Pros/cons of utilizing mortgage deferral

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Topic Author
mbasherp
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Pros/cons of utilizing mortgage deferral

Post by mbasherp »

I’ve been furloughed, and DW has taken a pay cut. We also have a baby on the way. We have a good sized emergency fund and taxable investments, but I’m considering utilizing the mortgage deferral program available to us, with our Freddie Mac owned mortgage.

Defer 6 months of payments, which we would keep as cash amidst all this uncertainty, and then repay the amount without interest when we sell, payoff or refinance the loan. I suppose we would potentially add it to our taxable investment account after the baby, if it ends up being superfluous.

Current loan is 29 years 9 months remaining, at 3.5%. 196k owed, 340k home value.

Any reason for us not to use this program which seems designed exactly for us?
GoldenFinch
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Re: Pros/cons of utilizing mortgage deferral

Post by GoldenFinch »

Considering your job situation, I would defer payments. Congratulations on the baby!
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galawdawg
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Re: Pros/cons of utilizing mortgage deferral

Post by galawdawg »

mbasherp wrote: Wed Jun 03, 2020 5:54 pm I’ve been furloughed, and DW has taken a pay cut. We also have a baby on the way. We have a good sized emergency fund and taxable investments, but I’m considering utilizing the mortgage deferral program available to us, with our Freddie Mac owned mortgage.

Defer 6 months of payments, which we would keep as cash amidst all this uncertainty, and then repay the amount without interest when we sell, payoff or refinance the loan. I suppose we would potentially add it to our taxable investment account after the baby, if it ends up being superfluous.

Current loan is 29 years 9 months remaining, at 3.5%. 196k owed, 340k home value.

Any reason for us not to use this program which seems designed exactly for us?
I wouldnt say it is "designed" exactly for you. You have the means to pay. Some don't.

Respectfully, if you can pay your bills, you should do so. If everyone who "can" defer does so, the consequences to our economy will be problematic.

This is not the time to "bank" or invest what you save by not paying your mortgage as agreed. Just my opinion.
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mbasherp
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Re: Pros/cons of utilizing mortgage deferral

Post by mbasherp »

galawdawg wrote: Wed Jun 03, 2020 6:08 pm
mbasherp wrote: Wed Jun 03, 2020 5:54 pm I’ve been furloughed, and DW has taken a pay cut. We also have a baby on the way. We have a good sized emergency fund and taxable investments, but I’m considering utilizing the mortgage deferral program available to us, with our Freddie Mac owned mortgage.

Defer 6 months of payments, which we would keep as cash amidst all this uncertainty, and then repay the amount without interest when we sell, payoff or refinance the loan. I suppose we would potentially add it to our taxable investment account after the baby, if it ends up being superfluous.

Current loan is 29 years 9 months remaining, at 3.5%. 196k owed, 340k home value.

Any reason for us not to use this program which seems designed exactly for us?
I wouldnt say it is "designed" exactly for you. You have the means to pay. Some don't.

Respectfully, if you can pay your bills, you should do so. If everyone who "can" defer does so, the consequences to our economy will be problematic.

This is not the time to "bank" or invest what you save by not paying your mortgage as agreed. Just my opinion.
The counterpoint is that I don’t know what my “means to pay” will be in a year. And this program will not likely exist then, at least to initiate it in current form. There are so many variables, and we are not even close to financially independent, so I actually feel it might be irresponsible to say, “no thanks, we’re good.”

Having some money saved doesn’t mean we can weather this challenge regardless of outcome.

The extrapolation of your logic would imply that if I am down to my last $1117.74 (My mortgage payment) and jobless, that I should pay it rather than utilize this program.
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Re: Pros/cons of utilizing mortgage deferral

Post by sailaway »

As I understand it, you first have to be approved for forebearance, then separately approved for deferral at the end of the forebearance period.

Since the deferral program hasn't started, we don't really know what the approval rates will be. Freddie Mac hasn't made the criteria clear.

Did you receive a notice from your servicer making an offer or have you spoken with them yet?
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mbasherp
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Re: Pros/cons of utilizing mortgage deferral

Post by mbasherp »

sailaway wrote: Wed Jun 03, 2020 6:24 pm As I understand it, you first have to be approved for forebearance, then separately approved for deferral at the end of the forebearance period.

Since the deferral program hasn't started, we don't really know what the approval rates will be. Freddie Mac hasn't made the criteria clear.

Did you receive a notice from your servicer making an offer or have you spoken with them yet?
I have gotten notices from my servicer but largely ignored them until now. The triple uncertainty is what made me think again. My industry is in terrible shape and I have no idea when we might be back, with my company or another.

Good point about them being separate, though. My reading was that at the end of the approved period, the borrower would be presented with the option. Is that correct? And am I overlooking anything else here?
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Re: Pros/cons of utilizing mortgage deferral

Post by sailaway »

mbasherp wrote: Wed Jun 03, 2020 6:29 pm
sailaway wrote: Wed Jun 03, 2020 6:24 pm As I understand it, you first have to be approved for forebearance, then separately approved for deferral at the end of the forebearance period.

Since the deferral program hasn't started, we don't really know what the approval rates will be. Freddie Mac hasn't made the criteria clear.

Did you receive a notice from your servicer making an offer or have you spoken with them yet?
I have gotten notices from my servicer but largely ignored them until now. The triple uncertainty is what made me think again. My industry is in terrible shape and I have no idea when we might be back, with my company or another.

