Payment Deferral Will Be an Option to Repay Mortgage Forbearance

Last updated on June 23rd, 2020

The Federal Housing Finance Agency (FHFA) announced today that Fannie Mae and Freddie Mac have launched a new payment deferral option in light of the unprecedented disruption caused by the coronavirus.

The new workout option, known as “COVID-19 payment deferral,” was specifically designed by Fannie Mae and Freddie Mac to help those affected by a temporary hardship related to COVID-19.

The goal is to help borrowers in a simple and straightforward manner achieve current loan status after up to 12 months of missed mortgage payments.

How COVID-19 Payment Deferral Works

  • The delinquent amount is moved into a non-interest bearing balance
  • No payments are made toward this balance and mortgage remains otherwise changed
  • It is due at maturity or earlier if mortgage is refinanced or home sold
  • No trial period is necessary and runs through automated process to expedite

The way payment deferral works is pretty simple, which is the entire point of offering it.

Say a borrower missed 12 mortgage payments that were $2,000 each. That $24,000 would be set aside in a non-interest bearing account.

It would not need to be paid down or touched at all until the homeowner either refinanced their mortgage, sold their home, or otherwise reached maturity based on the original loan term.

The borrower’s original mortgage would remain unchanged otherwise, meaning they’d resume making the $2,000 monthly payment they were accustomed to making before COVID-19 disrupted their income.

This would make getting back on track very straightforward, and hopefully doable for most homeowners, assuming they are re-employed or find new work.

Eligibility for a COVID-19 Payment Deferral

  • Borrower must be on a COVID-19 related forbearance plan and unable to reinstate loan in full
  • Borrower must have a hardship resulting from COVID-19 such as illness, unemployment, or reduced income
  • Loan servicer must determine delinquency was temporary and borrower has ability to repay mortgage
  • Must confirm borrower has resolved hardship and is committed to resolve the delinquency
  • Loan must have been current or less than 31 days delinquent as of March 1, 2020

In order to be eligible for the COVID-19 Payment Deferral option, you must be in a COVID-19 related forbearance plan and able to resume regular mortgage payments.

This includes forbearance plans such as the one offered under the CARES Act, along with proprietary plans offered by individual banks, assuming Fannie or Freddie own your mortgage.

At the same time, you must be unable to fully reinstate your mortgage at the end of the forbearance period or unable to afford a repayment plan.

Additionally, the hardship has to be a result of COVID-19, not for some unrelated reason. To that end, the mortgage should have been current or no more than 31 days late as of March 1st, 2020, before this all began.

It should also be 31 or more days (one month) delinquent but less than or equal to 360 days (12 months) delinquent as of the date of payment deferral evaluation.

The loan servicer will achieve a so-called “Quality Right Party Contact,” or QRPC, in which they determine the reason for delinquency and whether it’s temporary or permanent.

This includes determining if the borrower has the ability to repay the mortgage debt, educating the borrower on workout options, and obtaining a commitment from the borrower to resolve the delinquency.

Lastly, the servicer must confirm that the borrower has resolved the hardship, though they are not required to obtain documentation of the borrower’s hardship.

The servicer must complete the COVID-19 payment deferral in the same month in which borrower eligibility is determined, though they will be granted a processing month.

So if your mortgage is 12 months delinquent as of the date of evaluation, you must make your full monthly mortgage payment during the processing month in order to receive the payment deferral.

Note that while loan servicers may report the status of payment deferral to the credit bureaus, they cannot charge the borrower administrative fees, late fees, penalties, or similar charges.

This means it shouldn’t count against you, though I did discuss the idea of forbearance preventing you from getting another mortgage.

Those who are unable to resume mortgage payments will be evaluated for other options, such as a Flex Modification that lowers payments via interest rate and/or loan term adjustments.

Overall, this confirms what we knew was coming and is excellent news for homeowners in forbearance plans.

It means they can continue making regular mortgage payments if affordable, as opposed to being forced to pay a lump sum or go on a repayment plan.

And the missed payments won’t be due until they refinance, sell their home, or the loan term ends.

The bad news is this might cause even more homeowners to opt for mortgage forbearance.

If you have an FHA loan and requested forbearance, they have a similar offering known as a “COVID-19 Standalone Partial Claim,” which is also a no-interest, junior lien that requires no payments and isn’t due until payoff, sale of your property, or when refinancing.

Those with VA loans are allowed to defer any missed payments and pay them at the end of the loan term along with the final payment.

Additionally, the VA requires any forborne payments to be non-interest bearing, meaning you won’t be penalized for doing so.

You may also be given the option to pay toward that deferred amount over time via a repayment plan or request a loan modification if unable to resume regular payments.

Read more: There Will Be a 3-Month Waiting Period to Get a Mortgage After Forbearance


7 Ways to Slay Your Fear of the Stock Market

Confident investor
Photo by Viktoriia Hnatiuk /

“No way, son. I worked hard for that money. I’m not about to gamble it away in the stock market.”

