Be Careful with Forbearance

The mainstream press is filled with news about borrowers and renters not having to make their monthly payments, or pay their rent. Orion’s brokers need to remind clients that things aren’t always what they seem.

The Cares Act passed into law in order to help Americans, communities, and businesses cushion the blow from the impacts of the coronavirus. There was a provision in the bill that provides what is called “forbearance.” The forbearance provision allows any homeowner to skip six months of mortgage payments and six more if needed. The homeowner does not have to even prove that they lost their job or cannot make their mortgage payment. In the past forbearance has always historically been limited to only those that need it due to job loss or other unforeseen medical or other circumstances, called “proof of hardship”.

It is not a free ride. Fannie Mae and Freddie Mac currently will not purchase loans in forbearance. When the homeowner does not make their payment, the payments still have to be made to the mortgage investor who bought that loan. Principal and interest payments must be paid to the mortgage backed security (MBS) owner of that mortgage and property taxes still need to be paid to counties, and property insurance payments still must be paid. Forbearance simply shifts the burden of making these payments from the homeowner to the mortgage lender temporarily. When the borrower gets his/her job back, they will pay back the advances.

The nation’s collective financial services community is on alert. Hope for an economic recovery when your clients return to work is critical. The housing market will be slow to respond and this is an important part of the economy accounting for approximately 40 basis points of GDP. The good news is that Orion is well situated to move forward and continue to focus on satisfying our brokers and your clients. If you have questions, talk to your Orion AE! There are uncharted waters ahead, and we’re here to help you.

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