Good point about them being separate, though. My reading was that at the end of the approved period, the borrower would be presented with the option. Is that correct? And am I overlooking anything else here?
The Freddie Mac site says that at the end of forebearance, they will contact you about the best option. That is crazy vague. If you decide to go through with it, be sure you understand the other repayment options and are OK with those options. At least with Freddie Mac, lump sum at the end of forebearance is expressly NOT an option.
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galawdawg
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Re: Pros/cons of utilizing mortgage deferral

Post by galawdawg »

mbasherp wrote: Wed Jun 03, 2020 6:14 pm The counterpoint is that I don’t know what my “means to pay” will be in a year. And this program will not likely exist then, at least to initiate it in current form. There are so many variables, and we are not even close to financially independent, so I actually feel it might be irresponsible to say, “no thanks, we’re good.”

Having some money saved doesn’t mean we can weather this challenge regardless of outcome.

The extrapolation of your logic would imply that if I am down to my last $1117.74 (My mortgage payment) and jobless, that I should pay it rather than utilize this program.
But this isn't about a "hypothetical" down to your last $1,117.74 situation. From a recent post, you mentioned:
mbasherp wrote: Thu Apr 30, 2020 11:15 am Mid 30's couple in MCOL
Monthly expenditure: ~$3500 after tax, before savings/investment
Annual income: $117K-137k variable (DW: $67k, DH $50-70k)
We typically average a 33% gross savings rate, and increase spending beyond that on vacations/charity/discretionary.

Assets:
Savings: $21.5k ($11k earmarked for replacement of old HVAC when needed, plus 10.5k emergency fund, 3 months)
I Bonds: $12.5k (part of emergency fund, 3-4 months)

Investments: (target 95% stocks, 5% precious metals - mostly BH approved, minus 3% of portfolio in individual stocks)
Taxable: $83k
His Roth IRA: $49k
Her Roth IRA: $29k
Her 401(k): $84k
Precious metals: $8.5k

Debts:
Mortgage: $196k 30 year fixed at 3.5%

~$431k net worth
No debt other than your mortgage, $33k in savings/emergency fund and about another $170k in investments (excluding her 401k). Monthly expenses of about $3,500. So even if her pay is cut to about $50k annually, you can meet your expenses without dipping into your $200k plus available funds.

If you do the deferment for six months as you contemplate, you'll only be postponing payment of about $6,700 (or less if that amount includes your tax and insurance escrow amounts). So why not just pay the $1,117.74 per month. You'll be doing your part to keep the economy going. :happy

As I mentioned in a similar recent post, if everyone quits pulling the oars, the boat will stop. :shock:
confusedinaz
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Re: Pros/cons of utilizing mortgage deferral

Post by confusedinaz »

mbasherp wrote: Wed Jun 03, 2020 5:54 pm I’ve been furloughed, and DW has taken a pay cut. We also have a baby on the way. We have a good sized emergency fund and taxable investments, but I’m considering utilizing the mortgage deferral program available to us, with our Freddie Mac owned mortgage.

Defer 6 months of payments, which we would keep as cash amidst all this uncertainty, and then repay the amount without interest when we sell, payoff or refinance the loan. I suppose we would potentially add it to our taxable investment account after the baby, if it ends up being superfluous.

Current loan is 29 years 9 months remaining, at 3.5%. 196k owed, 340k home value.

Any reason for us not to use this program which seems designed exactly for us?
If I lost a majority of my income, I'd take advantage of the ability to defer and hold on to my cash. Ignoring the "moral hazard" of course. :annoyed
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mbasherp
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Re: Pros/cons of utilizing mortgage deferral

Post by mbasherp »

galawdawg wrote: Wed Jun 03, 2020 7:06 pm
mbasherp wrote: Wed Jun 03, 2020 6:14 pm The counterpoint is that I don’t know what my “means to pay” will be in a year. And this program will not likely exist then, at least to initiate it in current form. There are so many variables, and we are not even close to financially independent, so I actually feel it might be irresponsible to say, “no thanks, we’re good.”

Having some money saved doesn’t mean we can weather this challenge regardless of outcome.

The extrapolation of your logic would imply that if I am down to my last $1117.74 (My mortgage payment) and jobless, that I should pay it rather than utilize this program.
But this isn't about a "hypothetical" down to your last $1,117.74 situation. From a recent post, you mentioned:
mbasherp wrote: Thu Apr 30, 2020 11:15 am Mid 30's couple in MCOL
Monthly expenditure: ~$3500 after tax, before savings/investment
Annual income: $117K-137k variable (DW: $67k, DH $50-70k)
We typically average a 33% gross savings rate, and increase spending beyond that on vacations/charity/discretionary.

Assets:
Savings: $21.5k ($11k earmarked for replacement of old HVAC when needed, plus 10.5k emergency fund, 3 months)
I Bonds: $12.5k (part of emergency fund, 3-4 months)

Investments: (target 95% stocks, 5% precious metals - mostly BH approved, minus 3% of portfolio in individual stocks)
Taxable: $83k
His Roth IRA: $49k
Her Roth IRA: $29k
Her 401(k): $84k
Precious metals: $8.5k

Debts:
Mortgage: $196k 30 year fixed at 3.5%

~$431k net worth
No debt other than your mortgage, $33k in savings/emergency fund and about another $170k in investments (excluding her 401k). Monthly expenses of about $3,500. So even if her pay is cut to about $50k annually, you can meet your expenses without dipping into your $200k plus available funds.

