Posted by Mike Cecchini
Apr 21, 20205 min
It’s not just a matter of taking the government up on its offer to postpone your mortgage payment. Doing so may find you in a murkier place than simply feeling the financial strain from the coronavirus pandemic, according to CNBC’s Darla Mercado.
Mercado reports that while the Coronavirus Aid, Relief, and Economic Security Act (CARES) has a provision that would allow affected homeowners to apply for up to a year on federally-backed mortgages, states have also rolled out their own relief measures for borrowers whose mortgages aren’t backed by the federal government, New York and California among them, offering a 90-day reprieve on their payments.
“Borrowers aren’t being forgiven. Instead, the state and federal COVID-19 measures call for forbearance – the postponement or reduction of the loan payment due,” says Mercado, who also quotes an executive from the Consumer Federation of American who adds, “Lenders offer forbearance, which doesn’t alleviate the expectation of payment, but puts it off.”
It sounds reasonable at first, but there are enough potential snares for homeowners that Richard Cordray, former director of the Consumer Financial Protection Bureau, co-authored a letter to the organization’s current director Kathy Kraninger, calling on the bureau to protect the borrower. “Already, there are worrying signs that people are getting the runaround as they seek forbearance or other relief. New rules were put in place several years ago to address these problems, and the mortgage servicers cannot now be excused from complying with these rules when consumers need them the most,” he wrote.
Mercado urges those wishing to proceed with forbearance to document every interaction they have with their mortgage servicer and start by asking some basic questions, first among them, their eligibility. “Reach out to your loan servicer first – that is, the company that bills you each month – to start the application process and demonstrate that you’re experiencing financial difficulties related to the pandemic. This can be complicated, as it may not be the business that originally made the loan to you,” she says, since contract servicing is often done by a different company — one you have never dealt with before. So your eligibility is determined by who owns your loan.
Another question you should seek an answer to is whether the missed mortgage payments would be folded into future payments, or if they could be required in a lump sum later. “A homeowner who’s having a hard time paying the loan could wind up working with the servicer to restructure the mortgage altogether,” says Mercado, who adds that modification could change the underlying terms of the loan, extending it from 30 years to 40 years.
So how are property taxes and insurance affected by forbearance? If they are normally impounded into your monthly payment, you must ask what will happen to those expenses if they suspend your mortgage, as the CARES Act doesn’t provide clarity. The lender may foot the bill for insurance premiums and property taxes because it’s protecting its interest in your home, but if a lender winds up insuring your home due to your inability to pay the mortgage, it will probably use something known as a “forced-placed insurance.” It’s costly and won’t cover your possessions, so get clarity on what would happen. “When the bank covers escrow costs, those expenses could be factored into your eventual repayment of the suspended mortgage payments,” says Mercado. But if your lender pays it, it’s wise to determine what will happen during the time you’re not making payments.
Source: CNBS, MarketWatch, TBWS
How Rates Move:
Conventional and Government (FHA and VA) lenders set their rates based on the pricing of Mortgage Backed Securities (MBS) which are traded in real time, all day in the bond market. This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events. When MBS pricing goes up, mortgage rates or pricing generally goes down. When they fall, mortgage pricing goes up. Tracking these securities real-time is critical. For more information about the rate market, contact me directly. I’m among few mortgage professionals who have access to live trading screens during market hours.
Rates Currently Trending: Higher
Mortgage rates are trending slightly higher so far today. Last week the MBS market improved by +54bps. This may have been enough to slightly improve rates or fees. We saw moderate rate volatility through the week.
This Week's Rate Forecast: Neutral
Three Things: These are the three areas that have the greatest ability to move rates this week. 1) Central Bank, 2) Coronavirus and 3) Domestic
1) Central Bank: We will have a Bank of Canada meeting as well as hear from the IMF and a rare NBS meeting out of China. Our own Federal Reserve will reduce the amount of MBS purchases again (they have reduced the daily purchase amount each of the past three weeks). We will also get their Beige Book.
2) Coronavirus: Of course, the primary driving force behind all of the emergency governmental, Treasury and Central Bank auctions is the COVID-19 pandemic and its monumental impact on the global economy.
Here are the headlines to start our week:
U.S. Cases now more than 560K, deaths more than 22,110.
Global cases now more than 1.86M and deaths more than 115K.
Amazon to hire yet another round of workers, this time 75K
(had previously announced 100K).
China and Russia see a significant spike in cases.
U.S. considering restrictions on WHO funding.
3) Domestic: While the economic data over the past couple of weeks has primarily been from February, the economic data this week will mostly be from March, which is much worse than February as it is from a period where the economy started to feel the impact from the COVID-19. Of note is retail sales, but getting the most attention is the weekly dose of Initial Jobless Claims.
This Week's Potential Volatility: Average
Rate volatility will once again is almost entirely dependent on coronavirus updates. The Fed and Congress are pumping a ton of money into the system in a variety of different ways; the introduction and evolution of these programs will continue to play a significant role in the rate markets.
Bottom Line:
If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.
Michael Cecchini
ECOterra Design-Build
La Puerta Real Estate Services
(505) 918-8476
mike@mikececchini.com
Vancellen Sturgeon
President/Broker
PSd, Ltd.
NMLS#: 183922
(505) 908-1057
vancellen@nmlender4life.com
About Vancellen Sturgeon
Vancellen Sturgeon began her mortgage career in the commercial lending field in 1981 and moved into residential lending in 1998. She has an exceptional background in mortgage lending and financial advising.
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