As the days crawl by and we battle our way through COVID-19, those of us who are physically untouched can be thankful for our health. But at the same time we are all standing on a dangerous economic beach watching the sand recede between our toes.
The jobless rate is estimated to be the highest since the Great Depression, around 13% and rising rapidly. This impacts us all. Whether you are a salaried employee, hourly, independent contractor or small business owner, the chances are you are feeling the financial impact of temporary business closures and shelter-in-place orders.
For many homeowners, this becomes a game of choices; do I feed my family or pay the mortgage? Should I suck my savings dry or know that at least I have that money to put food on the table? Choices none of us thought we would be making in spring 2020.
Many banks have recently offered mortgage forbearance agreements, which sound pretty good up front. No payments for 90 days and no negative reporting to credit bureaus. However, read the fine print! Most forbearance agreements require that in the fourth month you resume your normal payment and pay the balance of all three missed payments! So basically you’re required to make four months worth of payments at one time. How is this even vaguely logical unless you win the lottery? If you can’t make a single monthly payment, how can you all of a sudden make four, even if you are back at work? At that point if you are unable to make the required payments you may receive a notice of default and the foreclosure timeline begins.
There are other options. Fannie Mae, Freddie Mac and FHA may offer alternative repayment options but again, read the fine print. Talk to your bank about options other than forbearance. Generally speaking, a deferment, repayment plan, or loan modification may be a better solution for you. A deferment adds missed payments to the end of the loan meaning that the term of your loan is extended. A repayment plan allows you to miss a certain number of payments and then repay that amount with larger payments over a period of time. And a modification may allow for reduced payments and extension of your loan term.
Many of us in the real estate and mortgage industries feel that it is incumbent upon congress to push for some type of standardized relief that offers solutions other than forbearance. Perhaps we need a variation on the Home Affordable modification program or simply a push for deferment. In any case, this is a real problem that is about to balloon in front of our eyes and none of us can afford another wave of foreclosures such as what we saw in the last housing crash.
If you are having trouble making your payments please call your lender and explore all your options, not just the one-size fits all forbearance plan. I am not a lending expert or a lawyer, but would be happy to provide my industry perspective if you have specific questions.
Stay safe my friends.