- Credit Consequences of Mortgage Forbearance

– Credit Consequences of Mortgage Forbearance

Hey everybody. that’s watching I am I got Shang and I’m a mortgage broker here in California and my partner, Josh Lewis and I have really kinda been on top of. Some of the challenges that are coming that are going to come up due to the forbearance the feral Baron’s laws are the forbearance rules that are are coming out because of this whole covered crisis and we’ve been working really hard to get in front of consumers and explain to folks what this really means and Sam Parker is founder and CEO of My Credit Guy and he is a credit preservation specialist. I like to clarify that because I think credit repair companies. Is seminar I’ve had this conversation before and find my way home credit repair kind of implies. we’re gonna go fix it. His company is really good at educating and helping people prepare themselves and taking the proper steps to make informed and educated decisions in order to improve your credit score and and preserve it so Sam was the perfect guy that I wanted to have this conversation with because we’re starting to see things were starting to hear things and I have fear. Whether they’re rational or irrational and I figured you know what let’s get the smartest person I know on the line and let’s talk to em. So Sam thanks for joining me appreciate this. Hey man. How’s it going. I appreciate you having me and and hopefully I don’t disappoint here at now you you don’t disappoint. This is this is what you do so you know Sam Sam you’ve been in the you’ve kinda been you’re really big in our industry and the mortgage industry and you work a lot with loan officers. You work with lenders to help consumers get in a position to go out so you’ve been having a lot of these conversations and sort of our lender groups and they’re great conversations, but I don’t know that this information is necessarily getting to consumers. So I’m gonna rehash some of the stuff that I’ve heard you say in some of the concerns that I’ve had and I really kinda wanna have this conversation for consumers to to understand a little bit about what this means and and the first kind of point that I. I heard you say that I really liked and one of the things that really kinda hurt me from the beginning I urged, but I knew that there was, I knew that it was gonna hit the fan and the media kind of when they can’t when they started announcing forbearance and let’s explain forbearance. real quick is a hardship workout option That’s already that’s available with all lenders. if you have a. Problem or if you have a hardship, you can call your servicer and you can say hey, I’m gonna have problems. I’m gonna have challenges making my mortgage payments. What options do you have for me so they don’t lose my home and for Barents is one of those what forbearance specifically is is postponing your payments for a short period of time and then under normal forbearance guidelines the first way the first cure option is that you make off a. The payments at once at the end, it’s called reinstatement so once you go into four Barents your information once your payments are stopped and then you have to reinstate your loan at that point cuz you’re your loan is kind of on hold and what happened is with what the the government did is the government came out and said, hey lenders. I want you to help folks with this but don’t make them jump through a bunch of hoops. Essentially I was. Say they didn’t they they wanted to say you don’t have to prove that you have a hardship lenders servicers just have to give you this hardship. They just have to postpone your your payments, but they say it real quick that you don’t approve the hardship and when I look at all of the different services guidelines, they all say that you are affirming that you are having a hardship. so this is what kinda scares me is the government is. You don’t have to jump through a bunch of hoops to prove that you have a hardship, but you’re gonna check a box that says I have a hardship and then when they were then you don’t have to make your payments anymore right. so that’s essentially what forbearance is in the last report that I saw this morning is there was almost there was almost six percent of all mortgages out there in a forbearance program right now and what is really scary. Hell out of me is all over YouTube all over social media. I’m seeing people from the real estate and the mortgage space presenting this as an opportunity and not the crisis that it is and and and and I heard you mentioned that and it really just it struck me and I was just like that’s really what it is and I feel lucky Downer going out there and telling everybody this isn’t an opportunity no matter what you do. This isn’t an opportunity to take advantage of Is a crisis and if you are in a crisis situation there are options so I saw the other day well so the the the lender said that the government said, we’re not gonna report late payments to to your you know you don’t report the late payments but they are reporting or what I’ve seen on one occasion and I