The pandemic has not been kind to many people and that includes people who can’t pay their mortgage. Government entities and the banks worked together to provide these forbearances, allowing Americans some relief in an otherwise unforeseen situation that many people living paycheck to paycheck are experiencing. Heck, even if you have a savings net, which typical financial analysts tell you to save for 3 months, six months if you’ve planned a head, you’ll still find yourself in trouble. No one has foreseen that you’d need savings of at least 1.5 if not 2.5 years to weather the effects of COVID-19.
There are a couple of things your mortgage company can do depending on the level of graciousness that they’re willing to provide to you.
First, they can extend the forbearance until you end up working and can afford to pay your mortgage. This would be the best case scenario. Also the icing on the cake would be if they allowed you to pay the ongoing mortgage from the time the forbearance ends. They’d put all the back owed amount that was unpaid onto the overall balance of the loan, thus showing that you’re current as long as you’re making the ongoing payment.
Second, the mortgage company gives you a hard date where the forbearance ends. You will be expected to make ongoing payments after the forbearance ends, no ifs ands or buts.
Third, the mortgage company informs you that the forbearance is ending. Since the forbearance is ending, you’re expected to pay all the back owed payments plus the ongoing and given an actual deadline to make that happen.
The third option is the most dangerous and definitely the least gracious. If you end up having the money, then you will be fine. If you do not, in all likelihood, the mortgage company will suggest a loan modification. This can be a positive and a negative. Loan modifications given out by mortgage companies provide a fixed rate mortgage with a 30 year term. This typically allows for the payments to decrease in many cases. The dangerous part is that the mortgage company holds the power here in providing the loan modification.
The mortgage company deems this as a potential loss. In order for them to make up the difference on the books, they’ll essentially give you a whole new mortgage at a fixed rate through a 30 year term. But, have you done the calculation fo what the mortgage company is going to make off your 30 year fixed loan when it recalculates all over again? The longer you’ve been in your mortgage and have defaulted, the more money the mortgage company makes by restarting your loan at a 30 year term.
If they deem that you’ve already obtained one or multiple loan modifications in the past, this will be the reason why they indicate you are not eligible. Another reason for a denial is you may have too much equity in your home and it is not a financial hardship as they’ll reason that you can sell your home, pay off the mortgage, and still be able to live somewhere else. The last part is the most concerning as most people are not ready to move from their home and if you did, where else would you go if you wanted to purchase something and still remain a homeowner, especially within the great Seattle area.
If loan modification is not right for you, or the mortgage company denies you the loan modification, a bankruptcy to get caught up over the missed payments in a 36-60 month repayment plan may be the best way out of this. Furthermore, if the mortgage company states that they’re willing to work with you and string you along for months without providing you with an approval or denial, this really only hurts you and not them. The housing market in most areas especially around Seattle and the Greater Eastside area is still very hot. You’ll continue to accrue equity in your home, but if your overall goal is to remain in the home and not sell, this will work against you as the amount you’ll end up repaying will be even more than at the time your forbearance ended.