If you do the deferment for six months as you contemplate, you'll only be postponing payment of about $6,700 (or less if that amount includes your tax and insurance escrow amounts). So why not just pay the $1,117.74 per month. You'll be doing your part to keep the economy going. :happy

As I mentioned in a similar recent post, if everyone quits pulling the oars, the boat will stop. :shock:
I’ve got nothing to hide here; I’m honestly surprised that I would get a response as if I’m gaming the system by considering this. If DW were furloughed and I was working, that might be different. But she’s carrying a (first) baby, and we don’t know what’ll be entailed there. There are rumors of layoffs at her work beyond the pay cuts in place. My industry is perhaps the hardest hit of any in this environment. We could conceivably get cleaned out quickly If things don’t break our way. I’m trying to be responsible by utilizing options while they’re available. That does our economy a service by avoiding worse outcomes.

While we DO have options (and I’m thankful for that), we are not in the clear by a long shot here. Raiding our taxable account is equivalent to raiding a 401k for someone else, because that’s where we save for my lack of a 401k.

Would you feel differently if all our savings were in tax advantaged accounts and we had two car loans? The only difference is that we drive beaters (already made the cuts some aren’t willing to) and I work in an industry without 401(k)s.

Under what conditions would you take this option?
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ResearchMed
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Re: Pros/cons of utilizing mortgage deferral

Post by ResearchMed »

Are there effects on one's credit score by doing this?
If so, is it the initial deferral or something about when it's paid back?

But I certainly understand wanting to hold on to extra cash if the future is uncertain, and one's needs can't be pulled back too much that quickly, given family circumstances.
Approximately what percentage of your absolutely required monthly expenses are covered by your wife's new income level? And how secure is her job/that income now?

Good luck!

RM
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mbasherp
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Re: Pros/cons of utilizing mortgage deferral

Post by mbasherp »

ResearchMed wrote: Wed Jun 03, 2020 7:35 pm Are there effects on one's credit score by doing this?
If so, is it the initial deferral or something about when it's paid back?

But I certainly understand wanting to hold on to extra cash if the future is uncertain, and one's needs can't be pulled back too much that quickly, given family circumstances.
Approximately what percentage of your absolutely required monthly expenses are covered by your wife's new income level? And how secure is her job/that income now?

Good luck!

RM
Based on my reading, there are no negative credit ramifications of this. And deferral is interest free. But I’m asking here on BH to double check and utilize the wonderful accumulated wisdom here.

Immediately, our expenses will be covered with her reduced income and my UI payment. When the baby arrives, we will be deeply in the red without me working during maternity leave, and slightly in the red due to daycare thereafter.

That being said, she is not truly essential at her job and I would say layoffs there are 50/50. Again, it’s not one factor here that has me considering this. It’s the combination. But I don’t want to walk into a potential bad deal based on fear, either.
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Re: Pros/cons of utilizing mortgage deferral

Post by rich126 »

mbasherp wrote: Wed Jun 03, 2020 7:48 pm
ResearchMed wrote: Wed Jun 03, 2020 7:35 pm Are there effects on one's credit score by doing this?
If so, is it the initial deferral or something about when it's paid back?

But I certainly understand wanting to hold on to extra cash if the future is uncertain, and one's needs can't be pulled back too much that quickly, given family circumstances.
Approximately what percentage of your absolutely required monthly expenses are covered by your wife's new income level? And how secure is her job/that income now?

Good luck!

RM
Based on my reading, there are no negative credit ramifications of this. And deferral is interest free. But I’m asking here on BH to double check and utilize the wonderful accumulated wisdom here.

Immediately, our expenses will be covered with her reduced income and my UI payment. When the baby arrives, we will be deeply in the red without me working during maternity leave, and slightly in the red due to daycare thereafter.

That being said, she is not truly essential at her job and I would say layoffs there are 50/50. Again, it’s not one factor here that has me considering this. It’s the combination. But I don’t want to walk into a potential bad deal based on fear, either.
I would recommend doing more research since things I have read indicate there may be a negative impact. Obviously if you need it the impact may be worth it. And I would not ask the mortgage company about it.
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mbasherp
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Re: Pros/cons of utilizing mortgage deferral

Post by mbasherp »

rich126 wrote: Wed Jun 03, 2020 8:00 pm
mbasherp wrote: Wed Jun 03, 2020 7:48 pm
ResearchMed wrote: Wed Jun 03, 2020 7:35 pm Are there effects on one's credit score by doing this?
If so, is it the initial deferral or something about when it's paid back?

But I certainly understand wanting to hold on to extra cash if the future is uncertain, and one's needs can't be pulled back too much that quickly, given family circumstances.
Approximately what percentage of your absolutely required monthly expenses are covered by your wife's new income level? And how secure is her job/that income now?

Good luck!

RM
Based on my reading, there are no negative credit ramifications of this. And deferral is interest free. But I’m asking here on BH to double check and utilize the wonderful accumulated wisdom here.

Immediately, our expenses will be covered with her reduced income and my UI payment. When the baby arrives, we will be deeply in the red without me working during maternity leave, and slightly in the red due to daycare thereafter.

That being said, she is not truly essential at her job and I would say layoffs there are 50/50. Again, it’s not one factor here that has me considering this. It’s the combination. But I don’t want to walk into a potential bad deal based on fear, either.
I would recommend doing more research since things I have read indicate there may be a negative impact. Obviously if you need it the impact may be worth it. And I would not ask the mortgage company about it.
I’m sorry to put you on the spot, but can you share the sources that indicate the negative impact? I have searched everywhere I know (servicer, Freddie Mac, forums) and have not seen that.

Also, why not ask the mortgage servicer about it? Aren’t they the ones who can offer the exact fine print?
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galawdawg
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Re: Pros/cons of utilizing mortgage deferral

Post by galawdawg »

I'm not suggesting that there won't come a time in the future where perhaps your financial situation changes, such as your wife being laid off or furloughed. However, you have done an excellent job living below your means and creating an emergency fund. Times like this are the reason you do that.