That was my dad, a child of the Great Depression and someone who, understandably, was reluctant to do anything with his money that didn’t involve either an insured CD or a T-bill backed by Uncle Sam.

Sound familiar? Maybe you know someone like him. Maybe it’s even you.

Humorist Will Rogers famously said, “I am more concerned with the return of my money than the return on my money.” Good logic, especially as one ages and becomes unable to rebuild a nest egg. But for anyone still working, sticking your neck out — even by a little — can make the difference between living large and barely scraping by when those golden years roll around.

Invest $400 a month for 40 years and earn 2% annually, and you’ll end up with around $300,000. Jack that rate of return to 10%, and you’ll have more than $2 million.

Think those extra dollars will make a difference in how, when and where you retire?

Of course, the only possible way to earn 10% on your savings is to take some risk by investing in things that might not work out.

While these types of earnings comparisons may be compelling, they’re probably old news to those unwilling to consider investing in real estate, stocks or other risk assets. So here’s another approach: a list of rules designed to help anyone minimize the fear of doing just about anything.

From investing in stocks to skydiving to asking someone out on a date, fear is not your friend. Here are seven universal principles that will help you keep it to a minimum.

1. Understand what you’re doing

If you’re going to invest in stocks, invest your time before investing a dime. Talk to people you know who have more experience. Learn what makes markets, and stocks, move up and down. Studying history will help you understand and predict the future.

So will understanding the rules of the game. And one rule of this game is that stocks will go down as well as up.

There’s an inverse relationship between knowledge and fear. The more you have of the former, the less you’ll have of the latter.

2. Understand why you’re doing it

With conviction comes courage.

When it comes to investing, you’ll be most effective when you accept that investing in the shares of great American companies has historically been a very smart thing to do, especially over long periods of time. And investing when others are running for the hills has proven smarter still.

You know the stock market is riskier than insured bank accounts, so it follows that if it didn’t return more than insured bank accounts over time, it wouldn’t exist. Thus, I’m convinced a part of my savings belongs in stocks, not despite the risks involved, but because of the risk involved.

The Standard & Poor’s 500 index, a stock market index designed to mirror the returns of 500 big U.S. companies, has averaged an annual return of about 10% since its inception in 1928.

3. Don’t overdo it

If you want to scare yourself to death:

  • Invest money you’ll soon need.
  • Invest more than makes you comfortable.
  • Or put your money in silly, speculative stocks that are more like gambling than investing.

Staring at the ceiling at night? This is why.

When it comes to investing in risk assets, you must never invest money you’ll need within five years, and never invest everything you have. One rule of thumb I’ve been advocating for decades is to subtract your age from 100, then put the difference as a percentage of your money in stocks. So if you’re 20, you can invest up to 80% in stocks. If you’re 80, 20%. If you’re nervous, invest less. It’s just a rule of thumb.

4. Plan for pain

It would be great if your stock portfolio, your house and every other asset you have went up in value each and every month. Unfortunately, that’s not the way it goes. But if you can accept that the potential upside of bull markets outweighs the potential downside of bear markets, it’s easier to stick with the program when times get tough.

I have a significant proportion of my net worth in stocks, so I know how it feels when things go south. But the decades I’ve spent as an investor taught me to expect the bad with the good. When stocks have been rising for long periods of time and become overvalued — and are thus likely to go down (like now) — I don’t adjust my portfolio, I adjust my expectations. Expecting a decline means that, when it comes, I’ll be prepared instead of panicked.

5. Listen to your voice, not everyone else’s

When it comes to investments, romantic relationships and lots of other decisions in life, develop your own voice and listen to it. If you like short people, date them. If you like stocks, buy them. If you want to live in Ecuador, move there.

People trying to steer you in one direction or another often aren’t as smart as you think they are, don’t know you as well as they think they do and may have personal agendas that don’t align with yours.

6. Consider the risk of not taking a risk

For the first few decades I invested in stocks, I mostly stood on the sidelines when times were bad, too afraid to make a move. Finally, however, experience taught me that when times are bad and everyone’s afraid, it isn’t the time to freeze. Instead, it’s the time to act.

When both the real estate and stock market tanked in the recent Great Recession, I invested a chunk of my savings in quality stocks and also bought a rental house.

Those two decisions, while scary at the time, have substantially increased my net worth today.

While there’s always a risk of losing money by investing in stocks, real estate or anything else that fluctuates in value, there’s also a risk in not doing so. As pointed out above, you’re unlikely to retire rich, or even adequately funded, if you earn an average income and are willing only to invest in guaranteed rates of return.

You can’t get a hit from the dugout.

7. Think long term

If you’re trying to invest short term, you might as well head to Vegas, where you can at least drink for free.

When I bought General Electric, JPMorgan, ConocoPhillips and other signature stocks back in 2009, I didn’t expect them to go up right away. But because these are some of the biggest companies on the planet, I knew they wouldn’t go bankrupt and assumed that sometime before I died they’d come back. In fact, had the market continued to tank and these stocks continued to fall, I was fully prepared to buy more.

