 2019 Congressional Budget Office estimate, damage from hurricanes and other storms is expected to cost the U.S. government $17 billion a year. Roughly $11 billion of that is due to losses to the public sector, $4 billion covers aid that goes directly to individuals, and about $1 billion is allocated to administrative costs. The CBO projects that FEMA would have to increase the premiums for its federal flood insurance program to correct its projected shortfall.
However, individuals outside the damaged area may face certain additional costs beyond federal expenditures. In some cases, consumers have to pay more for certain commodities, including livestock and produce, that are lost due to weather events. In the wake of Hurricanes Katrina and Ritawhich decimated refineries in the Gulf of Mexico region within a month of each otherthe price of gasoline spiked by roughly 30%, dramatically increasing transportation costs for both consumers and businesses.
Natural disasters can also be devastating on an emotional level, as people lose cherished assets and sometimes even loved ones.
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Ways A Natural Or Declared Disaster Can Affect Your Credit
A natural or declared disaster may destroy your home, damage your possessions or hurt you and your family. But while you’re putting your life back together, a disaster can also impact your credit in several ways.
If you’re injured or have to take time off to care for injured family members, you might not be able to go to work. Or you might be laid off or have your wages or hours cut. With your income reduced, you may find it harder to make your monthly payments, such as your credit card bills, rent, utility payments or mortgage. Missing payments can have a negative impact on your .
To help make ends meet, you might need to turn to credit cards to pay ordinary expenses. And even if your income isn’t affected, a disaster often means extra expenses. For example, after a flood or fire that damages your home, you might have to pay a hefty insurance deductible, pay a contractor for repairs or even pay hospital bills.
On the positive side, your credit cards may be able cover these disaster-related expenses and provide a quick source of needed cash. But using them will increase your credit utilization ratio, or the percentage of your available credit you’re using. A of 30% or higher will have a more significant negative effect on your credit scores. Ideally, you should try to pay your balances in full each month or at least keep your credit card balances as low as possible.
What Is A Charge Off: Prevention And Recovery
What is a charge off?DelinquentDefaultCharge off What will happen if my account is charged off?notHow can I prevent a charge off?I already have a charge off. What can I do to fix the situation?
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Request Your Free Medical History Report
You have the right to get one free copy of your medical history report each year. You can request a copy for:
- Someone else, as a legal guardian
- Someone else, as an agent under power of attorney
Request a medical history report online from MIB or by phone at 1-866-692-6901.
Not everyone has a medical history report. Even if you currently have an insurance plan, you won’t have a report if:
- You haven’t applied for insurance within the last seven years
- Your insurance policy is through a group or employer policy
- The insurance company isnt a member of MIB
- You didnt give an insurer permission to submit your medical reports to MIB
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