May 13th, 2020

The COVID-19 Effect on Mortgages, Forbearance, and Homeownership

As REALTORS®, our job is to provide solutions to homeowners and educate our potential buyers as well as connect them to experts for ancillary services, like mortgage, title, insurance, and more. The effects of COVID-19 on the real estate industry are shifting daily and people are wondering what this means for their current situation.

 

As the effects of Coronavirus unfold, some homeowners are concerned about how to afford their next mortgage payment. The economic effect of COVID-19 has brought shocking levels of unemployment along with financial insecurities across America. Homeowners are now weighing their options and borrowers might be hesitant to enter the market. One common question amongst homeowners is about forbearances and what the potential advantages and consequences are for consumers.

 

With a forbearance, you and your mortgage company agree to temporarily suspend or reduce your monthly mortgage payments for a specific period of time. This option lets you deal with your short-term financial concerns by giving you time to get back on your feet before the next monthly payment.

 

We spoke with Mark McGoldrick of Highlands Residential Mortgage, Helen Adams Realty’s preferred mortgage partner, about what a typical forbearance entails and what options homeowners have. McGoldrick said that forbearance is available for consumers who have been negatively impacted by COVID-19 and petition to have their mortgage payments delayed.

 

“There is no approval process that banks employ,” said McGoldrick. “So anyone with a Federally backed mortgage (think: Fannie Mae, Freddie Mac, FHA, VA, USDA) are eligible for forbearance. Any consumers with a non-federally backed mortgage should speak directly with their lender to find out what options they have.”

 

One of the key principles of a forbearance offer is that consumers will not be marked late on their mortgage payments. This is true for all federally backed mortgages. However, consumers need to know that while their credit report will not necessarily show a late payment, it will indicate that no payment has been made due to forbearance which may lead to consequences down the line.

 

Additionally, Mark told us that there are some very strict guidelines on what happens once homeowners do obtain a forbearance. The most impactful of those rules is that a consumer must wait 12 months from their last deferred mortgage payment before they are eligible to borrow again. This means that consumers who participate in forbearance will be unable to immediately get a mortgage on a new home or refinance their existing home for the next year.

 

Because everyone’s situations are specific to them and their current economic standing, it’s important to have a real estate agent and mortgage professional on your side to help explore your options.

 

“The key to making the right decision is knowledge and communication,” said McGoldrick. “As long as a consumer understands the pros and cons of forbearance, they can make an informed decision on how best to proceed given their unique situation. There have been instances of late where a person sells their home while the mortgage is in forbearance only to find that they no longer qualify to buy their new home.  If that surprises the consumer, then we in the real estate and mortgage industries haven’t done enough to educate them.”

 

If you are wondering what this means for your current housing situation or if you’re interested in exploring your options, we are here to help. Reach out to your preferred Helen Adams Realty agent for a conversation about your unique needs.