don’t know if you’ve seen more of these but I’ve seen where it’s. That it’s reported that it is in forbearance and that it is impact credit scores and when I saw that I think that’s when I reached out to you because it’s supposed to be affecting people’s credit scores at least that most people think so why don’t you explain to me like you? you kinda explain this to me and it was a real aha moment for me. So what’s going on with that? Yeah. So there’s not like a direct negative impact, meaning I’m gonna be in for barons and so then my credit score gets dinged because I’m in Fort Baron’s. However, what happens is? The the same rule like for the lenders watching this or or anybody that’s been through the mortgage process, the same rules that apply where you can’t have an account in dispute right because during that dispute process that account is removed from the scoring algorithm to give the client the benefit of the doubt well during the four Barrett process similar a similar mechanism is activated where yes you’re in for barrons because of that it kinda puts a bubble around that account and it’s not helping you or hurting you. It’s just it’s just on Pause. It’s just a. Right now, and so because of that, it’s not being calculated into the credit score. You’re not getting that positive pay history Associated with it. so because of that, it’s like taking your arguably your biggest most important account out of the credit scoring algorithm. Now, it’s not done to punish you, but it’s a biproduct of the forbearance process. so that’s Super valuable because what what what I was afraid of it because we have mentioned before. Forbearance is is not something that they just made up and said Hey, let’s do this so lender credit companies. They all have these mechanisms in place for for doing for granting a forbearance reporting a forbearance getting back out of a forbearance so that was kind of my concern is I thought it was. I thought it was a code because sometimes when you have errors, they put codes on there that you don’t necessarily see that can sometimes. Like if you’re trying to get approved for a mortgage now, you know that so if if the only reason why your score would drop or if one of the reasons your score would drop is because of it’s big removed from your credit history. could you would you say that you would get exact like if it dropped 30 – five points if reinstated your loan? could you reasonably expect to get those 30 – five points back Very similar to it never happened if it and and honestly, you might be coming back in a better off because by then, if other things have improved on the credit and that gets added, you know three months later and you cut up on all your other payments than hypothetically you should have more payment history from the other accounts and then that being added so but but to answer question yes, it should basically undo what it just did so. okay. So that’s amazing. I think that’s really important because. People that truly do have a hardship and truly do need the for parents. It almost sounds like this is a good. This is a good solution where I start to get concerned is when I start reading the start reading the workout options of these servicers and what they’re willing to let people do and so my concern with that is what if at that point at the point of reinstatement would have been the lender requires them to prove that they had a hardship so. You know, for instance, I saw something the other I I saw something earlier today that said, Well, you know all Fannie and Freddie loans. you don’t have to make all four payments at once and it’s true. Fannie May did come out with a payment deferment plan that they will allow all anybody anybody who they’re servicing to go into and that’s probably about what 5040 – 950 percent close to half of the mortgages that are But I read the details of the Fannie Mae Plant and the Fannie Mae Deferment plan, and so deferment is kind of your best case scenario. I think right so your options at the end of a four bearings. are you pay it all at once? you can spread those skipped payments out over a period of time, which means you went from zero payment to a payment higher than your normal mortgage payment for a period of time or or deferment, which is where they take those payments. They put them on the end of the loan. It doesn’t a crew interest. Just sits there and it’s a balloon payment that you have to pay off at the end of the at the end of the loan. so Fannie Mae and this is the thing that concerns me so if anybody’s guidelines specifically say that you have to be 30 days late a minimum of three months in a row, you cannot be greater than 60 days late and you have to be current for the month that you apply for the deferment in and that is the Fannie Mae guidelines That’s got Red flags. All over it for me because that means you have to be in that forbearance for a minimum of 30 days and what I’m saying. So I’ve got a friend who was clicking around the Wells Fargo site and ended up getting into a forbearance. Then I started talking to him and he was like, Oh wow. Okay. I guess