Understanding that Forbearance is NOT Forgiveness
The Covid-19 Coronavirus has led to some challenging times for all of us.
The Government has created the CARES Act to assist homeowners whose income may have been adversely impacted by the coronavirus. One of the components of the CARES Act is the possibility of mortgage forbearance.
Forbearance is often misinterpreted. Many people are mistakenly thinking that forbearance equals forgiveness. It does not. This is truly intended as temporarily relief for those who need it most.
Forbearance means that the payments will be suspended for a short period of time, initially up to 6 months, but will need to be caught up when the forbearance period is over.
Think about when you buy something at a furniture store that offers “no payments” for 3 months. You still must pay for the furniture…the payments are just deferred.
There is absolutely no financial benefit by exercising forbearance, as you will either have to pay a lump sum, modify your loan, or owe the balance when you refinance or sell your home.
If you really need to exercise forbearance, you cannot just decide to stop making payments. You must notify your Mortgage Servicer and agree to the forbearance terms.
Here's a video directly from the Consumer Financial Protection Bureau educating home owners on the CARES Act and forbearance.
CARES Act Mortgage Forbearance: What You Need to Know— consumerfinance.gov
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5 Things Homeowners Need to Know About Forbearance and COVID-19
COVID19 is creating uncertainty everywhere. Here's a list of 5 things from the Association of Independent Mortgage Expert to help homeowners understanding what's going on.
1. Homeowners are Still Responsible for Mortgage Payments
A forbearance agreement only allows homeowners to temporarily suspend their mortgage payments, but once the forbearance period is over, all payments are due. This could prove difficult for borrowers who assume that payments will be pushed back, as opposed to temporarily suspended. Ultimately, they could be surprised when they find themselves responsible for multiple months of mortgage payments at once, as soon as the forbearance period is over, if loan modification or other repayment options have not been specifically arranged with the servicer in advance.
2. Borrowers May Have to Prove a COVID-19 Related Hardship
In order to apply for a forbearance agreement, homeowners may need to prove how COVID-19 impacted their ability to make mortgage payments. Homeowners should contact their servicer for more details on what should be provided.
3. Forbearance May be Granted for up to 180 days
It’s important to note that most servicers are offering forbearance agreements for 90 days initially, although the forbearance time period could be up to 180 days, depending on hardship circumstances. Some homeowners could also be eligible for an extension of up to another 180 day period if necessary – borrowers should contact their loan servicer for more information.
4. Foreclosures are Temporarily Halted
Foreclosures for federally-backed loans, including eligible loans held by Fannie Mae, Freddie Mac, FHA, VA, and USDA are temporarily halted. Some homeowners may not know if their loan servicer is federally-backed, so educating them on their type of loan is important. It is also critical for the homeowner to contact their loan servicer to discuss additional available options and the coordinating foreclosure halt time periods associated with them.
5. Applying for Forbearance May Not Impact Credit
As long as mortgage payments are made within the outlined time of the forbearance period, there will be no negative impact on credit history. However, homeowners who are only reacting to news headlines and assuming that all mortgage payments are delayed may see a negative impact on their credit if a forbearance period is not applied for and mortgage payments are missed. Additionally, there could be further credit implications on credit score and history that are unforeseen at this time. Because there is a lack of reporting from credit agencies about the potential impact of forbearances, homeowners should do everything they can to make their monthly mortgage payments as planned and only apply for a forbearance or deferment as a last resort.
Jon Lam
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Mortgage Forbearance is NOT Forgiveness
There's a lot of news out there about Mortgage Forbearance causing A LOT of confusion to homeowners. Many think their monthly mortgage payment will be forgiven if they do not pay. Is it true?
Here's some information courtesy of the Association of Independent Mortgage Brokers (AIME).
What is Forbearance?
The Consumer Financial Protection Bureau defines FORBEARANCE as a temporary suspension of payment on a loan, like a credit card, student loan or mortgage. Loan forbearance for homeowners in the age of Coronavirus is one of the tactics the federal government has proposed to ease the mounting economic pressures facing everyday Americans. However, it is important to note that a mortgage forbearance is not granted to all homeowners. Rather, it must be applied for through the loan servicer and evaluated on a case-by-case basis; and guidelines for federally-backed mortgages and privately-secured mortgages vary.
It is also important to note that loan forbearance, while it may sound helpful to consumers in the very short-term, can actually be financially challenging shortly thereafter. Forbearance is only a temporary pause on monthly mortgage payments and unless homeowners make individual arrangements with their servicer for loan modifications or repayment plans, the payments will all be owed at once when the forbearance period ends.