If you combine quality with patience, it will almost certainly pay off sooner or later. I have no idea whether the market will go up, down or sideways tomorrow. It’s the flip of a coin. But I’d give 90% odds it will be higher 10 or 20 years from now.

The longer your time horizon, the higher the probability you’ll be successful.

About me

I founded Money Talks News in 1991. I’ve earned a CPA and have also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate. If you like what you read here, sign up for our free newsletter.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.


The Federal Reserve Has Swooped In to Save Mortgage Rates

Last updated on March 24th, 2020

In light of the ongoing coronavirus outbreak, which were the Federal Reserve’s very own words, the Committee took bold action to lower the target range for the federal funds rate to 0% to 0.25%.

That’s a full percentage point lower than the 1% to 1.25% it had been previously. And comes on top of the half-point cut executed just over two weeks ago.

As such, the prime rate has fallen from 4.75% to 3.25%. The prime rate directly affects consumers via things like credit card interest rates and home equity lines of credit (HELOC)s because they’re typically tied to that index.

For homeowners with HELOCs, their interest rates will adjust down 1.50%, which will provide meaningful monthly payment relief.

But what about first-lien mortgage rates, which hit record lows a couple weeks ago, then shot back higher once the market was flooded with mortgage-backed securities (MBS).

Well, the Fed also addressed that issue by effectively starting a new round of quantitative easing, which will probably be known as “QE4.”

Fed Pledges to Buy Agency MBS to Lower Mortgage Rates (QE4)

  • Fed said coronavirus outbreak has hurt communities and disrupted economic activity in the United States
  • To promote maximum employment and price stability it has lowered federal funds rate to 0% to 0.25% range
  • Also announced it will increase its holdings of Treasury securities by at least $500 billion and holdings of agency mortgage-backed securities by at least $200 billion
  • This will lead to lower mortgage rates for homeowners

The federal funds rate doesn’t directly affect consumer mortgage rates, you aren’t getting a 0% mortgage rate.

However, the Fed’s emergency announcement to buy agency MBS does.

First, here’s what they’re doing to combat a recession and ease global markets:

“To support the smooth functioning of markets for Treasury securities and agency mortgage-backed securities that are central to the flow of credit to households and businesses, over coming months the Committee will increase its holdings of Treasury securities by at least $500 billion and its holdings of agency mortgage-backed securities by at least $200 billion,” the FOMC statement read.

“The Committee will also reinvest all principal payments from the Federal Reserve’s holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities.

In short, the Fed has come to the rescue of the mortgage market, which didn’t seem like it needed rescuing until excessive mortgage demand worked against consumers.

Because there was a flood of mortgage applications, and not enough demand from investors of mortgage-backed securities, lenders were basically forced to raise mortgage rates to limit supply.

But now that the Fed has pledged to purchase at least $200 billion in agency MBS, and reinvest payments into agency MBS, lenders shouldn’t have trouble fetching a higher price for the home loans they sell.

As such, they’ll be able to decrease mortgage rates and perhaps we’ll see those record lows again.

How Low Will Mortgage Rates Go with QE4 in Place?

  • 30-year fixed mortgage rates were averaging around 3.75%-4% before the news hit
  • When the Fed launched QE3 in September 2012 it led to record low mortgage rates
  • At that time the 30-year fixed fell from around 3.55% to 3.31%
  • Expect mortgage rates to return to the low 3s and perhaps to new all-time lows over time

So we know mortgage lenders (and homeowners) are going to see some relief from QE4. The next logical question is how much will mortgage rates actually fall.

As noted, interest rates were suppressed by an oversupply, but now that a whale of a buyer has pledged to buy hundreds of billions in MBS, we should see interest rates fall again.

That’s great news for consumers, namely those looking to refinance mortgages or purchase a new home.

The bad news is mortgage rates jumped more than half a percentage point last week as a result of the oversupply, and thus might not hit those all-time lows again. And even if they do, it could take some time to do so.

When the Fed launched QE3 back in September 2012, the 30-year fixed averaged roughly 3.55%. During the weeks and months that followed, rates fell about 25 basis points.

In fact, the prior record low for the 30-year fixed was 3.31%, recorded during the week ended November 21st, 2012.

We’re in similar territory now, with mortgage rates pretty close to those September 2012 levels.

So we might see rates move in familiar fashion, from around 3.75% to 3.375% and on down to 3.25% if all goes according to plan.

Whether they hit 3% or even dip into the high 2s remains to be seen, but given the Fed’s pledge to buy billions in MBS, coupled with the 10-year bond yield below 1%, it’s certainly possible.

I just wouldn’t expect lenders to go too crazy in lowering rates at the moment, given they still have a ton of demand and lots of applications in their pipelines to process.

Still, it’s huge news because it means lenders have certainty now to originate ultra-cheap mortgages without fear of being stuck holding the bag.

But it might take some time for rates to trickle down and reach record lows again. Again, hang tight here, as I mentioned before.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for nearly 15 years.


