Some guidance below from one of my trusted lenders, who gleaned the information from a webcast yesterday. The presenter was David Stevens, who used to be the FHA Commissioner, Mortgage Bankers Association President, and several other illustrious titles. He is one of the MOST connected people to the mortgage marketplace and D.C.
I hope the following insights serve to inform your consideration of mortgage forbearance. Bottom line: if you don’t really need to use it, refrain from taking advantage. It may come back to bite you.
- No hardship letter or proof is required to receive forbearance, you just have to “attest” to your hardship. In other words, check a box.
- Forbearance can be for up to 6 months beginning April 1st IF your loan is owned by Fannie, Freddie, or Ginnie. Ginnie securitizes FHA and VA loans.
- The borrower will have to make up these payments later either when they refinance (if they can) or sell their home as this principal balance and unpaid interest WILL BE ADDED TO THEIR LOAN AMOUNT.
- Forbearance does NOT mean no payment or free payment! There is NO free lunch.
- No late payments will be posted to your credit report if you were current with your mortgage as of March. However, your mortgage will reflect that you are currently in forbearance in the comments section. This is critical to know!
- David said he was told by one very large correspondent lender on Wednesday that they will NOT close a loan for someone who has been in forbearance. This means your client can NOT refinance or buy another home right away. I expect other lenders will follow suit soon as well. They might be able to get a new mortgage after forbearance; but it depends on what the servicer says in the comments section of the account. If the servicer says the loan was in forbearance or borrower completed forbearance I expect some lenders will treat this like a foreclosure. Then, they have to wait 7 years to get a new conventional loan.
- Congress authorized the Treasury and provided money to set up a short-term “facility” to provide short-term loans for loan servicers during this forbearance period. But, so far the Treasury Department is refusing to do this in hopes that they won’t have to. I hope to win the lottery too; but I know I won’t win because I don’t buy tickets.
Thus, I think forbearance may be a good option for homeowners who have NO other options if they have lost their job and have no money in savings. But, it could keep them from refinancing into a better loan in the future or keep them from buying another home. There could be long-term consequences!
If as a homeowner who still have income or can still make the payments because of money in the bank, please make your payments. If tens of millions of people treat this like a “trip to the candy store” the repercussions on the mortgage marketplace and housing could be DEEP AND PROFOUND!