You mentioned in this thread and another thread your desire to continue to save, invest and contribute to your wife's 401k even during this job situation. Everything I have read about mortgage forebearance is that it is intended for those who cannot pay their mortgage or who are struggling to pay their mortgage, not for those who prefer not to pay it in order to increase their savings/emergency fund. While being well-prepared for financial difficulties is a worthy goal, generally that can be attained without shifting costs to others.

I understand that the economic consequences of widespread mortgage forbearance could be significant. Mortgage servicers need to make payments to mortgage bond investors. And that cash flow comes from borrowers. If the borrower isn't paying their mortgage , who is making those payments for them? Somebody is bearing that cost. Here's a report on the economic impacts of COVID-19 mortgage forebearance, both near and long-term: https://crsreports.congress.gov/product/pdf/IN/IN11385

Ultimately, you and your wife will do what you decide is right for you. I don't intend to accuse or criticize. But you asked for pros and cons of your contemplated course of action. I've provided some feedback of cons you might not have considered otherwise. :happy
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galawdawg
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Re: Pros/cons of utilizing mortgage deferral

Post by galawdawg »

mbasherp wrote: Wed Jun 03, 2020 7:48 pm Immediately, our expenses will be covered with her reduced income and my UI payment. When the baby arrives, we will be deeply in the red without me working during maternity leave, and slightly in the red due to daycare thereafter.
By the way, congratulations on the new addition! That will certainly cause or increase uncertainty and concern about financial security....and trust me, it doesn't stop after they are adults! :o :?

Not to be personal, but if you still aren't working after the baby arrives, why would you incur daycare expenses?
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mbasherp
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Re: Pros/cons of utilizing mortgage deferral

Post by mbasherp »

galawdawg wrote: Wed Jun 03, 2020 8:12 pm
mbasherp wrote: Wed Jun 03, 2020 7:48 pm Immediately, our expenses will be covered with her reduced income and my UI payment. When the baby arrives, we will be deeply in the red without me working during maternity leave, and slightly in the red due to daycare thereafter.
If you aren't working, why would you incur daycare expenses?
Daycare in our area has long waiting lists. To forego that would mean I am choosing to stay home instead of work for the long term. I love my job, in contrast to DW, and we have chosen as a family to base our decisions around my career, not hers. If I am not available to work at a moment’s notice by keeping daycare current, I might as well be retired because I won’t be getting back in the door easily, in my industry.
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mbasherp
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Re: Pros/cons of utilizing mortgage deferral

Post by mbasherp »

galawdawg wrote: Wed Jun 03, 2020 8:10 pm I'm not suggesting that there won't come a time in the future where perhaps your financial situation changes, such as your wife being laid off or furloughed. However, you have done an excellent job living below your means and creating an emergency fund. Times like this are the reason you do that.

You mentioned in this thread and another thread your desire to continue to save, invest and contribute to your wife's 401k even during this job situation. Everything I have read about mortgage forebearance is that it is intended for those who cannot pay their mortgage or who are struggling to pay their mortgage, not for those who prefer not to pay it in order to increase their savings/emergency fund. While being well-prepared for financial difficulties is a worthy goal, generally that can be attained without shifting costs to others.

I understand that the economic consequences of widespread mortgage forbearance could be significant. Mortgage servicers need to make payments to mortgage bond investors. And that cash flow comes from borrowers. If the borrower isn't paying their mortgage , who is making those payments for them? Somebody is bearing that cost. Here's a report on the economic impacts of COVID-19 mortgage forebearance, both near and long-term: https://crsreports.congress.gov/product/pdf/IN/IN11385

Ultimately, you and your wife will do what you decide is right for you. I don't intend to accuse or criticize. But you asked for pros and cons of your contemplated course of action. I've provided some feedback of cons you might not have considered otherwise. :happy
I understand where you’re coming from now, and I do appreciate your cordial approach. I suppose the bottom line of this if I apply what I read in that paper is:

How do I weigh the potential risks to my mortgage servicer (1-ethically, 2- as a customer and 3- as a possible shareholder) in relation to the potential risks to my family, in the event of continued adverse developments?

I don’t know. But I will think about it. Initially, I think of the likelihood that the Fed is prone to backstop mortgage servicers infinitely, but Joe Q Public (me) can be run into the ground. Sounds rough, I know, but that’s my initial take.
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Re: Pros/cons of utilizing mortgage deferral

Post by mattsm »

If I was eligible for something and was following the rules. I would do it. Just make sure you are following all the rules.

-M
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galawdawg
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Re: Pros/cons of utilizing mortgage deferral

Post by galawdawg »

Two more practical things to consider. First, while you won't be reported to credit bureaus as late, it is probable that it would be reported that you are in forebearance. What affect that would have on your ability to obtain credit and/or more favorable terms in the future is an unknown at this point.

Second, it is unclear whether you will be required to pay your escrow (taxes and insurance) during forebearance. The CARES Act as passed appears not to have addressed that . Even if you aren't required to pay your escrow for six months, the lender will require that the shortage be repaid when they perform your next escrow analysis, so any benefit you believe you would realize to deferring that portion of your payment would be minimal if any.

