Forbearance without a credit hit? Think again.

[Bryan Danger]

A few months ago when the madness around covid started, when several of our tenants started calling to express concerns over making rent payments and we started growing concerned about our ability to make our mortgage payments - forbearance suddenly looked like a pretty good safety net.

We obviously spent the time to call each lender, made sure all of our loans were backed by freddie/fanny and that there would be both no credit hit for entering into forbearance and that there would be no lump sum payment required at the end (our primary fear back when the rules were fairly cloudy)...so we proceeded.

We also have a few loans that we thought could allow some flexibility, and tried to refi in order to pull money out so that we could have more padding and get ourselves out of forbearance.  We were shocked to find out that both the bank holding the loan and all other lenders (based on calls to several different brokers) refused to refinance our loan because we were in forbearance.

Funny gray zone there... no, our credit score did not technically take a hit because no late payments had been officially reported to the bureaus, BUT the lenders/underwriters can still see that payments aren't being made. That means they see whats going on, don't love the idea of taking our loan (despite our having a perfect credit score, the loan having immense equity built up, or the fact we were trying to refi in order to  actually improve our financial situation and security net with this and other loans we already hold with them).

Shouldn't actually have been a surprise I guess.  If I were the underwriter I wouldn't take the loan either... but certainly not something we considered going in to forbearance.

Fast forward 6months (to now) and we are calling our banks/loan servicers to look into the options... and while we probably shouldn't have been surprised by the answers now either... It's worth sharing in case any of you also find yourself in forbearance and looking at how to get out unscathed (or at least if you care about your credit score and ability to refi/borrow money in the future, which I'm guessing if you're on BP you do).

We were told early on that there would be options in terms of the back payments accruing during forbearance, both moving the missed payments to the end and/or structuring the loan. 

Restructuring-
Due to current low interest rates, this was obviously the attractive option.  We even recently started to fool ourselves into thinking that we could actually benefit by locking in new lower rates on our loans. 
What's that old saying about "if it looks too good to be true?"

Don't get me wrong, restructuring the loan IS an option, but in every case we were told that:
- Our credit scores would take a hard hit as the restructure essentially locks in the 120day+ late payments.  Better than a foreclosure...but clearly not maintaining our 800+ scores.
- The restructure would be entirely up to the bank, with no input/choice from us and would without question include extending the loan to 40yrs.   That means IF the banks choose, they could restructure our current loan to stretch out in duration only, possibly with only minimal or no reduction in the interest rate or monthly payment AND we also take a massive credit hit at the same time that likely prohibits us from refi'ing the loan into a better situation later on.  No thanks.

Deferment-
Simply moving the payments to the end of the loan because repaying the entire lump sum now (or later) seems daunting at least.

Half our banks said there would be no credit hit with this method.  The other half said there would be.
We went upstream with calls to both Freddie/Fannie both of whom confirmed that the bank "should not" be reporting anything in terms of a late payment, BUT as we have already experienced this may or may not matter when actually trying to use our credit for a future loan or refi.

We once again called the bureaus as well as our brokers to see what lenders were doing or if they had seen examples of loans/refis after someone had chosen this option.  The answers were almost unanimous. 
Those who hadn't yet had no idea exactly how underwriters would handle it, those who had already tried weren't able to move these loans/refis forward.  In most cases, the response from the underwriters seemed to be a resounding "if this person is telling their current bank/lender that they cant make those payments, why would I take them on so they can tell me the same".

Again... cant say I would make a different call as the underwriter, but at least from our side of the equation it's a frustrating set of choices.
Im guessing most people that entered into forbearance due to covid don't have another option right now.  Most of us can't simply make a lump sum payment to get out (certainly without huge risk since none of us know what's coming in the next couple of months or what the situation for each of our tenants will be).  If paying a lump sum isn't an option, then either of these look pretty good despite the credit hits (better than foreclosure), but our investments and livelihood rely heavily over our ability to secure loans.
No loans, no leverage.  No leverage, no growth (or certainly diminished).

So far we don't see or cant find any "way out" other than figuring out how to pay the lump sum of 6months back payments across all our loans (that adds up to a HEFTY figure) and protect our credit/ability to borrow in the future, even though that means taking on much more risk right now in a very risky time.

Those of you who also entered into forbearance to protect your investments... what's your plan/exit strategy???