I well no actually I didn’t talk to him and after April, so he went into forbearance, then he tried to make his April payment and Wells Fargo won’t accept it so. This is these are the challenges it’s not that anybody is doing anything wrong, but I guess the message that I’m trying to put out there is don’t do this unless you absolutely have to because nobody knows what this thing looks like on the other side, the survivors don’t know the lenders don’t know the credit companies aren’t gonna rewrite the rules. you know, they’re not gonna rewrite their algorithm to be able to to to be able to account for this so everything’s. The same as far as reporting and challenges and things like that so so here’s something that I really wanted to go over with you and so this was some messaging in it might not be accurate. Hopefully you’ll correct me if it’s not let’s say I am having financial challenges. There’s a lot of other debts that I can negotiate. I can forbear that I can defer or that I can just plain old skip before you start missing mortgage payments and that’s kind of the advice that I’m trying to put that. I’m trying to put out there is I’m saying so I heard you talk about this on another on another interview. Can you talk a little bit about? how do you? how do you reach out to your other creditors and what order should you stream? I guess strategic default like if you’re gonna go under, you know, do it one finger at a time slipping off the edge of the ledge of the cliff. Yeah exactly. so if you’re trying to hang on first and foremost, you have to do a budget. The thing that the the funny thing is I I remember what it’s like guys before my wife and I got on a budget in my early twenties. I remember she’d be like hey, we gotta sit down and do a budget. I remember being like I don’t wanna like and I get frustrated and mad because like I did not want to deal with. A problem and that was when I was involved in credit already, so I know that that part sucks. it’s it’s stuff that you don’t for some reason. It’s like we just don’t want to admit the money we’re wasting and so you need to sit down and go through a budget. look yourself in the mirror and say I do not need Hulu Netflix Prime and you know what I mean, like cut some things out, first and foremost. There is money in your budget that you’re spending on things and you know what I’m talking about too. I don’t even you know it’s for some people. It’s it’s you know. it’s one little. Habit for something so anyway, there’s money in your budget that can go to get me through this and it and it’s all those. It’s all those 990 -, nine subscriptions and those 1590 – nine subscriptions. you think well. It’s only 15 bucks a month. Yeah, but you got 10 of em that are hitting your account every single, but can you live without some of those things for the next three months? exactly exactly so first and foremost budget, remove redundancies and then remove yeah the frills. You know I I don’t tell people you know just got everything right away cuz we still need to be humans and we still need to make it through this thing, but what’s most important those things or getting a home loan getting a home for your family right, so you got some decisions to make so first and foremost budget, then what you’re gonna look at is what the government has already told us and again we’re telling you on one side of things to be very skeptical of what they’re saying and to be hesitant. but what we do know is that utilities things like that that they’re not gonna turn on. Off during the crisis, however, as people are starting to triage those remember their States like I’m thinking like Wisconsin off the top of my head, they report utilities. so they I believe that during this this this crisis they they’re not supposed to report late, but again you don’t want to you don’t want to build anything up that you don’t need to that could come back to bite you but what you’re looking for now are your bills that don’t report to credit. So look at your credit report and you’re gonna see like oh this one. Is a bill that might not hit me long term and then, but no matter what guys if you owe somebody money get on the phone with them talk to them discuss with them anybody that you’re not paying money to no matter how big and mean you think that company is that means that a service or a good was provided to you that went uncompensated for right so that that trickles down but if you get on the phone with people, what you’re gonna find is what Scott said as well before the Kobe. everybody already had hardship programs for barriers programs went in the right situations. so anyway, I’m rambling, but my point is just you wanna you wanna start by by finding the money you are that you already have but you’re wasting and then you wanna preserve your credit report by looking at the bills that aren’t hitting the credit and pay the ones that you do have on, but the my point is the ones that you do have on there your credit card companies your auto loans things. That if you call them, they’re more than likely gonna give you some time off or some