With your mortgage terms (30 yr, $196k at 3.5%), it appears your monthly P&I is about $880. If that is the case, your realized six month deferral "savings" is only $5,280 or so. And at your current rate of spending with your current savings and liquid investments, to even get to the point where you would need that extra $5,000 or so, you and your wife would both have to have been unemployed with no income whatsoever for about five years.
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Nate79
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Re: Pros/cons of utilizing mortgage deferral

Post by Nate79 »

You have a decent sized emergency fund so I don't see the value of doing the mortgage deferral. If you do it you are admitting your emergency fund was insufficient which it doesn't seem to be the case. I would just keep living way below your means, tighten your belts and only save up more cash to increase your buffer. I would stop 401k above any match as well before doing the deferral.
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Re: Pros/cons of utilizing mortgage deferral

Post by hoffse »

I don’t have anything to offer regarding the forbearance program. I’m just chiming in to offer my support in your exploring it, without feeling shamed about doing so. Given the circumstances and the fact that you have a little one on the way (congrats!) I think this is exactly the time to be circling the wagons around your growing family and start pulling the levers you have available to you to get through this. Obviously you need to be informed about what you are doing, and consider the pros and cons. But the notion that you are somehow morally obligated not to make use of this program simply because you have an emergency fund strikes me as ridiculous. You clearly qualify for it, and now is the time to prioritize the financial well-being of your immediate family over that of the economy at large.

Covid has set your financial household on fire. Do whatever you need to do to manage it, and don’t feel guilty about that.
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Re: Pros/cons of utilizing mortgage deferral

Post by 02nz »

hoffse wrote: Wed Jun 03, 2020 9:19 pm I don’t have anything to offer regarding the forbearance program. I’m just chiming in to offer my support in your exploring it, without feeling shamed about doing so. Given the circumstances and the fact that you have a little one on the way (congrats!) I think this is exactly the time to be circling the wagons around your growing family and start pulling the levers you have available to you to get through this. Obviously you need to be informed about what you are doing, and consider the pros and cons. But the notion that you are somehow morally obligated not to make use of this program simply because you have an emergency fund strikes me as ridiculous. You clearly qualify for it, and now is the time to prioritize the financial well-being of your immediate family over that of the economy at large.

Covid has set your financial household on fire. Do whatever you need to do to manage it, and don’t feel guilty about that.
Exactly, no one should be shamed for using this program in accordance with its terms, any more than people who are cutting expenses should be shamed for failing to prop up the economy.
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greg24
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Re: Pros/cons of utilizing mortgage deferral

Post by greg24 »

OP, this kind of program was designed for people in your situation. Don't feel any ethical issues about using it.
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Re: Pros/cons of utilizing mortgage deferral

Post by Minty »

If a sophisticated market participant like the government or a big business offers free money, it is safe to assume they have their reasons. My vote is to take the money.
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rockstar
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Re: Pros/cons of utilizing mortgage deferral

Post by rockstar »

Depends.

Some mortgage services are incapable of adding the payment to the end of your loan. Some are still saying that you'll owe a large lump sum payment when your deferment period ends. I'd find out what you'll owe when the deferment period ends: a normal payment or a big balloon payment.
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galawdawg
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Re: Pros/cons of utilizing mortgage deferral

Post by galawdawg »

I wonder how many who have replied have actually read the CARES Act provisions on mortgage forbearance? From the CARES Act:
FORBEARANCE.—
(1) IN GENERAL.—During the covered period, a borrower with a Federally backed mortgage loan experiencing a financial hardship due, directly or indirectly, to the COVID–19 emergency may request forbearance on the Federally backed mortgage loan, regardless of delinquency status,
(A) submitting a request to the borrower’s servicer; and
(B) affirming that the borrower is experiencing a financial hardship during the COVID–19 emergency.
While the term "financial hardship" appears not to be defined in the CARES Act, it does appear elsewhere in federal law. For example:
Financial hardship means an inability to meet basic living expenses for goods and services necessary for the survival of the debtor and his or her spouse and dependents.
Financial hardship may be deemed to exist when the debtor needs substantially all of his or her current and anticipated income and liquid assets to meet current and anticipated ordinary and necessary living expenses...
And here are a few other mentions of mortgage forbearance during COVID-19 that may be of interest:

From the Consumer Financial Protection Bureau
If you can pay your mortgage, pay your mortgage.
From HUD
Effective immediately for borrowers with a financial hardship that makes them unable to pay their mortgage due to the COVID-19 National Emergency, mortgage servicers must extend deferred or reduced mortgage payment options - called forbearance - for up to six months, and must provide an additional six months of forbearance if requested by the borrower. This mandate implements provisions contained in the landmark Coronavirus Aid, Relief, and Economic Security Act (CARES Act) which President Trump signed into law on March 27, 2020.
hoffse
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Re: Pros/cons of utilizing mortgage deferral

Post by hoffse »

I have read the CARES act. It’s not exactly Congress’s best work.

Does OP have financial hardship? Well they lost their household income due to covid. I think it’s worth talking to his lender about it.

I am objecting to the argument that he should not even pursue the program just because he has some savings. Remember, we aren’t talking about never paying the mortgage again. We are talking about a very limited forbearance period while the country works through this mess. Their loss of income is directly related to covid. His taxable account is large for his age because he doesn’t have access to a 401k. That IS his retirement savings.

It’s entirely possible his lender won’t approve the forbearance due to his other assets. However, I don’t think he should feel like it’s pointless or morally hazardous to at least start the process and find out.

This is certainly no more morally hazardous than all of our millionaire bogleheads who manage their taxes to qualify for ACA subsidies in retirement.
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Re: Pros/cons of utilizing mortgage deferral

Post by galawdawg »

As I mentioned earlier, everyone's situation is different and I understand OP's anxiety given he has a new baby on the way. In many cases, relief is needed and appropriate, but reports indicate that most receiving mortgage forbearance don't actually need it. And all of the COVID relief programs come with a cost, whether to taxpayers, future taxpayers, lenders, mortgage bond investors, our nation's debt, or the greater economy.

