As we head into the 4th month since COVID-19 rocked our world, many things have occurred within the nation’s banking and lending systems. We’ve had moratoriums on evictions, forbearance on mortgage payments, a tightening of underwriting standards and an ever-changing lending landscape. Many homeowners have been asking us about forbearance and how they determine their personal situation and what the best strategy is for them.
We recently hosted a Facebook Live event with Anthony Valentino of Guild Mortgage to answer your questions and address concerns. While there are general terms regarding forbearance, you need to check with the entity servicing your loan regarding your options. There are other implications of the choices you make with your mortgage so listen to this interview with Anthony and me to learn more. If you have a specific question that is not addressed in the video, please email me ron@landinkauai, or call me at 808.346.7095.
As i mentioned above, frequent changes in policies and rates have become the norm. A few items of consideration:
HOME EQUITY LINES OF CREDIT (HELOCs)
While we have not seen any of Hawaii’s local banks adjust their guidelines for HELOC loans, there’s a growing trend on the mainland for banks to reduce the maximum loan-to-value on the HELOC loans they originate. It is also important to note that if you currently have a HELOC, there are provisions in the documents you signed that allow the lender to arbitrarily reduce your line amount at any time. While neither of these measures eliminates HELOC loans, HELOC’s are primarily a higher LTV product. Scaling back the LTV will result in fewer people needing them.
NARROWING OF INCOME QUALIFICATION
I have heard from multiple sources now that loan underwriters are no longer considering rental income due to the volatile nature of the rental market, particularly vacation rentals. So if I own a Poipu condo that had a successful cash flow in 2019, and I want to use that income to help qualify for a loan on a home, underwriters will no longer allow this to be counted as income, ugh!
EXPLANTATION OF FORBEARANCE OPTIONS
Homeowners have several options to pay back unpaid amounts accrued during their forbearance period. Mortgage servicers will attempt to contact homeowners 30 days before their forbearance plan is scheduled to end to determine which assistance program is best for them at that time.
Option 1: Full repayment: Homeowners have the option of immediately reinstating their loan, which means catching up on all the missed payments in a single payment if they can afford it. If a homeowner chooses to reinstate their loan, they can continue to pay their mortgage under the terms originally agreed to before they received forbearance.
Option 2: Short-term repayment plans: Homeowners can gradually catch-up on the past-due amount over an agreed-upon time frame (for example, 3, 6, 9, 12 months). A portion of the past due amounts must be paid in addition to their existing monthly mortgage payments. Upon completion of their repayment plan, they can continue paying their mortgage under the terms originally agreed to before they received forbearance.
Option 3: COVID-19 payment deferral: Homeowners can resume their regular monthly payments and the amount of their missed payments mes to the end of the loan term. Nore: Mortgage servicers will begin offering the payment deferral repayment option starting July 1, 2020.
Option 4: Loan modification: The original terms of the loan are changed in order to make the borrower’s monthly payments more manageable and address their ongoing hardship.
If you follow our FB page you will be notified for our live interview events. We hope you tune in and find value in them as well.