Will Forbearance Prevent You from Getting a Mortgage in the Future?

Last updated on May 19th, 2020

Since the CARES Act rolled out in early April, more than four million Americans have reportedly put their mortgage payments on hold for up to 12 months.

The massive numbers taking part can be attributed to the widespread fallout from the coronavirus epidemic (COVID-19), and also the ease at which a homeowner can request assistance, with not much more than a letter or simple request to their loan servicer without proof.

It’s expected that many more borrowers will request mortgage forbearance in the month of May and beyond, as evidenced by a recent survey from Bankrate.

Update: There Will Be a 3-Month Waiting Period to Get a Mortgage After Forbearance

Need Help, But Not Yet Asking for It

need help

Apparently, many Americans are concerned about making mortgage payments in light of possible job losses or income curtailments, but most haven’t reached out for help yet.

Some 70% of Millennials said they were concerned about their ability to make mortgage payments over the next three months, but only 60% said they have contacted their lender.

Meanwhile, 56% of Gen Xers are concerned, but a mere 29% have reached out to their lender or loan servicer.

It’s even worse for Baby Boomers, with 43% concerned, and only 17% asking for help.

As to why, some said they didn’t know it was an option, or simply haven’t gotten around to it, or are waiting for lenders to reach out to them (good luck!)

Others cited unspecified reasons or said they came up with their own solution.

For me, this proves that homeowners are reticent to ask for help, possibly because they think it’ll count against them somehow, even though mortgage forbearance isn’t supposed to harm credit scores or result in delinquencies.

Mortgage Lenders Will Know You Requested Forbearance

  • Lenders told not to report loans in forbearance as delinquent to credit bureaus
  • But loan servicers and lenders are still flagging accounts on credit reports
  • Will these borrowers be considered “late” once the forbearance ends?
  • Could presence of forbearance on credit reports prevent borrowers from getting another mortgage?

My initial thoughts are it shouldn’t count against you, but that’s not always how it works, especially if a private company plays by its own rules.

After housing blew up a decade ago, the Home Affordable Modification Program (HAMP) and Home Affordable Refinance Program (HARP) were rolled out to help struggling homeowners.

While these initiatives provided relatively immediate relief to homeowners, they also resulted in various waiting periods to get subsequent mortgages.

So a homeowner who opted to receive assistance may have had to wait a year or two to get another mortgage.

These waiting periods were even longer (up to four years) if the borrower received a principal reduction that resulted in them owing less than originally agreed.

But shorter if there were extenuating circumstances, of which there will be for just about everyone this time around.

The question is will they use the past as a model for the future? Things were a bit different back then because there was perhaps some borrower fault, and basically none today.

While you could argue that all homeowners should have reserves saved up for moments like these, they often aren’t required by Fannie Mae, Freddie Mac, the VA, or the FHA.

So you can’t really blame a homeowner impacted by an unforeseen virus to continue making mortgage payments. Nor can you blame them for accepting the assistance you’re offering.

In other words, I can’t see Fannie, Freddie, the FHA, or the VA disallowing a mortgage refinance or a new purchase loan if they extended the forbearance in the first place.

In the case of a refinance, mortgage lenders (or the investors) would presumably receive the missed payment amounts via the payoff to make them whole.

Will Mortgage Forbearance Count Against You?

  • Just because your mortgage isn’t late doesn’t mean it won’t hurt you
  • Lenders may impose waiting periods for borrowers post-forbearance
  • They will likely scrutinize loan files if you requested forbearance in the past
  • It will be key to show them the event is behind you if you want another mortgage

Sure, you’re not technically behind on the mortgage, per the CARES Act and other forbearance programs, but lenders will know that you entered into a mortgage forbearance plan. It’ll be noted on your credit report.

While it might not be a formal delinquency or late mortgage payment, it’ll be visible to creditors when you apply for a new credit card, auto loan, or a mortgage.

It’s a notable event from a credit perspective, and thus will be shared, though it shouldn’t officially count against you.

In other words, its presence doesn’t necessarily mean you won’t be able to refinance or get another mortgage on a different property, especially if it wasn’t your fault.

However, you’re going to have to qualify for the mortgage, like you usually would in normal times.

That might be the dividing line, not so much a waiting period or a flat-out denial just because you took advantage of widespread mortgage forbearance.

Note that guidelines will vary by bank, especially if it’s a jumbo loan or portfolio loan that isn’t backed by Fannie Mae or Freddie Mac, or a government agency like the FHA or VA.

Regardless, it’ll be very important to stay current on mortgage payments post-forbearance. The same goes for any other accounts that show up on your credit report.

An underwriter will dig into your financials to determine this to ensure it’s an isolated incident and really behind you.

Ultimately, it might hinge on the borrower showing that they are back on their feet and that it was a blip related to COVID-19 and not due to their own personal financial missteps or issues.

Like those loan mods in the past, it’ll be crucial that the borrower make on-time payments once forbearance ends to ensure they qualify for a new mortgage without further delays.

