We are seeing some Mortgage Loan Officers (MLOs) giving out advice that is misguided regarding mortgage forbearance, potential credit issues, and refinance options.
Here are the 3 most common Mortgage Loan Officer (MLO) responses:
1) “Forbearance = Foreclosure” WRONG! This has never been true!
2) “Forbearance = Short Sale” WRONG! This has also never been true!
3) The forbearance plan (missed payments) will “wreck” the homeowner's credit scores. WRONG! This has never been true either!
Here’s the law, as laid out in Section 4021 of the CARES Act passed by Congress at the end of March.
Mortgages in forbearance as a result of COVID-19 have to be reported as “current” on credit reports. There IS a notation that the loan is in "forbearance,” but no FICO/credit scores have been lowered due to forbearance plans.
[If your current lender has told you any of these “untruths” it’s most likely because their past commission check(s) were at risk of being “clawed back” by their management teams. Specifically, any MLO who originated a loan that the borrower goes into forbearance on the first 12 months forfeits all of the commission they earned on that borrower’s loan origination. So, some MLOs put their own financial self-interest above the homeowner's best interests, by disseminating “less than accurate information.”]
So, what are the repayment options?
Currently, repayment options appear quite flexible.
Depending on the borrower’s unique circumstances, they can range from lump-sum repayments, the addition of the skipped months to the term of the mortgage, to a loan conversion (from a 30-year to a 40-year mortgage, for instance) that should lower monthly costs.
Furthermore, FHA loan holders can also convert the forborne amounts into an “interest-free subordinate mortgage” or a "silent second" mortgage that does not require repayment until after the settlement of their first loan by sale or refinance of the home.
Lenders are not supposed to report forborne payments to credit bureaus, which means that borrowers who request forbearance won't see their FICO scores suffer.
However, if they don't contact their loan servicer to start a forbearance plan & miss a payment, the lender is to report that lapse to the credit bureaus.
Borrowers need not provide any documentation to verify their hardship.
Assistance is available to owners of both primary, secondary, as well as investment properties.
After the initial suspension period expires, borrowers must work with lenders to extend the forbearance or establish a repayment plan.
The bottom line?
There are good options if you need them. Contact your loan servicer and start the conversation.
And if you need a reputable Mortgage Loan Officer, just ask me, I only work with the best!