Mortgage Forbearance Ramifications

[Brett Baginski]

Not sure if this has been posted yet, but I think it is worth sharing.  I heard on the Rental Income Podcast w/ Dan Lane, bonus episode from this Saturday "The Ugly Truth About Mortgage Forbearance", the long term effects this may have on an individual that takes this route.  It is only 7 minutes long and worth a listen, but I'll summarize below.

They discuss how this may hurt your chances at getting a conventional loan or refinancing for up to the next 2-4 years.  They are saying that "forbearance" or "deferment" will appear on your record and that 3 of the major lending institutions are already rewriting their underwriting guidelines so that people would be ineligible for a conventional loan for that time period.

Any thoughts?  Maybe a couple lenders can chime in on what may be going on behind the scenes.  I feel that most people are unaware of this and it may have a big impact on the market in the next few years.

[Chris Mason]

Originally posted by @Brett Baginski:

Not sure if this has been posted yet, but I think it is worth sharing.  I heard on the Rental Income Podcast w/ Dan Lane, bonus episode from this Saturday "The Ugly Truth About Mortgage Forbearance", the long term effects this may have on an individual that takes this route.  It is only 7 minutes long and worth a listen, but I'll summarize below.

They discuss how this may hurt your chances at getting a conventional loan or refinancing for up to the next 2-4 years.  They are saying that "forbearance" or "deferment" will appear on your record and that 3 of the major lending institutions are already rewriting their underwriting guidelines so that people would be ineligible for a conventional loan for that time period.

Any thoughts?  Maybe a couple lenders can chime in on what may be going on behind the scenes.  I feel that most people are unaware of this and it may have a big impact on the market in the next few years.

 A creditor would be stupid NOT to consider this a factor. 

There will still be bottom feeder lenders that allow it, provided Fannie and Freddie allow it. The same lenders that 3 months ago would "work with me" for my 500 FICO clients on FHA. Trash rates, trash turntimes, trash fees.

Lots of landlords on this forum. Those that maintain decent properties, charge reasonable rent, and maintain things... are you taking that tenant applicant with an eviction on their record? Do you care about their story of how it's "not their fault?" Same thing here. 

But the slumlords will take those renters all day long. Again, same thing here. 

There are lenders that I want to broker a loan to with good rates, low fees, smooth process, etc, allowing me in turn to pass those goodies along to the borrower, and then there are the "slumlords" that I only work with if I absolutely must.

I could be wrong, but I suspect there will still be lenders that will offer credit to the borrower that took forbearance once said forbearance is current, without any 12 or 36 months of seasoning and proof of on-time payments (which is what the middle ground lenders will likely require), it's just not going to be the same great deal on the mortgage that other people are able to get. But, in some cases, the fact that you got a "yes" at all, that in itself is a great deal.

Now, a rental property mortgage application? That's a whole different beast, I wouldn't be surprised if that was cut off entirely, or nearly so, until some seasoning following the event has occurred. 

In general, reduced competition from other buyers or investors is a good thing for the person who is still in the game. That might be something to consider. If there's a swath of people who can't get a mortgage at all,  but you're still able to, that puts you in a better position.