Good afternoon, I wanted to take a moment and update everyone on the new mortgage guidelines that go into effect today 5-6-2020. As I have predicted, the mortgage forbearance program is going to hurt millions of homeowners across the country.
New Agency Guidelines were handed down last night on how lenders will treat forbearance. In April 3.5 Million homeowners took advantage of skipping a house payment. Millions more to be expected in May 2020.
- The new guidelines consider borrowers in mortgage forbearance or deferral as ineligible. This includes refinance or purchase transactions, all loan types – Conv, FHA, VA, USDA. Per agency guidelines, the borrower will not qualify if any payments were deferred in the last 12 months.
So, let’s break it down. If a current homeowner has taken advantage of the forbearance program, skipping a payment 1,2 or more payments, not only will 90% of the lenders make you make up all the payments in one lump sum, you will not be able to refinance to make up this pitfall. You will have to make the lender whole again first. Then you will have to be on time with no late payments for a minimum of 12 more consecutive months.
Millions of home owners will be stuck with their current mortgage, not being able to take advantage of utilizing their equity, or the low inters rate environment to better their financial situation. This will force many homeowners to sell, then retreat to a rental for the next year. With the new demand for rentals, rent prices will go up again. Furthermore, as these homeowners face financial hardship, the foreclosure will be lurking on the horizon. To avoid foreclosure and trying to save what equity one may have accumulated, these homeowners may sell. And to avoid the home going to the sheriff sale, they may tend to lower their sale price for their home.
To add fuel to the fire remember Michigan has a 25% unemployment rate. That means 25% fewer home buyers. Also, with the new lender guidelines raising minimum credit scores to obtain a mortgage, these potential home buyers will also be on the sidelines for a mortgage and face rising rents.
AS FOR HOME SELLERS – Any home seller who has taken advantage of the forbearance program, will be in for a rude awakening. They may think since they are selling, that they pay back the forbearance with the net proceeds from the sale. Yes, that is fine. However, if they think they are going to get a new mortgage, that will be slim pickings. Agency guidelines will not allow them to obtain a new mortgage. They may have to rent as well. The only way out of that is they may have to use a lender or bank that may “portfolio” their loan. Meaning the bank will hold that loan on their books for the entire term of the loan. Banks or portfolio lenders do not sell these loans to the secondary market as mortgage back securities, or (MBS) as we have discussed in prior reports. To be determined on how these portfolio lenders will treat the matter. I will keep you posted as the turmoil unfolds.
My advice to Real Estate Agents? Ask any potential home seller if they have or will utilize forbearance programs. If the answer is yes, they need to check with their current lender on options of obtaining a new mortgage. Chances are they may be out of luck. If a home seller has only missed one payment or 2 maximum, have them give me a call so they can avoid this mess and we can look at the options still left on the table.
I urge anyone, not in forbearance but wanting to take cash out or complete a rate term refinance that they Apply Today by clicking on my website. There is still time to lower your payments, interest rates, and be prepared for the next wave of COVID-19 that has been predicted this fall.
Remember if you prepare for a tight time, the tight times never come. That’s from my wife and we live by those words. If I can be of any assistance or answer any of your questions please feel free to give me a call at 734-417-2115, Stay tuned for more updates as they are handed down.