reason well and then all of a sudden boom. you know, there’s 300 bucks that you thought you were gonna have to pay out in credit cards. plus your four. You know more motor gave you you know a month or three deferment. So there’s 500. There’s a you know all of a sudden. there’s your mortgage payment. You just gotta do a little bit of calling but don’t just don’t just assume that anybody is gonna be giving you a mom. Or two or three off it doesn’t work like that and you know listen this is challenging but the the the the people that are expecting to get paid right now. don’t think they’re going to so you you going out there well that I mean that’s another piece of this is there’s a lot of people that just aren’t making their payments cuz they assume well. Oh, I just don’t we don’t have to make mortgages right now. That’s not the case your mortgages do it’s going to be reported late unless you go through the process with. With the servicer and get the forbearance man no, but but would, he said I I’ve had for parents on auto loans before and actually it was it was right around 2008 in 2009 and and they were really cool to work with the credit card companies and the auto in the auto loans. they’ll work with you. They’ll delay your payments. They’ll push your payments and that’s not gonna impact you nearly as much you know. What are the bigger challenges? not only do we wanna preserve home ownership, but we wanna people’s credit ratings too, because anybody that’s paying attention to this interest rates are crazy low right now they should be about 58 slower and they will they will get lower than they are today. So what one thing that you know, we don’t really know that much about. I’ve heard a couple of I’ve I’ve heard from a couple of servicers that basically say. unless your loan is reinstated after a four Barrett, you can’t refinance and I’ve heard some servicers say that you can’t refinance for a year after claim for parents, I I’ve heard that it could be as much as five years as like an overlay, if depending on the cure solution that you choose after the four be, it could be a lot longer than what people are thinking, but it most likely is not going to be something that you get out of it tomorrow. That you’re immediately eligible for conventional financing because you have to remember that the credit cover them as a risk-based model adopted by banking. so everybody’s just worried about risk right. that’s it is is what is what are the chances that you’re not gonna pay me is what a credit score is okay. It’s not like a positive thing. It’s a it’s a again. It’s a risk-based negative kind of model and so if they look at your decisions and forbearance as indicators which. Are you’re raising your hand and saying I can’t possibly afford to pay my mortgage and then depending on what happens after the 90 days, you might raise your hand again thinking that you’re being tactical and you might say not only can I not afford to pay my mortgage now, but I couldn’t I I don’t even know how I’m gonna figure it out. You gotta bump it all the way to the back of the payment. You’re not gonna be able to turn around a month later and say I’m a great candidate for a move up purchase or I’m a great candidate for you to invest in you literally just told somebody you need all the help in the world just to stay current on what you have so you gotta. Be careful what you wish for be careful what you’re building your financial resume to say because again forbearance is there for you. If you need it by all means I am not telling you don’t take this or shame on you. I’m saying if you don’t need it, it is not for you. Listen if you don’t need it and you think it’s free money. That’s the same thing as cutting in front of a food line with a bunch of homeless people because it was more convenient than going home and getting lunch and you’re taking a lot of. Else’s mouth right, I mean it’s it’s not a good thing and and what my fear is is on the other side of this again, like you said, We have no idea the servicers don’t know what the workout looks like they’re kinda waiting for government guidance. They’re kinda waiting to see when everybody gets back to work because those are the factors that we don’t know yes, a lot of people predict the economy’s comeback and that it’s gonna be somewhat of a you or a venue or a double you or whatever most people believe. The economy is gonna come back, but all jobs aren’t right and some after gonna take longer to come back than others. so there are absolutely people that are going to need help and all of the banks resources are going to be taken up trying to keep those people from losing their home if they truly are victims of this covered crisis. so if if you stroll up and you say, hey, I can’t come up with $15000 to make my payment and they’re like. Oh no, I completely understand you were impacted by coveted just. With US show me the covered stuff right exactly what people need to understand is that the government came out and said, help them right now because they’re raising their hand and saying I need help that is the that’s as far as