While those requesting forbearance are required to "affirm" that they have a financial hardship, unlike normal mortgage assistance programs, no documentation or evidence is required to demonstrate financial hardship. It is pretty much on the "honor system".

And OP isn't suggesting that they postpone payments for a few months, OP is exploring deferral of six months of payments "which we would keep as cash amidst all this uncertainty, and then repay the amount without interest when we sell, payoff or refinance the loan. I suppose we would potentially add it to our taxable investment account..." In that case, the payments that the mortgage servicer made for OP won't be repaid to the mortgage servicer for thirty years (OP is only three months into a thirty year mortgage) unless OP sells, refinances or pays off the loan early.

Again, I understand the anxiety in this time of uncertainty but there will be long-term economic implications of providing financial assistance where it is not required for basic necessities of life. And while the total of OP's deferral would be modest (just over $5,000), multiply that by the over four million who were receiving forbearance as of early May, most of whom don't need it (https://www.forbes.com/sites/alyyale/20 ... -the-help/), and the costs are significant.

From a practical standpoint, OP may be better advised to consider applying for a HELOC while his wife is still employed. He has significant equity in his home and a HELOC would allow him, in the unfortunate event that his situation becomes dire in the future, to tap into that equity if needed. If he requests forbearance, he would be very unlikely to be able to seek a HELOC or home equity loan at that point.
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Re: Pros/cons of utilizing mortgage deferral

Post by Valuethinker »

mbasherp wrote: Wed Jun 03, 2020 5:54 pm I’ve been furloughed, and DW has taken a pay cut. We also have a baby on the way. We have a good sized emergency fund and taxable investments, but I’m considering utilizing the mortgage deferral program available to us, with our Freddie Mac owned mortgage.

Defer 6 months of payments, which we would keep as cash amidst all this uncertainty, and then repay the amount without interest when we sell, payoff or refinance the loan. I suppose we would potentially add it to our taxable investment account after the baby, if it ends up being superfluous.

Current loan is 29 years 9 months remaining, at 3.5%. 196k owed, 340k home value.

Any reason for us not to use this program which seems designed exactly for us?
I would, because you are in the situation where you don't know your future income. You could easily have your job go from furloughed to discharged?

So the need for liquidity is clear.
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hand
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Re: Pros/cons of utilizing mortgage deferral

Post by hand »

There's a difference between what *should* happen with this program and what *will* happen.

Already CNBC is reporting that a student loan lender is being sued for incorrectly reporting deferrals under a similar program as delinquent:

"A class action lawsuit, brought on behalf of millions of federal student loan borrowers, alleges that Great Lakes Educational Loan Services inaccurately reported the payment status of millions of federal student loan borrowers, lowering their scores and jeopardizing their access to credit during a recession."

It is conceivable similar would occur with mortgage deferrals or worse, the accounting of what you owe vs what you paid would be incorrect.

The benefit of conserving cash should be weighed against the risk of faulty execution of this program to your detriment.
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Re: Pros/cons of utilizing mortgage deferral

Post by JonnyB »

mbasherp wrote: Wed Jun 03, 2020 8:09 pm I’m sorry to put you on the spot, but can you share the sources that indicate the negative impact? I have searched everywhere I know (servicer, Freddie Mac, forums) and have not seen that.
The only negative impact will be withering scorn from sanctimonious hypocrites. If you can ignore that, no problem.
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BrooklynInvest
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Re: Pros/cons of utilizing mortgage deferral

Post by BrooklynInvest »

hand wrote: Thu Jun 04, 2020 10:50 am The benefit of conserving cash should be weighed against the risk of faulty execution of this program to your detriment.
Couldn't agree more. The benefit of this program is dependent on effective integration between the government, lenders and end clients. Opinions will differ on how well this will go.
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Re: Pros/cons of utilizing mortgage deferral

Post by peterwantstosave »

I would defer. You have the benefit of extra cushion by doing so, but be sure you use the extra cushion as just that. If you buy more (wine, caviar, sweaters, chocolate, etc) with that money, it's not being used as intended.

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hand
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Re: Pros/cons of utilizing mortgage deferral

Post by hand »

galawdawg wrote: Thu Jun 04, 2020 7:10 am
Again, I understand the anxiety in this time of uncertainty but there will be long-term economic implications of providing financial assistance where it is not required for basic necessities of life. And while the total of OP's deferral would be modest (just over $5,000), multiply that by the over four million who were receiving forbearance as of early May, most of whom don't need it (https://www.forbes.com/sites/alyyale/20 ... -the-help/), and the costs are significant.
Isn't there a greater moral hazard to providing subsidies to only those who haven't saved appropriately? I'd think best result would be if everyone was provided subsidies irrespective of need - benefits and (substantial) costs would be spread evenly.

If I were the OP and believed the program would be administered without any hiccups, I'd absolutely take advantage if I could do so legally.

If I squint hard enough, I can understand a principled objection to the program as a whole, but having a hard time understanding why this particular poster should put his family at increased risk of defaulting on his mortgage by ignoring a program designed to prevent mortgage defaults.
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BrandonBogle
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Re: Pros/cons of utilizing mortgage deferral

Post by BrandonBogle »

From my point of view, the OP’s family has lost one income source and there will be a time in the next few months where the sole breadwinner will stop working.

This may not mean no income (depends on benefits at wife’s company), just that the job is guaranteed during maternity leave.

As such, the Op is prudent to consider if they should leverage forbearance and potentially deferment. That doesn’t mean the Op SHOULD take it, but it very prudent to investigate it.

