Negative affects of forbearance?

[Gregory Schwartz]

I heard a rumor that commercial lenders are asking about forbearance. Specifically, if you had to ask for forbearance from your bank since it indicates a borrower has less than a stable financial position. Anyone else hearing anything? Personally I'm holding off and will only ask my bank if I absolutely need to skip a payment.

[Andrew Postell]

@Gregory Schwartz you are asking a HUGE question here that has real implications on someone's ability to borrow.  Not just for commercial lending but residential lending as well.  I'll try to summarize this as easily as possible.

Let's say your mortgage payment is $1500.  And let's say you decide to skip 3 payments, essentially 3 months.  After those 3 months pass, you call your lender and say that you are all good now and don't need to skip anymore payments.

SURPRISE!  You know owe 3 months of payments right then.  $4500 In full.  Oh, and you regular monthly payment is due too.

Now of course you are going to say something to the effect of "I've just been out of work, I don't have $6,000 to pay you right now".

So then your lender will say, no problem.  Will just spread those 3 payments over the next 3 months.  So now your regular $1500 payment is only $3,000 per month.  What a deal!

And of course, if you were having trouble paying $1500 per month...you're probably not going to be able to pay $3,000 per month either.

So now your lender will casually say "we'll just put you in a loan modification".

And for people who remember the housing crises....this is where everyone will get into trouble.  Since you cannot enter a "loan modification" without your loan being delinquent and since you can't pay your payments up back immediately or it will be really hard to pay the higher payment....you will now be ineligible for any mortgages for about 2 years.  Because you cannot go into a loan modification UNLESS you are behind on payments.

This whole scenario is a mess.  And it's going to get messier.

Anyway, I hope this makes sense but certainly is frustrating how this is being explained elsewhere.  Let me know if you have any questions on it.