the no documentation part of it goes now when they come back to reconcile on the back side of it, It doesn’t say anywhere that there’s not gonna be any questions asked anywhere it just says, get the people the money that say they are gonna identifying themselves as. Needing it so you just don’t know what happens in on the back side of things whether you know who knows what those repercussions look like too? Scott. I mean we just don’t know like is there gonna be a you know an audit that says If you ask for it, we did give it to you. And then we found out that you didn’t need it all who knows, but but you know more than anything. It’s just that people need to have the facts so that they can make informed decisions and have financial strategy so that they know if I do take the four barrel. I know that when it comes day 90, here’s what has to happen. Hey honey. We have got to have four payments ready because we’re doing the one -time balloon payment. We’re not using this money to go on vacation. We’re using it because we just need to stay liquid right now. Okay fair enough. So now you made a good credit choice. You shouldn’t see any negative impacts of credit long term, but then you do have to keep in mind that there’s a whole another world of after credit. It’s like the the political world of the of the banking the protection, the lost mitigation were a Bank can come in and say, yeah. Yeah. Yeah. That’s all great. Your credit was great but see right here. Where it says that you weren’t before parents, we’re gonna make this decision to protect ourselves right. so there’s just added layers that I don’t think most consumers realize you know that there’s that there’s you know two or or three different layers of you know there’s credit and then there’s lender overlays and load guidelines, and you know all that fun stuff that that stems from the credit report well and and I know there’s people like to try to make parallels and I don’t think there is a parallel between this and the mortgage crash of 2008, other than in the. That the reason why most people lost their homes is because they were getting loans on the honor system. Right there. You know that that’s exactly it. they was. it was stated income loans. It was subprime loans. It was Nina’s no income, no asset, it would it was. I’m embarrassed to say, but we used to call him near Fogger loans. If you can fog a mirror, you can have a loan and and yeah, no, I mean like if you had a breath in your lungs you we would give. You could get a loan some place. Yeah. I didn’t do those loans, but there was people that did right. That’s it, but then that and so the reckoning was the market is crashing you really aren’t in the financial position that you said you were in and now, here’s this big reckoning and that’s that’s a little bit. So so it’s that honor system piece that really scares the heck out of me because people have different ways of interpreting what what an honor system is or whether they’re because some of the verbiage on this Sam is if you are. Or feel like you will be right for Barrett and I’m like I’m impacted I’ve been sitting in my own for for a month right. Yeah. I got a wide open to interpretation for sure so you know I I I wanna wrap this up and I wanna wrap this up on on on a note that I heard you talk about that. I think is so vitally important. you know, listen if you are caught up in this crisis. if you’re a homeowner that needs for parents, that’s absolutely fine. I have I would be. I would go out on a lemon. I would say that if you truly were impacted by covered and you needed the four barrettes, you’re probably going to be okay as long as your employment comes back and all of that kind of stuff they’re gonna work with you. It’s the people that aren’t but we kinda talked about prioritizing. you know if you’re gonna fall behind on something and if your credit cards if you pushed off the payments as far as you can don’t make your credit card payments and start to strategically not make your payments or. With those and you said something really important the other day and I kinda like you to do the the The spill credit is not a tattoo right. This is a temporary situation for these days you end up damaging your credit a little bit. That’s where somebody like Sam Parker can help. and and what does that really mean on the other side of that about getting your credit scores back in order and back in line? Yeah, I mean for. That’s either already dealing with credit issues or runs into some here. It’s it’s a stressful time. you know to see that credit report to see the alerts going doesn’t to know that your credit scores are going down, but it is a temporary thing you know and especially if you know that you’re going through this and you didn’t do anything wrong right. There’s there’s there’s there is light at the end of the tunnel. Credit can be fixed corrected if there are an accuracies, if there’s things like the. That happened, there will most definitely be goodwill actions that are requested and granted as part of this where yeah, you might have some initial because what is supposed