Real estate investors and homeowners are about to fall off the financial cliff. The mortgage forbearance cliff, that is.
What’s next? Foreclosures. Short sales. Bankruptcy. Or maybe there will be a last-minute lifesaver from Congress if they can ever get an agreement between the various parties.
How did we get to the brink of financial collapse for real estate investors?
It started with the CARES Act (Coronavirus Aid, Relief and Economic Security Act) which was signed into law on March 27, 2020. US property owners who had federally-sponsored mortgages (Fannie Mae, etc.) were allowed to get 6 months of mortgage forbearance. It doesn’t mean the payments aren’t due. They just aren’t due right now. And the lenders couldn’t make them immediately due when the 6-month period was over.
But now it’s over. Some can apply for a second 6 months of forbearance. It’s gotten harder for people who don’t have federally-sponsored mortgages though since pretty much any renter can get an eviction stay. If your renter doesn’t pay you, it doesn’t matter any more. You still have to pay the bills.
Prior, the CARES Act matched up the eviction stays with those who would receive mortgage forbearance. That is no longer the case.
The Current State of Forbearance Applications and Missed Payments
According to MarketWatch, 42% of those entered into a forbearance plan in April have asked for more time. Of those using forbearance plan, 10% have exited the program and working through a loan modification plan.
What’s happened to the rest? It’s anybody’s guess. Banks and underwriters need to know what’s happening so they can properly report which mortgages are current and which are not. That all has to do with how they can sell the debt they have and qualify for more capacity for loans.
The number of new delinquencies is down from the initial high. Serious delinquencies, however, are up at the highest in 10 years. A serious delinquency is 90 days or more late.
Most banks are only allowing forbearance once they have federal government backing. That may take months. Meanwhile, what will happen to the property?
This is one of those problems that you want to get ahead of as soon as possible. If you’re looking at cash flow problems with your home or rentals, contact your bank. It’s not going to be an easy conversation, but it’s one that you need to have.
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