COVID-19 Market Update, The Forbearance Dilemma, A MUST READ for Anyone Contemplating Not Making Their Mortgage Payment

While the press is still reporting doom and gloom, I’m happy to report some optimistic news.

Preliminary results from the COVID-19 treatment study being done in New York City pertaining to the combination of Azithromycin and Hydroxychloroquine should be released next week.  A French study completed in March has yielded positive results.  And Dr. Stephen Smith, an infectious disease specialist in NJ affiliated with multiple hospitals including Clara Maass Medical Center and St. Barnabas Medical Center, has reported effectively using the combination of Azithromycin and Hydroxychloroquine on his patients.
BOTTOM LINE:  There is reason for optimism.

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The Federal Reserve has heeded the advice received from the mortgage industry.  They’re continuing to purchase Mortgage-Backed Securities which is absolutely necessary; however, they’ve pulled back sufficiently which is stabilizing the MBS and bond markets.  This is abating the huge losses mortgage lenders and servicers have experienced in recent weeks due to margin calls.

We are starting to see the mortgage markets settle.  Pricing on conventional and government loans with few risk adjustments are starting to return to expected levels.  Not so much yet with high balance and jumbo loan sizes.
BOTTOM LINE:  I’m seeing the beginnings of improvement and there is cause for cautious optimism.

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The following section is a MUST READ for anyone contemplating contacting their mortgage lender for assistance with their mortgage payments.

I am keeping up to date with information coming down from the federal and New York State government agencies, from Fannie Mae and Freddie Mac, from mortgage servicers, and from the credit bureaus.  While it is everyone’s goal to help and not harm consumers, there are still many logistical unknowns.  Here is what we know so far.

• If you’re able to make your mortgage payments without significant financial hardship, please continue to do so! These programs are NOT a freebie and are meant to assist those with serious need.  Mortgage servicers must still continue to pay your real estate taxes, your homeowner’s insurance and must continue sending your principal and interest payments to the entity who owns your loan, whether you are making payments or not.  Lenders and servicers throughout the industry have already incurred significant losses and I suspect the players in the mortgage industry will look very different when we come out of this crisis.
• Remember that a mortgage “forbearance” is NOT “forgiveness!” While most lenders are likely willing to defer your payments for a number of months, you will still be required to make those payments later!  Lenders will require a balloon payment at the end of the deferment (meaning you’ll have to pay those skipped payments back all at once), or those payments may be spread out and added to payments going forward.  Either way, you may be putting yourself into a worse cash flow situation once payments come due.
• While I’m being “assured” by loan servicers, Fannie & Freddie, and the credit bureaus that no adverse information nor negative impact will reflect on borrowers’ credit reports, I remember hearing the same “assurances” during the 2008/2009 Great Recession. Yet countless people saw their scores drop by hundreds of points, taking years to recover.
• Credit reports used by the banking industry contain a significant amount of data reported by creditors. This includes a monthly payment history for the past 24 months, including how much was paid, and the resulting loan balance.  Even if a forbearance agreement does not adversely affect a borrower’s credit scores, how will creditors view a mortgage payment history that is missing three to six months of payments?  No one yet can say for sure.

BOTTOM LINE:  If you are truly in dire straits and the possible risk to your credit and your ability to obtain future credit (such as a refinance) pales in comparison to your need to feed your family, then contact your mortgage servicer and discuss the options they are offering.  If not, then right now I am advising all of my clients to continue making their mortgage payments on time. 

Warren Goldberg is President of Mortgage Wealth Advisors, a Certified Mortgage Planning Specialist®, and a published author. His interviews include Blog-Talk Radio, Newsday, The Daily News, Anton Press, and the Long Island Herald. Since 1992, he’s been sharing his financial knowledge and wealth-building strategies, including how to properly use your mortgage as a financial tool. His clients regularly express their trust and appreciation by recommending friends and family call when in need of mortgage, real estate, and financial guidance.