As for implications, note that while your score won’t be affected (assuming as others pointed out, this is actually implemented correctly by your servicer), there are implications on your access to new credit. Once there is a forbearance mark on the loan’s reporting, access to a refinance or new credit is difficult (not necessarily impossible). Just a “con” to keep in mind.

In the end, we are talking about roughly $5k - $6k here, so the OP’s family needs to determine if it is worthwhile to do this to free up this cash short-term and potentially long-term.
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mbasherp
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Re: Pros/cons of utilizing mortgage deferral

Post by mbasherp »

BrandonBogle wrote: Thu Jun 04, 2020 3:27 pmAs for implications, note that while your score won’t be affected (assuming as others pointed out, this is actually implemented correctly by your servicer), there are implications on your access to new credit. Once there is a forbearance mark on the loan’s reporting, access to a refinance or new credit is difficult (not necessarily impossible). Just a “con” to keep in mind.
This is what’s giving me pause, because in an ideal world, mortgage rates will come down much further in a few months and I’ll do a no cost refi to lower than 3.5%.

I contacted my servicer today and scheduled a call back for next week (first available!) to ask detailed questions about the whole thing.
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Re: Pros/cons of utilizing mortgage deferral

Post by Stormbringer »

On the advice of my banker, I put all my rental properties into forbearance back in April. It hasn't affected my credit score thus far.
“The greatest shortcoming of the human race is our inability to understand the exponential function.” - Albert Allen Bartlett
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BrandonBogle
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Re: Pros/cons of utilizing mortgage deferral

Post by BrandonBogle »

Stormbringer wrote: Thu Jun 04, 2020 5:52 pm On the advice of my banker, I put all my rental properties into forbearance back in April. It hasn't affected my credit score thus far.
It will not affect your score, period (unless someone makes a mistake and only until that mistake is corrected). However, if you tried to get approved for a mortgage right now, you would find it rather difficult. I’m not saying impossible, but difficult. And the harder it is to get approved, the less competitive the offers tend to be.

Now, this may not be a concern in your scenario. Once the forbearance is over, 90 days later you should no problem getting a mortgage. So if you don’t expect any purchase or refi in 9 months (from April), you shouldn’t be impacted by the forbearance.
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Re: Pros/cons of utilizing mortgage deferral

Post by MathWizard »

I am amazed at the comments saying that you should not do this for some vague "moral" reason.

If you qualify, go ahead and do what you think is best for you and your family.

You will end up paying more in interest, but if you are concerned with finances going forward,
especially with a baby in the way, you are doing what is best for your family.

Those who say that you are "taking advantage" and that your actions hurt the economy are way off base.
You are making sure that you can pay your bill, and are just deferring your costs.
Unemployment is a bit under 20%, and that will likely be that high only short term, but someone who is laid off
may not be one of the ones rehired.

By making sure that you can pay your bills other than your mortgage, you are helping the economy. Much better than
ending up with a house in foreclosure, or having to declare bankruptcy.
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Re: Pros/cons of utilizing mortgage deferral

Post by Stormbringer »

BrandonBogle wrote: Thu Jun 04, 2020 6:40 pm
Stormbringer wrote: Thu Jun 04, 2020 5:52 pm On the advice of my banker, I put all my rental properties into forbearance back in April. It hasn't affected my credit score thus far.
It will not affect your score, period (unless someone makes a mistake and only until that mistake is corrected). However, if you tried to get approved for a mortgage right now, you would find it rather difficult. I’m not saying impossible, but difficult. And the harder it is to get approved, the less competitive the offers tend to be.

Now, this may not be a concern in your scenario. Once the forbearance is over, 90 days later you should no problem getting a mortgage. So if you don’t expect any purchase or refi in 9 months (from April), you shouldn’t be impacted by the forbearance.
The bank was cautious on the credit score issue. They simply report to the credit bureau that everything is fine with the account, but it is the credit agencies that ultimately decide your credit score, and they are aware of the mortgage forbearance.

My case is a little odd, because I have 17 mortgages through this one bank (rental properties). They were very proactive in trying to get me into their forbearance program, even though I haven't really needed it thus far. I think they are trying to strengthen my cash position and not take any chances, since these are portfolio loans. I'm fine with that.
“The greatest shortcoming of the human race is our inability to understand the exponential function.” - Albert Allen Bartlett
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Re: Pros/cons of utilizing mortgage deferral

Post by abuss368 »

mbasherp wrote: Wed Jun 03, 2020 5:54 pm I’ve been furloughed, and DW has taken a pay cut. We also have a baby on the way. We have a good sized emergency fund and taxable investments, but I’m considering utilizing the mortgage deferral program available to us, with our Freddie Mac owned mortgage.

Defer 6 months of payments, which we would keep as cash amidst all this uncertainty, and then repay the amount without interest when we sell, payoff or refinance the loan. I suppose we would potentially add it to our taxable investment account after the baby, if it ends up being superfluous.

Current loan is 29 years 9 months remaining, at 3.5%. 196k owed, 340k home value.

Any reason for us not to use this program which seems designed exactly for us?
Considering your employment situation you may want to consider deferring the mortgage for a few months.
John C. Bogle: “Simplicity is the master key to financial success."
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Re: Pros/cons of utilizing mortgage deferral

Post by abuss368 »

mbasherp wrote: Wed Jun 03, 2020 5:54 pm I’ve been furloughed, and DW has taken a pay cut. We also have a baby on the way. We have a good sized emergency fund and taxable investments, but I’m considering utilizing the mortgage deferral program available to us, with our Freddie Mac owned mortgage.

