An age-old proverb states: “The only certainty is uncertainty.” And without a doubt, we are currently living in uncertain times.
Over 22 million Americans (and counting) have filed unemployment claims, and numerous businesses have closed… many temporarily, and some permanently. Hospitals, governments and the average “Joe” are all trying to figure out how to protect not only American lives, but the lives that we have built for ourselves. It’s a bit scary, and it is very uncertain.
One of the many tools offered in order to provide assistance to those who may be struggling with the loss of income is the mortgage forbearance program. In the first thirteen days that the forbearance programs were rolled out, over 13 million Americans made application to “pause” their mortgage payments. However, the real question at hand has become, “What does that mean?” Furthermore, is this option the right thing for so many of our citizens?
The truth is, for most, it is not a wise choice. While the program does have its place, in many cases it may cause the participant much more harm than good. Brandon Thompson of Integrity Home Mortgage Corp states, “it’s a Band-Aid on a stab wound. It’s better than nothing but doesn’t typically stop or solve the problem. This is an instance where it is better to be proactive than reactive. It’s a great time to reach out to your lender and to your mortgage servicer and find out what options are available before you are in the hardship.”
Who should apply for mortgage forbearance? The answer is simple: If there is absolutely NO WAY you can pay your mortgage, then you apply. You apply knowing that this will likely only be a short-term fix, and you’ll have to take other steps later. But, for now, this is for you! Who should NOT apply for mortgage forbearance? Well, truth be told, if you can pull together your mortgage payment by making other short-term sacrifices, and without impacting your ability to feed your family, then you absolutely should keep paying your mortgage. There are too many negative impacts for you to do this if you do not absolutely need it.
One of the negative effects at play is that this WILL impact your credit. Jeff Novotny of George Mason Mortgage tells us, “Although credit agencies purport that entering into the Forbearance program due to Covid-19 hardships should not have a major impact on a person’s credit score, any individual or couple that opts into the forbearance program should be prepared to see a 50-100 point hit to their credit profile. The credit reporting bureaus don’t have systems that are sophisticated enough to sort the ‘forbearance’ missed payments from typical missed payments. This will undoubtedly affect the ability of someone that may need to borrower or apply for new credit moving forward.”
Perhaps of greatest importance is the fact that you will still owe these payments. You need to check with your mortgage servicer before making any decisions, but in most cases, you must catch up in full at the end of the forbearance period. Did you skip three $2000 payments? More likely than not, $8,000 will be due on month four. Brian Willingham of Citizens One Home Loans tells us, “The most important thing you need to do is to talk to your mortgage servicer.” Inquire about what kind of payback options are available to you. It is important, however, to not assume that these payments are getting “tacked” on the back of the loan. Ask what their guidelines are for offering this, and ask if making partial payments could be beneficial (if you are able).
In many cases, there are other options if you still have income. Refinancing your current loan will help you skip one or two payments, and will potentially put a little cash in your pocket (from your escrow refund). The housing market is still hot, so ask yourself: Do you need to sell to get your cash out and rent for a bit? Would love help and serve you in this process. Whatever your situation, we can connect you with the experts who can help you make excellent decisions for you and your family.
Please be careful out there, friends. Take your time, learn about your options, move slowly, and for goodness sake, wear your mask!
Interested in reading more about this? Try these resources.
Fannie Mae: https://www.fanniemae.com/portal/media/corporate-news/2020/covid-homeowner-assistance-options-7000.html
Freddie Mac: http://www.freddiemac.com/about/covid-19.html
How COVID-19 Payment Accommodations May Affect Your Credit: https://www.nytimes.com/aponline/2020/04/19/business/ap-nerdwallet-payment-accommodations-credit.html