All Forum Posts by: Mark Horn

Originally posted by @Keith C.:

@Joe G.@Mark Horn Unfortunately some servicers will report it like this ,, Those people may be able to fight it or hopefully legislation gets passed,, Its not a free walk in the park right now , You Pay or IF you dont it is noted as such 

Thank you for posting this up.  

So my understanding is that if you were/are current, they must continue to report you as current. I am operating under that assumption. As I have an FHA loan, there is a mandatory partial claim to facilitate the back end repayment.

What does that look like then?  Like even if the lender reports current current current current, after 12 months, they enter a partial claim.  That will show up as a new loan I'd imagine?  So basically even though its not "negative" reporting, it would be quite obvious you took a partial claim?  I am planning to decide in a few months how to proceed, but I am curious if any lenders have experience reviewing applicants who have a partial claim on their credit report.

Some of us would need to tap our 401k loans as a 3-4 month reserve.  That doesn't make me a gambler as much as it makes me someone who scrapped together capital to get off the ground.  When faced with a set of choices, why not evaluate them all?  This is a once in a lifetime option.  Your 401k, your cash on hand, your backup plans, they all continue in the future, this forbearance option is only RIGHT now. 

Updated guidance from HUD. They are going the partial claim route. Still looks like its basically a "raise your hand if you want it" scenario, but it would result in a partial claim/second note covering the deferment. Definitely something visible on future deals. Can a lender chime in on how you would view this?

https://www.hud.gov/sites/dfiles/OCHCO/documents/20-06hsngml.pdf

@Robert J. @Joe G.

They may well mark "current" or a check mark but I am fairly confident the hard pull credit reports are a complete credit history, including balances by month.  If you take a 12 month forbearance and then pay it all off in the final hour then MAYBE they will fudge the balance on your report to look like you paid monthly.  I doubt this highly.  My lender stated internally it will show as delinquent, it just won't be reported delinquent.  If I end up going for a loan modification, the new balance will show up, and the new maturity date.   I think we are kidding ourselves to think that lenders will not be able determine who has utilized this mechanism.   Maybe a lender can chime in, but that's how I see it. 

I feel that the capital may be worth it, who knows what the future holds. But its important to be aware of the downside risk as well. 

It's worth mentioning that I do think there would be a gap in your payment history.  In other words, this will not be invisible to future lenders.  As some have put it, if you have two loan applications, both with 850 credit, you're going to take the one with perfect payment history, not the one who took a deferment.  If you are in a jam its a no brainier, but there are pro's and con's to it if you are opting in voluntarily. 

@Ramon Alire
It may take a while for complete clarity to emerge. But this is the existing verbiage from HUD regarding events like this. In my state and in yours, this should be starting point for FHA loan modification as its already codified.

Basically, you take the forbearance mandated by the CARE act.  At the end of that 12 month period, you don't have to explain why you won't pay the lump sum back, you just have to be owner occupied, and meet the criteria in that document.  If you don't have income you can verify that is equal or greater to what you had when you got the loan, you will need to make 3 normal payments in full to get the loan modification. 

This could be subject to change/improvement, but it appears to be a clearly articulated ruling already that fits our situations. 

@Brett Goldsmith 

Yeah I think that is the part that makes the disaster rules different.  No means testing/hardship proof, and a mandatory trial plan option.  

@Brett Goldsmith

Understood.  Do I read it right that even if my income was zero, all I need to do is make 3-4 payments in full at the end of forbearance to qualify for the "trail payment plan" clause and thus an approved loan modification?

@Brett Goldsmith 

Well yeah, that's literally the entire point, without a loan modification it makes no sense to defer voluntarily. 

I realize this sounds a lot like fraud. It's probably worth hearing from the other side, lenders and servicers, as this is based on an assumption that the FED is going to make the servicers whole during this event. They (the FED) are printing the middle class out of a future, so my mentality right now is to make the most of what they are offering, not to screw over lenders or commit fraud. 

I am currently 50% vacant with renovations to finish and no contractors working. My employment base is very shut down. My other tenant is a messy eviction. I could probably go on a rice and beans diet and make the payments, or drain my 401k, but if there are other options on the table, why not look at them?   This was a solid deal, and made sense to be in even if we saw a correction and I went underwater for a few years.  No one saw a global pandemic coming, and I think the uncertainty of what may be coming regarding rental markets is a real concern. 

@Chris Mason

Your point is well taken. My personal strategy involves a partner, we live together, and were planning to alternate purchasing low down payment owner occupied 3-4unit properties that have good debt service ratios.   My next deal in this strategy is 2 years away minimum, realistically more like 3.  So its a gamble that a COVID related blemish on my credit history followed by 2 years of perfect payments would be an issue.  I can certainly see why a lender would prefer to go for someone with a squeaky clean history.  

On the flip side, will the days of 3.5% down loans on 3-4 unit deals be going away if a recession hits?  Hard to say, but cash talks, and given what may be coming to our market, a healthy cash reserve certainly seems like sound logic.  

@Brett Goldsmith

This is the existing guidance, issued I believe Aug 2019.  It was not drafted specifically for COVID.  The key takeaway for me was that there was no means testing, you can qualify simply because of the presidential declared disaster.  If they can means test you at the end of forbearance to determine if you MUST lump sum pay it back vs loan modification, then I don't think opting to defer to build capital makes sense.  The other key seems to be that they offer trial payment plans if you can't verify your income. 

I look at it this way.  If you don't defer, you have X cash reserve, and then you lose your job in 11 months, what do you do?  You may no longer be able to qualify for no credit impact forbearance, and you still have an income shortage if you depend on W2 to make your mortgage. Same risk for vacancy, it's still a shortfall in 12 months whether you already took forbearance or not.  The difference is, if you built up that extra capital reserve during forbearance, you may have closer to a year or maybe more in reserves.  You should easily be able to cover the 3 month trial payment period, get the loan modification, and now you have some runway to fix your vacancy issue or W2 issue.  All without a true credit hit, no?