Update on Real World Mortgage Forbearance Experiences

We are closely tracking the mortgage forbearance options available to homeowners and landlords as we know these programs may be an incredible tool to help manage financial stress by keeping cash in your hands for greater flexibility as well as providing the best opportunity to minimize risk of credit damage or needing to liquidate investments when they are in a compromised state.

To contrast the program announcement with the practical operation of the forbearance program, multiple members of our team spent hours on the phone with our servicers to learn more about the implementation. In addition, I've been reading about and chatting with others working through the process. Here’s what we found.

3 Months Forbearance - despite the program stating ‘up to 12 months’ it seems like most servicers are offering 3 months as a standard.

Editorial: we believe extensions may be offered, though it may require more qualification and documentation.

Documentation - presently they do not appear to require any documentation or absolute specifics on your financial situation. They ask relatively vague questions, and allow vague answers.

Editorial: I told them my income was likely to be reduced, and I wasn’t sure if my tenants would be able to continue to pay their rent and my options to enforce payment with eviction had been removed. I didn’t need to provide specifics or attest my income actually was reduced at this time. I simply needed to tell them it was likely it would be reduced soon, and I wanted to have options to stay out of financial distress. This was sufficient.

Interest, Fees, Penalties & Credit Reporting - they are stating interest is suspended for the time of forbearance and there are not penalties or fees. In addition, they state they will not report negative information to credit bureaus.

Editorial: This is great news and greatly helpful.

Expiration of Forbearance & Repayment - they will tell you at the conclusion of the 3 month forbearance, you will need to pay the deferred payments back as a balloon payment with the next scheduled payment.

HOWEVER… they will also tell you they expect there will be other options which may develop which could include:

- Extension - extending the forbearance

Conclusion

How you proceed will largely depend on your current circumstances and how far away from distress you may find yourself.

For those without income, or in economic distress which may cause you to be late on your mortgage, we highly recommend pursuing forbearance in spite of the risk of the unknown exit plan as you may genuinely have nothing to lose. Worst case, you’ll delay delinquency of payment and credit damage by the term of the forbearance. Best case, you’ll get forbearance of payment for more than 3 months and workable payment options.

For those thinking strategically trying to preserve cash and not yet in distress, but trying to avoid distress, you may want to consider strongly taking this forbearance while saving the funds in case you need to make a balloon payment. Worst case, you’ve saved cash to provide greater flexibility, even though you may need to make a lump sum payment at expiration. Best case, you’ll preserve cash and potentially be able to shift your payments into the future without real economic costs in the present.

Please keep in mind, this information is likely changing daily and our sample size is small. We cannot guarantee results short or long term for anyone. We’re simply trying to provide the best information we can to help everyone navigate these extraordinary and challenging times.

Of course, if you have any questions. Please let us know - call or email!