Those who still need assistance post-forbearance, via a loan modification or further forbearance, will likely have trouble qualifying for another mortgage.

But that’s pretty obvious – if you can’t pay your existing home loan, why would a lender give you another one?

Read more: Will home prices go up or down due to COVID-19?


Fannie Mae and Freddie Mac Agree to Buy Mortgages in Forbearance

Posted on April 22nd, 2020

While the CARES Act has allowed millions of homeowners nationwide to put their mortgage payments on hold, doing so has left lots of questions for mortgage lenders.

One being how they’d continue to pay investors while the loans they service were in forbearance. The FHFA clarified that piece yesterday by agreeing to only hold servicers to the first four missed payments.

But how do they originate new loans if borrowers turn around and stop paying right away? Will lenders be punished, even if they had no idea these homeowners would immediately request forbearance?

Fannie and Freddie Will Temporarily Buy/Securitize Loans in Forbearance

  • Lenders can now sell or securitize their new mortgages even if in forbearance
  • This is a temporary policy aimed at keeping the mortgage market liquid
  • Loans must still meet the general requirements of Fannie Mae and Freddie Mac
  • Eligible loans will be priced to mitigate the heightened risk of loss to the GSEs

To alleviate some of that concern, both Fannie Mae and Freddie Mac (the GSEs) have announced a temporary policy to purchase mortgages actively in forbearance plans, counter to their long-held position.

Typically, mortgage loans that are either delinquent or in forbearance are ineligible for delivery under Fannie/Freddie requirements.

However, things are far from typical at the moment thanks to the coronavirus (COVID-19).

In short, some borrowers have sought mortgage forbearance just after closing on their loan, before the lender could actually deliver it to the GSEs.

This put lenders in a bad spot if they wound up stuck with the loan, and unable to unload it, thereby putting their liquidity at risk.

Today’s action removes “that restriction for a limited period of time and only for mortgages meeting certain eligibility criteria.”

For eligible loans that can be purchased by the pair, they will “be priced to mitigate the heightened risk of loss” to the GSEs.

Which Loans Are Eligible?

  • Home purchase loans and rate and term refinances only
  • No cash out refinances may be delivered while in forbearance
  • Reason for forbearance must be directly/indirectly related to COVID-19
  • Loans must not be more than 30 days delinquent with note date on/after February 1st, 2020

It should be noted that not all mortgages are eligible for this new, temporary benefit.

First off, this relief is only limited to home purchase loans and rate and term refinances. No cash out refinances are permitted.

Additionally, the note date must be on or after February 1st, 2020 for May 1st delivery to the GSEs.

The loan must also not be more than 30 days delinquent at the time of sale or securitization to Fannie/Freddie.

Perhaps most important, the forbearance must be related to COVID-19, either directly or indirectly.

It shouldn’t be for some other reason, though at the moment this appears to be the one and only reason anyone is requesting forbearance.

For the record, Fannie and Freddie are also tacking on hefty loan-level pricing adjustments (LLPAs) as follows:

– 500 basis points (5.000%) for loans where any borrower is a first-time homebuyer
– 700 basis points (7.000%) for all other loans

Expect this cost to be passed onto consumers, either via a higher mortgage rate or increased discount points due at closing.

Since cash out refinances aren’t eligible, those may be even more expensive for the time being relative to purchase loans and rate and term refis.

Fannie has also warned loan servicers to “not in any way discourage borrowers from contacting them or encourage borrowers to delay notifying them either before or after the note date if they are experiencing a COVID-19 related financial hardship.”

In other words, don’t tell them to hold off on the forbearance request so they can sell off their loans first without issue.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for nearly 15 years.


Loan Servicers Accused of Providing Unclear and Dated Mortgage Forbearance Information

Posted on April 30th, 2020

While some have complained that the mortgage forbearance program under the CARES Act is far too liberal, a new report claims some loan servicers aren’t being very transparent about the assistance available to homeowners.

A new report from the U.S. Department of Housing and Urban Development (HUD) Office of Inspector General (OIG) found that some loan servicers’ websites are displaying loan forbearance information that is “incomplete, inconsistent, dated, and unclear.”

Are Loan Servicers Trying to Discourage Forbearance?

  • The CARES Act requires loan servicers to provide mortgage forbearance for up to 360 days on federally-backed loans
  • That includes an initial 180 days and an additional 180-day extension if needed
  • Borrowers are not required to pay it all back in one lump sum
  • But there’s a lot of misinformation out there, even on loan servicers’ websites

The CARES Act allows homeowners to request forbearance for 180 days, followed by an additional 180 days if need be.

Effectively, borrowers can put 12 mortgage payments on hold while they deal with financial disruptions directly or indirectly related to the coronavirus epidemic (COVID-19).

Additionally, not much is needed from the homeowner other than a request for forbearance via a letter or perhaps a phone call, with no proof of hardship actually required.

