May 26, 2020
Orion’s brokers excel at making sure borrowers are taken care of, before, during, and after a loan closes. No one likes being confused, and lately there is a lot of confusing news about forbearance. Our brokers can clear that up!
The Cares Act, approved by Congress and signed by President Trump, allows borrowers to ask for an initial hold on their mortgage payments for up to 180 days. After that, borrowers can seek another 180-day break. Lenders aren’t allowed to add fees or extra interest, and forbearance doesn't hurt credit scores although there may be a notation on a credit report. (There are reports that even asking about forbearance creates a “Payment Deferred” notation.)
Some borrowers who are able to make their monthly payments have opted to take advantage of the forbearance option offered by lenders. It is truly a benefit for borrowers who can’t make the payment and, if not for forbearance, would lose their home. It is not a benefit for borrowers who can make their monthly payment because it will result in larger payments in the future, an extension of the payoff period, or both.
The press has contributed to this confusion by failing to clarify the forbearance process. Your clients probably sometimes confuse forbearance with forgiveness, and will ask you the difference. Unlike forgiveness, which is rare, forbearance doesn't wipe out any mortgage payments; it merely postpones them. Once the forbearance period ends, your client will have three options for making good on delayed payments:
A one-time lump-sum or "balloon" payment. This option is not recommended because of the obvious challenge it poses for homeowners going through financial difficulty. In other words, if your client misses three payments at $1,500 each, it is unlikely they will come up with $4,500 at the end of the forbearance period. A lump sum payment after the deferment period ends returns the payment and the payoff period to where they were before forbearance.
An extension added to the end of your client’s loan, amounting to the payments and interest they missed. It is an extension of the payoff period, and their monthly payment remains unchanged.
A plan that increases their monthly payment to pay off what is owed. Put another way, an increase in the monthly payment after the deferment period ends. The new payment goes to term.
It is important for your clients to remember that Congress’ forbearance plan only includes mortgages backed by the government. The Federal Housing Finance Agency (who oversees Freddie Mac and Fannie Mae) has announced that there is no penalty if borrowers want to refinance. If they're granted forbearance but continue to make their payments, they now have the ability to refinance their loans with no waiting. There's just a three-month wait to refinance or buy a new home after forbearance if your client had skipped paying on their mortgage but then make three consecutive payments.
But do you, or your borrowers, even know who “owns” the loan? You or your borrower can check on the websites of Freddie Mac (https://ww3.freddiemac.com/loanlookup/) or Fannie Mae (https://www.knowyouroptions.com/loanlookup). Or give your Orion AE a call, and they can quickly tell you about your options. Orion is here to help!