CAUTION – Trouble Ahead?
The Pandemic surrounding us has sent shock waves into the lives of individuals and families worldwide. With so many deaths and the continuing illnesses almost everyone is scared, frustrated, and confused.
There are currently 26 MILLION Americans who have filed for unemployment. One in every six of us have lost our jobs. How do we cope?The debate of whether to reopen more retail businesses or remain at home is raging. When can people safely go back to work and earn a living?
To give some financial relief, mortgage loan servicers have been instructed to allow forbearance from monthly mortgage payments. Homeowners can ask for and receive delays in making those payments. Here is how Experian, one of the three major credit bureaus, describes forbearance (thanks Debra P):
“Loan forbearance—a short-term reduction or suspension of payments in response to a borrower's temporary hardship—can preserve household cash flow in times of economic difficulty. It can also have significant impacts on your credit history and credit scores.”
Did you read that last sentence? That is the part of forbearance NO ONE is discussing. When a loan payment is missed it is required that the loan servicer report that event to the credit bureaus. Late payments on a mortgage loan are much worse on credit scores than missing a payment on a vehicle or credit card.
In reading thousands of credit reports over the years, I have never seen a forbearance listing. Foreclosures, short sales, late payments are listed. Not forbearance. How will the policymakers handle this current crisis? Will they instruct loan servicers to not report forbearance files the same way? We cannot depend on that.
If you must ask for forbearance, do it. If it seems like a convenience during this time of stimulus checks, etc., I recommend avoiding that path for as long as possible. You do not want late mortgage payments to be reflected on your credit reports for years. Those listings will damage your ability to get the best deals on most everything you buy.
HINT: Fannie Mae and Freddie Mac who buy packaged loans from mortgage lenders are charging the lender from 5 – 7% of the loan amount to purchase loans in forbearance. That is far more than any profit made for originating, processing, underwriting, and closing the loan. Lenders are being forced to offer forbearance with no place to go for liquidity which they need to keep making loans.
My days are full of borrowers executing refinance or purchase transactions as interest rates are terrific. I took time for this article because of the gravity of making the wrong decision.
It is important to have a trusted guide when in the wilderness. I am that guide for your mortgage needs. Be safe, be mindful, be blessed. I am. NMLS #310445. An Equal Housing Lender.