How a Forbearance Agreement Works
A forbearance agreement can vary from servicer to servicer, depending on if the loan is federally backed or not. Generally speaking, a typical forbearance agreement can look like this:
One of the difficulties with forbearance is the strain it can cause a homeowner once the forbearance period ends. Since this is a temporary option, it will only delay the monthly mortgage payments to a later date, causing a balloon payment to be due once the forbearance period is over, if the homeowner has not made other loan payment arrangements with the servicer. A homeowner in forbearance should only be utilizing that option because of financial hardship, so trying to pay a large sum that equates to multiple monthly payments at one time could be difficult or impossible.
Jon Lam
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Spring is approaching and keys weeks are ahead to help you maximize the sales price of your house. As you are thinking about selling your home and getting it ready to show potential home buyers, it’s good to know when it’s the best time to sale so you can earn the most money. A recent Zillow report tells us the following.
Up north in San Francisco, the best time list house for sale is Late April and earning homeowners a median premium of $18,100. For faster sales time, best time to list is early February. Late April for San Jose with $24,400 median premiums for those homeowners in Silicon Valley.
In southern California cities such as Los Angeles, Long Beach, Anaheim areas, the best time to list for the most money is late May. Many home sellers in these areas are seeing a median premium of $6,900 over their asking prices.
Heading further south to Riverside then San Diego, homeowners in those cities are seeing $2,400 and $8,100 median premiums when listing their house in early May and late March respectively.
Jon Lam
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Coronavirus – a new risk to the economy
The minutes from the Federal Reserve Jan. 28 – 29 meeting officially called coronavirus a “new risk” to the economy.
“The threat of the coronavirus, in addition to its human toll, had emerged as a new risk to the global growth outlook, which participants agreed warranted close watching,” the minutes said.
The Federal Reserve reiterated the current strategy with no plan to cut rates in 2020. Therefore they may reassess depending on market conditions.
The Federal Reserves does not directly control mortgage rates. Their decisions and comments can heavily influence bond investors who do. Additionally, rates may be impacted by daily unexpected events, some of which may be global. If an investor sees potential large-scale uncertainty such as the Coronavirus, they may put their money in bonds and accept a lower guaranteed yield instead of stocks, with lower mortgage rates as a result.
Almost 75,000 cases of Coronavirus have been reported and over 2,000 have died worldwide according to the World Health Organization. The main infected area is Hubei province, China. China as of today represents ~ 17% of the world’s GDP.
“The question for us really is: What will be the effects on the U.S. economy? Will they be persistent, will they be material?” Fed Chairman Jerome Powell said in congressional testimony last week. “We know that there will be some effects on the United States.”
What we know now is mortgage rates are at 3-year lows per Freddie Mac. It’s a great time to leverage low rates to increase purchasing power. It and excellent time for homeowners to refinance to a lower mortgage rate or cash-out refinance to pay off debt or get cash for home projects.
Jon Lam, Mortgage Broker
NMLS #1385176
Emory Financial - A Mortgage Brokerage Company
2920 Huntington Dr. Suite 100
San Marino, CA 91108
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Independent Mortgage Brokers in San Marino, CA
These days, it seems easy enough to apply online for a mortgage and get quotes to compare the best rates. Not so fast, as there are so many sites and options that it can make your head spin. Perhaps you have squeaky clean credit and are sure that your bank is the best option. Again, not so fast. And what if you don't have good credit? Perhaps it's best if you reach out to a mortgage broker San Marino residents depend upon to help them find the best rates.
While a mortgage broker has to offer is going to help you find the right lender, the same rules still apply. By that I mean you want to be sure that you get your pre-approval, and so you want to start with that first and ahead of time. What does your credit look like? You are going to want to be sure that you look at your credit report and identify any issues, working towards resolutions and building up your credit score.
That is one step towards connecting with the best mortgage broker and finding the right lender. It also helps for you to know the landscape of mortgage lending and what to expect. While you might not want to find all the lenders on your own to compare quotes, you certainly want to know what's out there. You want to know the current mortgage rates, too. Knowing as much as you can about the entire process sure isn't going to hurt. That's why we're here to help.
The Mortgage Process
When you do talk to a mortgage broker, he or she is going to help guide you through this process. The broker is going to help you compare the mortgage lenders that are out there and identify the best rates. They have tools and resources that you might not have. You can count on them to help you discover the best loan, possibly saving you a ton of money over the life of your mortgage.
Do be sure you ask all the necessary questions. You're depending upon a third party to help you find the right mortgage loan. While that's the case, this third party is extremely knowledgeable about the mortgage process and all it entails. The know the landscape of the mortgage industry, and they will help guide you to the best possible solutions. Let a broker take the driver's seat, and you go along for the ride. You're about to learn all kinds of things, and if you ever purchase another property, you might find yourself realizing that you don't want to even get started without a mortgage broker.
It's time to find out which broker you're going to network with. Just like with lenders, you have options. Check reputation, reviews and see which mortgage brokers are recommended in San Marino. You want to be provided with the best loan for your home when all is said and done. All things considered, you just need a reputable mortgage broker to help show you the way. Contact us today to get started on your journey to homeownership!
