Tri-Valley homeowners: Is loan forbearance right for you?

Warren Oberholser
Warren Oberholser
Published on January 23, 2021

Please note, I originally released this video and BLOG on 4.30.2020. Please click on the hyperlinks to learn the current stats.

Hi, I’m Warren Oberholser. I’m a realtor in the East Bay Tri-Valley area in Northern California. My goal is to help both buyers and sellers get maximum results for one of their biggest investments, their home.

I want to begin by saying, I hope you, your family members, and your friends are all well. And if somebody is sick, I wish them a fast and complete recovery.

We’re now six weeks into shelter in place orders. Unemployment has exceeded 26 million claims and we’re at a 16% jobless rate (as of April 30, 2020). As you can imagine, this has stressed our economy and particularly housing. For this reason, the federal government passed the CARES Act. Now, this is a relief package worth over $2 trillion that’s designed to provide fast and direct financial relief to the American worker, families, and the small businesses all affected by COVID-19. Part of the CARES Act is to allow a homeowner with a mortgage to temporarily suspend their payment if they’re experiencing financial difficulty due to the impact of the coronavirus. This suspension or reduction of payment is referred to as loan forbearance.

So, what is a loan forbearance? This occurs when a lender allows a homeowner to make reduced payments or no payment for a set period of time. Your loan continues to gain interest during this period. The skipped payments are then due at the end of the designated timeline. All principal and interest money not paid during loan forbearance is still owed to your lender and is not reduced or eliminated from your loan balance. So, if you’re one of the millions who’s been financially impacted by COVID-19, you may be considering a loan forbearance.

I’m going to share with you some important information you should understand before going into a loan forbearance arrangement with your loan servicer.

And please stick around to the end because I’m going to give you my personal assessment and discussion on loan forbearance. So hopefully it’ll help you decide if loan forbearance is right for you.

Number one: The CARES Act guideline for federally backed loans

If a person is financially affected by COVID-19, they can request a forbearance up to 180 days. You also have the right to request an extension for an additional 180 days. To do this, you must contact your loan servicer to request a forbearance. No penalties, fees, or additional interest is added to your loan. Interest will still accrue. No documentation is required to qualify.

Number two: Questions to ask your lender

1- Can the forbearance term be extended after the 360 days have concluded?

2-If you have an impound account to cover your property taxes and insurance, inquire how they’ll be handled during the forbearance period? It is essential you request from your loan servicer how you’ll pay back the money owed after the forbearance period has ended. Here are some examples of possible loan repayment options. Of course, I have no idea what your lender will offer.

A.-Balloon Payment. You pay upfront all missed interest and principal at one time.

B- Mortgage Repayment Plan. This would be an additional payment plan for missed principal and interest on top of your regular mortgage payments.

C- Mortgage Loan Modification. They take all the missed principal and interest and put them into your loan. They may extend the timeframe for your loan. So if you are considering a loan modification, you should inquire upfront if you have to go through a new loan application and approval process once the forbearance period has concluded. If so, what are the qualification parameters? This includes a new credit score, job verification, et cetera. One last point on a loan modification, the CARES Act only applies to federally backed loans.

IT IS IMPORTANT TO NOTE: To qualify for loan forbearance, you do not need to show any upfront proof that you’ve been financially impacted by COVID-19. However, it is unclear if you need to show proof of being financially affected if you apply for a loan modification once your forbearance period has concluded. Therefore, this is another question you need to ask your lender. And if the answer is yes, inquire what kind of documentation is needed. Per the CARES Act, again, this is just for federally backed loans, loan service providers are not to report any late charges to the credit bureau during the forbearance period.

PLEASE UNDERSTAND: It is still unclear if your credit can be impacted by forbearance. Therefore, you should inquire from your service provider, can my credit score be affected if I’m in forbearance?

Number three: Find out if you have a ‘non federally backed loan

As mentioned, the CARES Act forbearance only applies to federally backed mortgages, such as FHA, VA, USDA, Fannie Mae, and Freddie Mac. If your loan is non-governmental backed or private loan servicer, you may or may not have any forbearance options. For this reason, you’ll need to contact your lender to inquire if any are available.