This has led to an outcry from some pundits who believe it’s too easy to get mortgage assistance, even if you really haven’t experienced a decline in income at all.

But the HUD OIG’s report claims some loan servicers aren’t doing a great job conveying the details of mortgage forbearance, which could put some homeowners in a bad spot.

Simply put, if they’re being told they don’t qualify, or that they need to pay it all back in one lump sum, they may opt to avoid forbearance entirely.

While the numbers released thus far show a large number of Americans have already requested forbearance, it could in fact be a lot higher if information were clearer.

Of course, that could also lead to the collapse of some loan servicers that aren’t well capitalized and able to withstand so many advances of missed payments.

You can give the servicers a break in that this was a fast-moving situation with a flurry of announcements regarding mortgage assistance from mayors, governors, and other entities.

But some of the findings in the report are a bit troubling.

Study Found Lots of Inconsistent and Perhaps Misleading Forbearance Information

  • 10 loan servicers didn’t have information about mortgage forbearance “readily available on their websites”
  • 6 loan servicers listed 90 days as the initial forbearance period despite it being 180 days
  • One servicer didn’t even mention forbearance as an option, instead offering a refinance or short sale
  • Several servicers gave impression lump sum payment would be required at end of forbearance period

The HUD OIG report focused on the top FHA servicers as of April 1st, 2020 and found the 30 top servicers accounted for 90.5% of all FHA loans.

Of these companies, they concluded that 10 of them didn’t have information about mortgage forbearance “readily available on their websites.”

And many required the borrower to sign-in or call to learn about their options if unable to pay the mortgage.

Another servicer didn’t even mention forbearance as a solution, but rather listed “refinancing or a short sale” as available options at the moment.

With regard to how long forbearance is available, the report dinged servicers for rounding up the 180 days to six months, and the 360 days to 12 months, which I feel is ticky-tack.

I do the same thing when speaking of forbearance because it makes sense to speak in months, but I guess we’re talking about the government here.

However, 14 servicers didn’t provide information on the duration of the initial forbearance period on their websites, and one offered an initial forbearance period of 90 days, highlighting the “up to 180 days” text in the CARES Act.

They apparently didn’t want to “overestimate the duration of the borrower’s financial hardship,” which could also be construed as misleading.

To make matters worse, some of these loan servicers coupled that interpretation with lump sum repayment examples on their websites.

And while some did say borrowers had options other than lump sum payments at the end of the forbearance period, “such information typically came later than the statements about the need for borrowers to pay missed payments in a lump sum.”

In other words, one could argue that some servicers might be attempting to talk people out of requesting forbearance, even if they badly need it.

Because ultimately it puts stress on the servicer, so it’s not in their best interest to dole it out willy-nilly.

As a result of these findings, “HUD OIG plans to initiate additional work related to forbearance offered by FHA servicers under the CARES Act.”

It’s unclear what that work is, but remember this, you’ve got the option of forbearance for up to 360 days if you have a federally-backed home loan, and it doesn’t need to be paid back in full once that period comes to an end.

Read more: How does mortgage forbearance get paid back?

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for nearly 15 years.


Could a Cash Out Refinance Be a Better Solution Than Mortgage Forbearance?

Posted on April 16th, 2020

The current solution for those struggling to make mortgage payments due to COVID-19 is mortgage forbearance.

It allows homeowners to “pause” mortgage payments for anywhere from six to 12 months while their income is reduced or completely nonexistent.

Once it comes to an end, the homeowner must repay the missed payments, either by making a lump sum payment or getting on some kind of repayment plan.

But what about instead of forbearance, the borrower simply executed a cash out refinance and used the proceeds to cover expenses until they got back on track?

This is an interesting idea floated by Urban Institute VP Laurie Goodman and Brookings fellow Aaron Klein.

While taking on more debt doesn’t sound like the most sensible plan when you already can’t make ends meet, homeowners are currently sitting on a mountain of home equity.

During the previous housing crisis, a streamlined refinance program called the Home Affordable Refinance Program (HARP) was implemented to lower monthly mortgage payments for roughly 3.4 million Americans.

It allowed homeowners to refinance even if they didn’t have sufficient equity in their home, or in most cases, negative equity. And they could do so with limited documentation and no home appraisal.

The argument was that it didn’t increase risk to Fannie Mae and Freddie Mac because these homeowners wound up with lower monthly payments, even if they didn’t traditionally qualify for a mortgage refinance.

Homeowners Don’t Have Cash, But They’ve Got Equity

housing market value

Today, we face a different challenge – homeowners don’t have cash on hand to make mortgage payments while their employment is disrupted by the coronavirus epidemic.

However, many homeowners have a ton of home equity, perhaps hundreds of thousands of dollars of it.

Collectively, there’s apparently $19.7 trillion in home equity and $11.1 trillion in household debt (mortgages).

Some $6.88 trillion of that is agency debt, backed by Fannie Mae, Freddie Mac, or Ginnie Mae, which covers FHA loans, VA loans, and USDA loans.

