To forbear or not to forbear. That is the question Hamlet and home owners may be asking during the current covid-19 panic.
No mortgage payments for three months! No negative credit reporting! No late fees! What’s not to like?
Apparently a lot of homeowners think forbearance is a good idea. Today the Mortgage Bankers Association reported an 80 percent increase this week over last of forbearance on mortgage loans held by depository banks. Currently that’s 7.1 percent of all loans they currently hold.
Black Knight reported last week nearly 1.4 million borrowers whose mortgages are backed by Fannie Mae and Freddie Mac are already in forbearance. The company provides data analytics for mortgage lenders and servicers … so they know.
Sixty-four percent of loans are eligible for forbearance, according to Richard Cordray, former head of the Consumer Financial Protection Bureau.
What is forbearance anyway?
According to credit bureau Experian, loan forbearance is “a short-term suspension of payments in response to a borrower’s temporary hardship.” The goal is to preserve household cash for necessities like food when no cash is coming in.
The federal government will allow you to request mortgage forbearance if you have a Fannie Mae or Freddie Mac loan. So how do you know? You have to look it up. Here are the links:
Just fill out the forms, which are intuitively obvious, even for a Luddite like me.
IF you qualify, you can request mortgage forbearance for180 days. If you still can’t make the payments after six months, you theoretically can extend the forbearance period for up to another 180 days.
I still have five loans left in my real estate fempire porfolio. Two are Fannie, two are Freddie (yep, I had to check. Who knew?) But one is held by a private servicer. They don’t have to play by these rules and can make up their own.
So step one is checking to see who actually owns your home loan.
How does it work?
Typically, your lender agrees to accept no payments or partial payments for a set period of time.
At the end of the forbearance period, you have to resume your regular payments and repay the missed payments. This is NOT loan forgiveness!
You can repay the missed payments in a lump sum. (Good luck with that!) Most likely, you will have to make your regular mortgage payment AND repay an agreed-upon amount each month. Double the trouble!
And the new Coronavirus Aid, Relief and Security Act says your mortgage company can not report your mortgage account negatively to the three credit bureaus while the account is in forbearance. Whew!
The Five Questions to Ask
My mamma always told me, if it’s too good to be true, it probably is.
Some servicers of loans backed by the Federal Housing Administration were giving information about forbearance that is “incomplete, inconsistent, dated, and unclear,” the Department of Housing and Urban Development’s Office of the Inspector General said in a report Monday, without citing the names of the companies.
That is why you should ask these questions. Make sure you record who you talked to.
Here are some things to think about when making your decision.
How many months can I go without paying my payment? Two of my loans are Quicken loans. Owner Rocket Mortgage is only offering a three-month forbearance period. Period.
What are the terms? “Get the specifics about the payback requirements,” says Carl Millberg, branch manager at RWM Loans in Las Vegas. “Don’t assume your lender is going to tack the missed payments on the back of the loan and you won’t have to come up with the money.” In addition, Millberg says you shouldn’t automatically assume you have 12 months to pay them back. It may be as little as six.
Can I refinance or get a new loan at a later date? Federally insured loans currently have a rule that borrowers have to make 24 months of online payments before they can refinance or get a new loan if they sell their current house and buy another. The CARES law didn’t address this situation. Millberg says you should ask your lender how they are going to count the months you are in forbearance. Will they not impact the 24-month count or do you have to start again at month one once you start repaying?
How will this effect my loan’s amortization? Hopefully the loan balance will start going down as before once you start paying. But how does this work if you are making partial payments?
Will you guarantee you will not report this to the credit bureaus? Millberg says some lenders may have automated systems in place that automatically report a late pay. If they don’t update your software, your missed payment gets reported. Then it’s your hassle to clean up. Best to clear this up at the outset.
Things to think about….
Here are four other things to think about:
- Risk of future foreclosure. “Borrowers risk foreclosure if they can not get caught up in full after the pandemic,” says Michael Mason, a mortgage loan originator at North American Financial. He says the safest option is to beg the lender to tack on the shortage to the end of the loan. But sadly, many lenders may not agree. “If that is not an option, you are exposing yourself to future foreclosure,” he notes.
- Future car purchases. Are you planning to buy a new car sooner rather than later? The forbearance may affect the new car loan.
- Federal rule changes. Millberg points out there’s always a risk Congress will change the rules after the fact. After the last real estate meltdown, Congress changed the waiting period for foreclosures from four years to seven. Borrowers who gave their homes back to the bank planning on buying a new one in four years found out a couple years later they had to wait another three. That’s a long time if you really were anxious to stop being a renter and start building home equity again.
- Servicer mistakes. Millberg says he has heard from several clients who have called their mortgage servicers to ask about the terms so they can make an educated decision about what to do. And then the servicer put them into the forbearance program!!!!! His clients discovered this when the servicer refused to accept their next mortgage payment. It took hours to unravel the mess. Millberg says make it clear up front you are only asking questions.
So is it worth it?
Only you can decide.
I have decided to continue to make the mortgage payments in full on all my loans. Here’s what I did:
To forbear or not to forbear? What a bear of a question. Good luck!
P.S. What ARE you going to do? Call/text/message me. I want to hear!
Be safe. Be strong. Be Healthy.
((hugs)) BETH Ellyn
YOUR Las Vegas Real Estate Concierge
702.758.4318 Talk. Text. SMS. Video chat
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MBA: L’ecole du Hard Knocks
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