Update on Loan Forbearance - More Info & Guidance

We understand with uncertainty continuing to prevail in so many parts of our communities and economy, mortgage forbearance is on the minds of many as a potential partial solution to easing their financial hardship. With this in mind, we are continuing to update our coverage as we obtain new information.

Today, we have a forbearance letter from Caliber Home Loans one of the nations largest private mortgage lenders. Here are highlights:

Forbearance Does Not Equal Forgiveness - they are clear to highlight all payments deferred through forbearance will become due when the forbearance period is over.

"There May Be Assistance" - at the end of the Forbearance if you are not ready or able to continue normal payments, or to pay the deferred payments in full. They do not provide specifics on what this assistance may be, however they do mention Loan Modification and the possibility your interest rate and/or term of loan can change.

Credit Risks - while they will not report negative information related to the forbearance, the letter acknowledges "Credit scoring companies may consider whether there is an increased risk due to the lack of reporting. We are uncertain as to the impact on your credit score, particularly if you are current on your mortgage."

There are other details within the letter, though these three highlights are what we think most folks considering forbearance will want to focus on. Check out the letter for the full picture.

EDITORIAL

These details are consistent with what we've reported earlier, however when we combine this letter with other content from conversations and information we've gathered in the past days, here are our updates:

Forgiveness - do not expect any amounts of debt or interest to be forgiven. At best, we only expect they will be deferred to be paid at the end of the loan... see next point.

Assistance - while we hope the Federal Government will provide an assistance program which either defers payments from forbearance to the end of a loan through loan modification, this is not guaranteed... and based on current trends we're hearing may not likely. We may find borrowers are only provided a 3 to 12 month repayment period to make up the missed payments from the forbearance during which their credit rating will be in "suspension" showing neither current nor past due therefore potentially limiting their ability to get new credit/loans.

While we hope there are programs which aggressively work to find solutions for homeowners who accumulate substantial amounts of deferred payments, we are concern if these programs do not materialize this may create situations where they  will not able to return to current with a 3/6/12 month repayment program. Such as situation may put the homeowner at risk of short sale or foreclosure.

Of course, for some who simply do not have the capacity to pay this may be unavoidable, and the forbearance may simply buy an extra 3 to 12 months of grace during an otherwise unfortunate time. However, for homeowners who may use forbearance as a tactical tool to help save cash on hand, this may present a more challenging decision where they may be taking a greater long term risk to mitigate short term risks.

Credit - this quite cloudy. The best intelligence we have on this is if you get forbearance and bring your account fully current with no loan modification, then you're likely to have little or no score impact. However, while the forbearance is active or while there are deferred sums, there may be a credit hit even without negative reporting though the extent is unknown and unpredictable. Likewise, if the loan is modified there may be similar impacts.

Guidance
With the latest information, we're modifying our guidance to those considering forbearance as a tactical tool to help retain cash while they work through the instability of today's economy. Given the latest information, it seems there could be more risks associated with forbearance than first disclosed. Therefore:

If you cannot make your payment, or must choose between paying for food/healthcare/etc or your mortgage, then you should absolutely consider applying for and taking forbearance. At best, it will provide you the time you need to find new income and become current while avoiding damage to your credit. At worst, it will provide 3 to 12 months of grace to delay credit damage, loan delinquency and potential foreclosure. Without forbearance, if you fail to make your payment you'll simply be on the more accelerated track to delinquency and foreclosure without further opportunities for grace and reorganization options.

If you can make your payment with cash on hand or savings, but are preferring to save your cash in case you need it for personal or business expenses in the longer term... then you face a much more complex decision. Please do not underestimate the downsides of the accumulation of deferred payments and the need to bring them current. This build of up debt could put you at risk of delinquency long term which could be difficult or impossible to overcome, and could lead to foreclosure. In general, we'd recommend avoiding forbearance, if possible, and recommend seeking other options for assistance for your personal and business finances such as the CARES and other programs for income and payroll assistance. (If you'd already sought forbearance, and want to withdraw from the program, simply contact your servicer and withdraw from the program and make any missed payment to bring you loan current.)