If homeowners could somehow tap into it, and obtain a near record low mortgage rate at the same time, it could be viewed as a win-win.

After all, borrowing cash with an interest rate around 3% on a 30-year term is a pretty good deal, and one that is hard to beat elsewhere.

Goodman and Klein say one of the best ways to stimulate the economy is via refinancing, but point out that there are roadblocks currently in place.

“What is the purpose of the Fed lowering short term rates to zero and buying hundreds of billions of mortgages to lower mortgage interest rates if people cannot functionally access a mortgage?”

A Streamlined Cash Out Refinance Program?

  • Could Fannie and Freddie make it easier to get a cash out refinance
  • By waiving appraisal requirements and reducing documentation requests
  • Might be a better alternative to forbearance for borrowers and loan servicers
  • Default risk would be mitigated if LTV is 80% or less

The researchers have floated the idea of a more lenient cash out mortgage environment, by applying some of the same benefits currently available to rate and term refinances.

This includes appraisal waivers, which are hugely important right now with many homeowners and appraisers told to shelter at home and maintain social distancing.

They do note that a cash out refinance increases risk to the GSEs, but call it “marginal” since the max loan-to-value (LTV) ratio is 80%.

That leaves a healthy cushion of at least 20% in home equity should the borrower default on the mortgage in the future, or be forced to sell the property.

The pair have also called for the expansion of these appraisal waivers to cover all GSE to GSE refinancings, including cross GSE (Fannie to Freddie and Freddie to Fannie) transactions.

“Allowing for more cash out refinancings will allow households to tap into the $19.7 trillion of existing home equity to better weather this economic maelstrom, thereby resulting in fewer people falling behind on their mortgage, and reducing forbearances.”

If they’re able to reduce forbearance requests, it will also help banks and perhaps more importantly, nonbanks, survive the crisis without needing some sort of liquidity backstop.

They also warn that it’s “important to act quickly” because once a borrower receives forbearance they’re no longer eligible for a mortgage refinance.

“Many borrowers may see a cash out refinance, with the opportunity to tap into wealth while locking in the lowest rates in several generations, as preferable to forbearance.”

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for nearly 15 years.


Home Equity Could Prevent Flood of Forbearance-Related Foreclosures

Last updated on June 23rd, 2020

The latest Mortgage Monitor report from Black Knight reveals that many homeowners in forbearance plans are sitting on a healthy amount of home equity, meaning if they’re forced to sell banks may not lose out.

Per the data analytics company, fewer than one in 10 homeowners (9%) in forbearance have 10% or less home equity in their property, which the company believes is “typically enough to cover the costs of selling the property.”

Additionally, just one percent of homeowners in forbearance are currently underwater on their mortgages, surely a bad sign if they stop making monthly payments too.

Overall, 80% of the 4.76 million homeowners in active forbearance plans have 20% or more equity in their homes, meaning they’ve got options and loan servicers do too.

This should reduce the number of foreclosures that hit the housing market and also keep default-related losses in check, a good sign for the housing market and the borrowers at risk of losing their homes.

Home Equity the Difference This Time Around

forbearance payment status

  • 4.76 million homeowners in active forbearance as of May 26th
  • 46% of homeowners in forbearance made their April mortgage payment as of April 30th
  • 22% of those in forbearance have made their May payments as of May 26th
  • Forbearance volume declined for the first time since the COVID-19 pandemic began

The last mortgage crisis was marked by toxic mortgages and a lack of home equity, a one-two punch that sent to the housing market to its knees. Or whatever’s worse than that.

Today, homeowners are flush with equity, thanks to years of home price appreciation and an abundance of boring old fixed-rate mortgages that do nothing but pay down the outstanding principal balance.

At the same time, home equity extraction has been uncommon, with cash out refinance volume a fraction of what it was leading up the crisis in the early 2000s.

forbearance by LTV

This puts borrowers in a much better position, along with loan servicers, and means the housing inventory shortage likely won’t see any relief due to COVID-19-related foreclosures.

While nearly five million American homeowners have paused mortgage payments, most will likely retain their properties through the crisis because only 446,000 have combined loan-to-value (CLTV) ratios of 90% or higher.

That could keep home prices elevated as fewer properties hit the market amid an ongoing supply shortage.

Borrowers with FHA and VA Loans the Most Equity Poor

forbearance loan type LTV

  • FHA/VA loans only make up about one-third of all active forbearances
  • But 19% of FHA/VA loans in forbearance (285k) have less than 10% equity
  • This represents nearly two-thirds of all low-equity loans in forbearance
  • Just 6% of GSE and 5% of portfolio loans in forbearance have less than 10% equity

Before we get too optimistic here, there’s one segment of the mortgage population that isn’t in as good of shape.

I’m referring to the holders of FHA loans and VA loans, which have continued to exhibit the highest rate of forbearance among homeowners.

To make matters worse, some 19% of such homeowners hold 10% or less equity in their homes, which could be a problem if they’re unable to resume regular mortgage payments.

