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Realtor’s Corner: Skipping mortgage payments during the COVID-19 crisis?

By Real Estate Broker Beth Moran–
This spring certainly isn’t typical, and although real estate made the cut on the “essential services” list, our clients’ needs to make a move has challenged the real estate industry to flex like never before.

Although I am grateful we’re allowed to continue to work, one of the areas of concern that I find troubling is the number of people seeking forbearance for their mortgage payments.

Since the implementation of the Coronavirus Aid, Relief and Economic Security Act, or CARES Act, about 2.9 million people have applied for mortgage relief which translates to about 6% of all government backed mortgages nationwide per Michael Fratantoni, chief economist at the Mortgage Bankers Association.

This can be particularly impactful for our city as the majority of mortgage loans currently held and new loans implemented are government backed (CityData). Typically, those are VA and first-time buyers who look to FHA to finance their first home.

Since the average price point in Citrus Heights is in the mid-300s, we attract a larger segment of first-time buyers than the surrounding communities of Fair Oaks, Folsom or Roseville. So, what do you need to know when considering a forbearance for your mortgage?

Forbearance, simply put, allows the borrower to defer payment on their mortgage, it is NOT loan forgiveness. The CARES Act requires banks to grant forbearance for those who have been impacted, but there are specific requirements the homeowner needs to meet in order to qualify.

Additionally, the terms of the agreement can be different with each lender, so while you may be allowed to defer all your payments for a period of time — you will still be required to pay it back at some point.

Some speculate that banks will allow payments to be tacked on to the end of the loan, others to allow for repayments to be completed within 18 months.

Whatever the terms of the agreement, that debt is not forgiven and will need to be repaid at some point, so contact your servicer in writing (and keep a copy) to get the specific program they are offering.

Credit considerations
One other important point is the impact on your credit. During the real estate crash, short sales spiked, impacting credit scores negatively.

At that time, the banks were not supposed to file a foreclosure on the home once they agreed to a short sale. Unfortunately, the way it worked was that in order for a bank to take your need for a short sale seriously, you had to miss a payment.

Banks have separate departments for short sales and foreclosures, and they don’t talk to each other. So, while you may be in the process of negotiating a short sale, the foreclosure department is plodding along without notice of a short sale.

I don’t want to minimize the need for people to seek forbearance, but this is another moment in real estate with no known history. Requesting an unnecessary forbearance could have repercussions that negatively impacts your credit, but we won’t know until we’re on the other side of this.

Hindsight always minimizes the impact, but if you lived to buy real estate again you know how hard it was to recover.

Scam calls
Loan modification scams are also on the rise, which was a similar occurrence during the real estate recession.

Robocalls and mailers prey on people in financial trouble who are struggling. They claim they can negotiate a reduction of your home loan, your homeowner taxes, or even to get your stimulus relief check faster.

First of all, never provide personal information to a stranger on the phone, and secondly, know that it is illegal for any person or organization to charge an upfront fee for loan modifications.

Always call your lender directly and get first-hand the information you need to make an informed decision. As a local broker I would be happy to answer any questions you might have, as we are all in this together.

Beth Moran

Beth Moran is a real estate broker in Citrus Heights and can be reached at (916) 947-3993 or Beth@SacAgent.com

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