Rates for a 30-year fixed mortgage just fell to all-time lows.
But some COVID-impacted borrowers won’t be able to take advantage of today’s historically low interest rates because they haven’t made all of their mortgage payments on time.
The Cares Act allows conventional, FHA and VA mortgage holders who are suffering financially from the coronavirus pandemic to forgo their payments for up to 12 months without penalty or damage to their credit — a feature called forbearance.
Fannie Mae and Freddie Mac conventional mortgages allow borrowers to refinance their loans after they stop forbearance and make three consecutive payments.
But the Federal Housing Administration and Department of Veterans Affairs don’t allow refinancing, be it for a reverse mortgage or a standard mortgage, if a borrower is under the forbearance cloud.
One call last week was particularly difficult to take.
Longtime clients of mine who own their own business were forced to take forbearance on their Mission Viejo townhouse because their business income stopped due to the coronavirus lockdown.
Since they are elderly, they are considering a reverse mortgage as a solution to their financial problems.
“We want to stay in our home,” the husband told me. “We just don’t know when this is going to end.”
Now that won’t be possible.
A whopping 11.6% of FHA and VA loans are in forbearance, while 8.36% of mortgages overall are in forbearance, according to this week’s Mortgage Bankers Association lender survey.
A recent survey by Lending Tree revealed only 5% of people approved for a mortgage forbearance said they actually needed one to avoid missing a payment.
“Those that applied but didn’t need (forbearance) are in for a shock,” said Brianna Wright, senior consumer research specialist at Lending Tree.
Why aren’t the FHA and VA folks onboard to coax borrowers into refinancing their forbearance mortgages like Fannie and Freddie?
Allowing borrowers to refinance after forbearance will not only help them by lowering their mortgage payments or letting them pull out some cash, it might also take some pressure off Ginnie Mae, the government agency that securitizes FHA and VA loans.
Currently, Ginnie is in a bind because it must continue passing along the funds owed to investors on a monthly basis even though it isn’t getting borrower payments.
What about the big banks?
Bank of America and Citibank say they will review the refinancing of borrowers in forbearance on a case-by-case basis. Wells Fargo says it is reviewing the possibility of offering refi’s to those who got forbearance but are now paid up.
A lot of people are suffering severe depression, anxiety and are even considering suicide, some psychiatrists say.
To get through this, they say, we all need to offer some kindness and support to everyone.
Jeff Lazerson - Mortgage Columnist since 2011