This is of particular concern to lenders that originate FHA loans seeing that the agency just released guidance about mortgages in forbearance, which puts them on the hook for 20% of the original loan amount if the borrower forecloses within two years.

It also speaks to the issue of offering low-down payment mortgages to borrowers with equally low FICO scores.

Yes, Fannie Mae and Freddie Mac offer mortgages with just 3% down versus 3.5% with the FHA, but they require a 620 FICO score vs. a 580 FICO with the FHA. And the VA doesn’t even require a down payment.

While access to credit is key, there needs to be a balancing of risk as well to avoid another housing crisis.

Lastly, Black Knight noted that with 30-year fixed mortgage rates at 3.15%, roughly 14 million homeowners could save at least 0.75% on their current interest rate via a mortgage refinance.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for nearly 15 years.


46% of Homeowners in Forbearance Plans Still Made Their Mortgage Payments

Posted on May 22nd, 2020

Another interesting trend has emerged from the latest mortgage forbearance data, this time courtesy of a new report from data analytics company Black Knight.

Nearly 5 Million Now in Mortgage Forbearance Plans

BN forbearance

  • 4.75 million borrowers in active forbearance plans (9% of all mortgages)
  • FHA/VA forbearance rate rises to 12.6% as of May 19th
  • Fannie/Freddie forbearance rate climbs to 7.1%
  • Other loan type forbearance rate (portfolio loans and private-label) up to 9.5%

First things first, some 4.75 million homeowners, or about 9.0% of all mortgages, are now in COVID-19 mortgage forbearance plans, per the company’s McDash Flash Forbearance Tracker.

That represents more than $1 trillion in unpaid principal balances, just to give you an idea of what loan servicers and the GSEs could be on the hook for.

Both FHA loans and VA loans continue to exhibit the worst levels of forbearance, at 12.6% of all loans, versus just 7.1% for GSE-backed loans (Fannie Mae and Freddie Mac).

Other types of loans, such as portfolio loans and private-label securities, have a forbearance rate of 9.5%.

While things have settled down lately, Black Knight said the pace of forbearance has risen “slightly in recent days,” with the number of active forbearances climbing by about 93,000 over the past week.

However, that’s still a ~70% decline from the 325,000 jump during the first week of May, and 93% below the first week of April when active forbearance plans surged by almost 1.4 million in just one week.

That’s to be expected though – the more borrowers in forbearance plans, the lower the percentage gains in subsequent weeks.

Borrowers Are Still Paying Their Mortgages Even Though They Don’t Have To?

  • 46% of homeowners in forbearance plans made their April mortgage payments
  • This could back up a recent study about many not actually needing the help
  • Or it could just be a timing issue that will resolve itself next month
  • Mortgage payment data from May isn’t as encouraging with just 21% paying as agreed

Perhaps more interesting is the fact that homeowners are continuing to pay their mortgages while in forbearance plans.

The company’s new “McDash Flash Payment Tracker” found that of the 4.25 million homeowners in mortgage forbearance plans as of the end of April, nearly half of them made their payment anyway.

This backs up the idea that some homeowners may be using forbearance simply as a safety net, as imposed to it being a critical need, something cited in a recent LendingTree survey.

However, before loan servicers and mortgage lenders get too excited, it could be a lot different in May.

As of May 19th, just over a fifth of homeowners in forbearance plans (21%) made their May mortgage payments.

Black Knight said roughly 1.4 million homeowners who made their April mortgage payments are at risk of “becoming past due in May if those payments are not received before the end of the month.”

Of course, past due is a bit of an overstatement since it doesn’t count as a true mortgage late, nor are credit bureaus allowed to report the borrower as delinquent.

However, you might see reports saying mortgage delinquencies spike because forborne loans are still counted as delinquencies.

So while the data from April was encouraging, it might prove to be short-lived and possibly misleading as well.

It could have just been a timing thing where these borrowers had requested forbearance around the time they made their April mortgage payments, possibly fearful they’d be shut out if they didn’t make their payment first.

Additionally, now that more details are known about how mortgage forbearance is repaid, it’s going to be a lot more attractive to those in forbearance plans.

It’ll also be enticing for those not currently in forbearance plans, who if they read up on the rules, will realize it’s a pretty sweet deal to not have to pay the mortgage for six to 12 months.

And once that period is over, they still won’t have to pay back the missed payments in a lump sum, or even enter a repayment plan.

Rather, they can just kick the can down the road and worry about the missed payments when they refinance the mortgage or sell their home thanks to COVID-19 payment deferral.

Really, it’s no worries all around because the missed payments will simply mean they get less when they sell, or wind up with a slightly higher loan balance when they refinance.

It’s such an attractive offer that I wouldn’t be surprised if homeowners went for it just to boost liquidity and put money elsewhere, possibly to earn higher returns.

We also now know that it’ll be easy to get a mortgage after forbearance too, with a waiting period of just three months for those who pause payments, and no wait for those who continue to pay as agreed.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for nearly 15 years.