Forbearance is NOT Forgiveness

Mortgage Computer Key Shows Real Estate Borrowing
Forbearance Does Not Mean Forgiveness!

Forbearance does not mean Forgiveness.  It’s important to understand what it is that you are signing.  Hi, this is Dana Weyl with Coldwell Banker Select, Owasso Homes and Lifestyle group.  Let’s do some ‘mortgage forbearance math’. Let’s say that Cindy and John have a mortgage and their payment is currently $2,500 per month.

Unfortunately, John loses his job and gets laid off from work.  John hears all of the “News” about forbearance and how if you’ve been negatively impacted by COVID-19 that banks have to work with you.” Excited, John calls the Mortgage Servicer, and inquiries about the Forbearance he is entitled to.  He’s so excited because in just one phone call, for now, he doesn’t have to pay his mortgage for six months.  But This is where the craziness comes in.  Now, Seven months later, John is back to work, but because of his lay off he wasn’t able to save any additional money when he was out of work during the forbearance period. 

The Forbearance time frame of six months has now expired and the Servicer sends John and Cindy their bill.  Cindy nearly falls over and dies because the bill shows that now Cindy and John owe $15,000 + $2,500, and it’s all due, right now, on the seventh month. So, the total now due is Seventeen thousand five hundred dollars, THIS MONTH!  John is shocked and calls the Servicer and asks, “WHY??”  and the Servicer explains: “That’s the 6 months of forbearance $2,500 x six months, plus the current month of $2,500”, for a grand total of $17,500 Seventeen thousand five hundred dollars, all due now.  John says: “Well obviously, I haven’t been working and I don’t have that kind of money. I just can’t pay that, is there anything I can do, can we renegotiate?” the Servicer says: “Sure, we will spread out the $15,000 over 12 months.”  John says: “Great….thanks so much. “How does that work?”  the Servicer says: That will be $3,750 three thousand seven hundred fifty dollars a month for the next 12 months.” 

Shocked, JOHN replies: ” What!!! I don’t understand, WHY?  The  Servicer explains: “$15,000 Fifteen thousand divided by 12 months equals one thousand two hundred and fifty dollars over a 12 month payment plan period  plus the twenty five hundred dollars, the normal monthly mortgage amount for a total of $3,750 Three thousand seven hundred fifty dollars for the next 12 months”   Stunned, John says: “Well, I can’t afford that.”  And Servicer replies: “Sorry…”  so, John asks: “Can I refinance?”  and the Servicer replies: “No, because the loan went into forbearance & you have an unsatisfactory recent mortgage payment history in the eyes of Fannie Mae & Freddie Mac’s current underwriting approval guidelines. So, John asks: “What can I do”.    

Let me sum all of this up.  Forbearance is not forgiveness.  You still have to pay it back.  Whether it is at the end of a few months, or if it’s at the end of the lifetime of the loan, it will have to be paid back.  It’s imperative that you get the information regarding your personal mortgage company’s policy regarding their Forbearance procedures, so that you understand what it is that you are agreeing to.  This situation is very similar to that of 2008 when people were short selling their homes and didn’t realize that prior to congress passing the Mortgage Forgiveness debt relief act, that if you sold your property, that you would be taxed on the difference of what you owed on the home and what you short sold your home for.

Just remember, there is no such a thing as “Free”, as of right now, when it comes to Forbearance.  The Mortgage Servicers cannot sustain this prolonged period of “fronting the money you don’t pay them during the forbearance period” and will need to seek restitution somehow.   Unlike the Mortgage Crisis in 2008, most people have a substantial amount of equity in their home.  At some point the money owed will become due.  Mortgage Interest Rates will likely be low for the majority of 2020, so try not to let media headlines, or bad information cloud your judgement and take you down the wrong path that might disqualify you to have the ability to refinance…or worse…cause you to lose your home. 

Think back to the last housing crisis and remember how dangerous it is to take advice from people who are not qualified to provide it, including the media, google or social media. They aren’t going to come and bail you out or lend you the money you’ll need when you need it.  Know what you’re getting yourself into before you sign.  Speak with the correct people, ask the right questions, read the fine print.   While forbearance might be the only option for some, it should not be pursued unless absolutely necessary.  Other options may be offered by the Mortgage Servicer, such as deferring the entire amount due to the “back of the loan”, but assumptions should NOT be made without written clarification.

Bottom line, know what you are agreeing to and make sure you contact and speak to a representative at your specific mortgage company.  It’s also important to work with a VERY experienced Realtor and Lending partners who know how to protect you and give you accurate sound advice.  Please feel free to reach out to my team and I for any advice at all, let us help you navigate these tough times or guide you to the right direction.   Stay safe, and take care, this is Dana Weyl with Coldwell Banker Select, Owasso Homes and Lifestyle group where we focus on real estate relationships and results.

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