Skipping mortgage loans isn’t for all

Almost 6% of mortgage loans are in forbearance, meaning about 3 million homeowners have delayed payments, according to data released this week by the mortgage bankers’ trade group. That’s a 60% jump from the prior week, and industry observers estimate that the number of loans in forbearance could eventually climb to as high as 15%.
So who’s postponing their mortgage payments? Congress’s relief legislation, the CARES Act, just says that borrowers can suspend payments for up to a year without penalty if they’ve experienced a financial hardship related to Covid-19 — but they don’t have to actually provide any verification to qualify.
It’s reasonable to think that a portion of borrowers who have already stopped making payments, or who may do so in the future, are in a bit of a gray area when it comes to hardship. They may not have lost their jobs but fear they will shortly.
Or they want to preserve cash amid concern over reduced bonuses or depleted brokerage and retirement accounts.
While it’s understandable, choosing to delay payments before it’s absolutely necessary comes with some important risks that need to be considered.
The CARES Act provisions on mortgage forbearance, which only apply to federally backed loans, don’t stipulate how or when the delayed mortgage payments have to be repaid. The government agency backing the loan generally provides those guidelines. Fannie Mae and Freddie Mac have said borrowers have several options for repayment currently, including making a lump sum payment, entering a repayment plan or modifying their loan.
Even if borrowers aren’t required to make up six or 12 months of mortgage payments in one lump sum, lenders are obviously going to want their money back as soon as borrowers are able.
Which brings up another point: Documentation isn’t required to be eligible for forbearance, but once borrowers are in the midst of it, it’s safe to assume mortgage servicers are going to be looking for paperwork and details to inform the repayment options they’re offering. Stephanie Moulton, an associate professor at Ohio State University who studies housing and consumer finance policies, says she thinks most borrowers will be on the hook to have a plan in place to make up their payments within a year of deferral.
For borrowers with big mortgages in expensive markets like New York City — the jumbo loans of $766,000 or more — their ability to postpone payments will be up to their lenders, since the CARES Act doesn’t cover them.

—Bloomberg