Nicole Kittredge is a mortgage loan officer with Envoy Mortgage. NMLS #20896. She has been helping clients with mortgages for 16 years. I asked her to explain what mortgage forbearance is and some of the consequences.
What is forbearance and how does it affect the consumer?
First things first if you are able to pay your mortgage you should do so.
If your income has been affected because of COVID-19 you can apply for mortgage forbearance. You have to tell your mortgage company if you’re unable to make payments. They will not automatically enter you into forbearance plan and forbearance is not the same as forgiveness. One way or another you will eventually have to pay the money you owe.
Any federal backed loan is eligible for forbearance, which is 99& of mortgages. Conventional, Freddie Mac, Fannie Mae, FHA, VA, etc. What’s different about this time around is that you don’t need to prove a hardship. People can say they need a forbearance when they’re actually still working.
If you can’t pay your mortgage right now forbearance is a blessing. If you enter forbearance that halts your mortgage lien and gives you time to come up with your payments.
There are three general scenarios that you could qualify for:
Traditional forbearance would defer your mortgage payments for a few months but at the end of that deferment you would be responsible for a balloon payment of all the months that you missed. If your income has been affected it’s not reasonable to come up with 4 months of mortgage payments at once.
Another option is to have your mortgage servicer tack on the payments to the end of your loan. For example if you have 25 years left on your mortgage they could add your missed payments to the end of your loan and you would have 25 years and 3 months left to pay. Be sure to ask your servicer how much extra you’ll be paying in interest if you go this route.
Finally, your servicer might be able to re-amortize your missed payments over the life of the loan. If you miss 3 payments of $2,500 each they would take that $7,500 and spread it out over the remaining loan period. This can increase your monthly payments when you go back to paying your mortgage and it can cost you in interest as well.
Whatever route you chose make sure everything is spelled out in writing and you 100% understand the terms and any extra amount you’ll be charged.
Also be aware that a forbearance on your record can affect your ability to refinance in the future.
If people are applying for forbearance how does that affect the mortgage companies?
Mortgage servicers still have to make payments on mortgage loans. Forbearance requests were up 1200% the first week at 1800% now. They still have to make payments to the people they bought the mortgages from, the mortgage backed securities. The mortgage servicer still has to pay property tax and insurance payments. They’re really getting hammered, they still have to make the payments but aren’t receiving money from the borrowers.
What could happen if this prolongs and people can’t pay their mortgages?
There are some companies that have already gone out of business. Some mortgage products are already gone such as jumbo loans. The mortgage industry is facing a liquidity crisis. Servicers have to make payments but they aren’t getting paid. There are still mortgages being offered and there has been talk about a government bailout for the mortgage industry
The difference with this market from 2008 is that the market was more robust and booming with lots of funds available. Hopefully this will last companies a little longer so we won’t see lenders going out of business overnight like we did in the past with mainstream lenders.
If you have questions about applying for a mortgage or refinancing reach out to Nicole at Envoy Mortgage! She is a wealth of information and very accessible.
nkittredge@envoymortgage.com
508-816-4156