to happen and then what happens on credit or two different things right and so there might be that government and and and Fannie Freddie might be saying. Hey, you know nobody worry about this at at day 90. nobody’s gonna get late pays and we know there might be a glitch you know or they’re you know cuz the system set up a certain way. there might be thousands of people that end up with late pays on their credit. Just take a breath. it’ll be okay. You’re not. Dying nobody is dying because of this, and that’s what I try to tell my clients sometime. I’m like hey, you’re having the same response as if somebody’s about to die right now, aren’t you and shit and they’re like? Yeah, I am nobody’s dying. everything’s Okay. You know we’re gonna help you sort this out. It’s either a correction on the credit or it’s a game plan to get your credit back to where it needs to be most of those can be done within just a couple of months in some cases weeks. so there’s there’s no situation Scott that I run into where I’m running into a client. Who is ready willing and in a position that they should buy a home and I’m not saying that to judge, I’m just saying if you’re flat broke and can’t like some people be like, Oh, how can they pay for credit repair if they’re barely making ends meet as well, and they probably shouldn’t buy a House either like you know and I’m not saying that to be a jerk. but it’s just what’s gonna happen that water heater goes out the very first time or it’s not gonna trigger a foreclosure you know so anyway, my point is just there’s a plan for everybody. It’s usually a couple of weeks or or a handful of months away, maybe six months worst case scenario if late pays get added to your credit report. It’s not a good thing, but it’s not the end of the world either. We can either get those corrected or if they’re valid, then we’ll just figure out how to work around them. They are what they are if they’re valid and they’re not going anywhere and there’s no point in you know being Super upset about for a long time. It’s just time to get to work. so yeah and you just said something really really important and I don’t want a gloss gloss over that. there’s a lot of stuff happening really fast and and it’s possible that things will show up on your credit and they’ll be marked as late but companies like Sam anything that’s reported inaccurately on your credit report can be removed so if if your credit card company claims that they’re you don’t get payments and you don’t have and they’re not gonna report but it shows up on your credit report. Don’t panic. It’s not the end of the world. It might take a couple of phone calls, but you should be able to get that removed. so I I think that’s probably one of the most important messages. I think that I got out of this salmon is we don’t know what’s going to happen but if you have a legitimate reason for have if you legitimately have a hardship, you’re going to be okay if a mistake is made of something is accidentally reported. if something is reported in the law says that it’s not it’s going to get fixed. This is the time to worry about this kind. Stuff This is a time to worry about your family. make sure everybody is safe. Do the best you can to comply with whatever your local you know regulations are don’t go out there don’t go out there protesting cuz you’re tired of being in your House. We’re all tired of being in our health but it’s going to be okay and and I put forbearance report up there if anybody wants to get more information about forbearance what the workout options are we have a list of all. 50 servicers on there with links to what all of their guidelines are, and we’re starting to get some good comment streams under some of these services with their experiences that they’re getting from the servicers and it’s a little scary, but maybe you can learn off of what other people are experiencing so if you need Sam you can reach out to me, you can go to My Credit Guy dot com just know that there are experts out there that are looked that that can help you through this and if you have any. Questions you can reach out to me either here on Facebook. You can reach out to us on forbearance Report and we’re here to help you know we we usually in our professional capacity. we’re focusing on a different area of housing and credit patient, but now we’re focusing all of our efforts to help all of you kinda get through this saying healthy on the other side and everything will be flying. We’ll get the credit fixed and everybody will be good so Sam. I’m glad you. Well, thank you so so much for your for your your input. It’s absolutely invaluable and this probably won’t be the first time we do this. I have a feeling in about three to six months. we’re gonna be trying to unravel some of this stuff. Yeah. we’ll we’ll we’ll see what the surprise is then. so yeah. yeah and we’ll talk about that surprise. We’ll see how many of our predictions were accurate, so I appreciate it. take care of yourself and we’ll talk to you soon. My brother have a good one. Bye.

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