Number four: Document your conversations

Create a Spreadsheet, Word doc, or a journal to document every time you speak to your loan service provider. You’ll want to note things such as date, time, who you spoke to, and most important, what was discussed in the conversation. I would also request if you can record the call. Why not? They always record our calls by saying it’s for training purposes or something. If possible, ask them to email a summary of what your conversation was about. If you communicate with some kind of chat service, make sure you save the screen dialogue with some kind of screen capture method and save those in a file. The point is, when it comes time for loan repayment, if the bank is not offering you what they first discussed, you may have some recourse by noting your prior communications with them. It always helps when you have notes and specially written documentation.

Number five: Get Advice

Before you enter into loan forbearance, you should reach out to anyone you know who has a background in lending that you trust. You may also want to contact an attorney who is familiar with the lending laws in your area and see what they would advise.

Thanks so much for sticking around to the end for my assessment, discussion, and advice on loan forbearance.

There’s a couple of things I recommend you do upfront before you even begin into a conversation with your loan servicer, and especially before you sign something, which is, get advice from an expert.

As I mentioned earlier, if you know a good loan agent or mortgage consultant, I would contact them first. If you do not have anybody, you might want to reach out to Brian LeBars from Vintage Home Loans in Pleasanton. Brian’s been in the business for over 20 years, and he specializes in residential mortgages and is quite knowledgeable about our current lending situations.

You may also want to contact an attorney, a CPA, or anyone who specializes in finances.

Another possible option is a mortgage refinance: What is mortgage refinancing?

Refinancing a mortgage means you get a new home loan to replace your existing one, with the option to withdraw a portion of your home’s equity out as cash in the process. If you can refinance into a loan that has a lower interest rate than you’re currently paying, you could save money on your monthly payment and the overall cost of the loan. To learn more go to Bankrate, Inc.

If you do go into loan forbearance, make sure you have an ‘exit plan

In other words, how will you pay it off? Again, all deferred principal and interest must be paid back to the lender. If it’s unclear, if a loan modification or repayment plan will be available to you, then I would just plan on a balloon payment. So, to best prepare for this while you’re in forbearance, economize as much as possible, set aside money every month so you can be prepared to pay back.

One last thing, due to the fluid nature of COVID-19 and our economy, it’s incumbent upon each person to stay abreast of changes and updates with the CARES Act

Please visit the Consumer Financial Protection Bureau.

Please reach out to me if you have any questions. Warren

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About Warren Oberholser

Hello…I work with both buyers and sellers in the Tri-Valley area of Northern California. The Tri-Valley is comprised of 6 cities: Pleasanton, Livermore, Dublin, San Ramon, Danville, and Alamo. To better understand what each city has to offer, I have created a Pros and Cons video and BLOG for each – (Pros & Cons for Pleasanton, Pros & Cons for Livermore, Pros & Cons for Dublin, Pros & Cons for San Ramon, Pros & Cons for Danville and Pros & Cons for Alamo). If you are thinking about purchasing or selling a home, please reach out to me by text, phone, or email. If it is convenient, I can schedule a Zoom chat so we can discuss your home goals. Wishing you all the best on your home journey. Cheers!

Warren Oberholser

eXp Realty

[email protected]

(925) 980-4603

DRE # 01861944

ALL MATERIAL PRESENTED HEREIN IS INTENDED FOR INFORMATIONAL PURPOSES ONLY. THE INFORMATION CONTAINED HEREIN HAS BEEN OBTAINED THROUGH SOURCES DEEMED RELIABLE BUT CANNOT BE GUARANTEED AS TO ITS ACCURACY. SUBJECT MATERIAL MAY HAVE ERRORS, OMISSIONS, CHANGES OR WITHDRAWAL WITHOUT NOTICE. ANY INFORMATION OF SPECIAL INTEREST SHOULD BE OBTAINED THROUGH INDEPENDENT VERIFICATION.

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