Defer 6 months of payments, which we would keep as cash amidst all this uncertainty, and then repay the amount without interest when we sell, payoff or refinance the loan. I suppose we would potentially add it to our taxable investment account after the baby, if it ends up being superfluous.

Current loan is 29 years 9 months remaining, at 3.5%. 196k owed, 340k home value.

Any reason for us not to use this program which seems designed exactly for us?
Congrats on the new baby!
John C. Bogle: “Simplicity is the master key to financial success."
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Re: Pros/cons of utilizing mortgage deferral

Post by reln »

mbasherp wrote: Wed Jun 03, 2020 5:54 pm I’ve been furloughed, and DW has taken a pay cut. We also have a baby on the way. We have a good sized emergency fund and taxable investments, but I’m considering utilizing the mortgage deferral program available to us, with our Freddie Mac owned mortgage.

Defer 6 months of payments, which we would keep as cash amidst all this uncertainty, and then repay the amount without interest when we sell, payoff or refinance the loan. I suppose we would potentially add it to our taxable investment account after the baby, if it ends up being superfluous.

Current loan is 29 years 9 months remaining, at 3.5%. 196k owed, 340k home value.

Any reason for us not to use this program which seems designed exactly for us?
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Re: Pros/cons of utilizing mortgage deferral

Post by sailaway »

I feel like Gen X even in my opinions here.

I disagree that this program was designed for OP's situation.

However, since their situation falls within the guidelines, they might as well look into it. As I stated previously, I think OP still has a lot to learn about the ins and outs of the program, including the criteria deferral process, which only their servicer can answer.
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8foot7
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Re: Pros/cons of utilizing mortgage deferral

Post by 8foot7 »

The combination of pay cut plus furlough means any moral argument against taking advantage of a program for which you are technically eligible is out the window. You are experiencing a hardship now, with an extended absence from work due to a medical condition coming up. If you want to defer, you should.

My wife and I are both still working but she took a pay cut. If I got furloughed we would be deferring, no question. Conserve cash, slow the burn, etc
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Re: Pros/cons of utilizing mortgage deferral

Post by Elysium »

mbasherp wrote: Wed Jun 03, 2020 5:54 pm I’ve been furloughed, and DW has taken a pay cut. We also have a baby on the way. We have a good sized emergency fund and taxable investments, but I’m considering utilizing the mortgage deferral program available to us, with our Freddie Mac owned mortgage.

Defer 6 months of payments, which we would keep as cash amidst all this uncertainty, and then repay the amount without interest when we sell, payoff or refinance the loan. I suppose we would potentially add it to our taxable investment account after the baby, if it ends up being superfluous.

Current loan is 29 years 9 months remaining, at 3.5%. 196k owed, 340k home value.

Any reason for us not to use this program which seems designed exactly for us?
OP,

Stop asking questions, call your bank and ask them to put you on forbearance plan. There are no negative consequences, and it is created to help people get through difficult economic times we are facing. There is no need to agonize over it, and over analyze it. After six months, if you need more time they will give you another six months, no questions asked, and no consequences again. If you are fine to resume payment you can do so at any time, the money you haven't paid will either get added at the backend of the loan, or your term will be extended. But this is something not to worry if you refinance later on. There is nothing more to it. Program exists for people to use it, stop worrying about Banks have ability or Economic impacts, the policy makers have thought through all this, and they will figure it out. Fannie/Freddie has no liquidity issues to handle this situation, they are backing up the banks, so what's the issue, none.
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Re: Pros/cons of utilizing mortgage deferral

Post by MilleniumBuc »

Here is a con that I read about, that contradicts the no credit report effect. Please ensure with your lender and o would suggest to get it all in writing.

Do not go into any forbearance on a mortgage unless it is absolutely necessary. It will hurt your ability to obtain financing (new purchase/refinance) in the future.

“My ex wife has lived in a townhouse we bought in 2014 since our deserve in 2016. She paid the mortgage.

In March, she decided to move out and put it on the market... right when the market hit. Fearful of being able to sell the house, and be responsible for her rent and the mortgage for an extended period of time, she agreed with our bank (Navy Federal) to put it in forbearance through early June under the CARES act.

The bank asked me, and explained that they wouldn't report it to credit bureaus as long as it was dealt with by the time the forbearance was over. I even asked "will this affect my ability to obtain financing in the future", to which they indicated it wouldn't. So I thought "fine", and still planned on paying on time so long as I could - even if my wife could not.

Fortunately, she was able to pay the mortgage and the house sold in May. This entire time, I'd been working on buying my own house as I would now have my full VA loan back. I was approved, and construction was going to start in a couple weeks from today.

On Saturday, I recieved a notification from my credit monitoring service that my credit had taken a 17 point drop (774-757) and noticed that the mortgage company had reported the loan as having neither been on time, nor late for the months of March and April.

I reported it to my loan officer, who called me this week and assured me it was no problem. I contacted the bank, they said it was correct and refused to change their reporting.

Today, they about faced and rejected my loan.“
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Re: Pros/cons of utilizing mortgage deferral

Post by galawdawg »

The most recent guidance I have read concerning refinancing of Freddie Mac, Fannie Mae and FHA loans or obtaining a new mortgage while in forbearance is that a borrower can refinance or obtain a new mortgage under two situations:
1. The borrower applied for mortgage forbearance as a safety net but continued to make their payments as scheduled, or
2. The borrower received forbearance and deferred payment but has since exited forbearance, the loan is current, and the borrower has made three consecutive payments as scheduled since forbearance ended.
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mmmodem
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Re: Pros/cons of utilizing mortgage deferral

Post by mmmodem »

I look at this way:

1. With your assets: $6700 isn't going to make it or break it for you. $6700 won't make a meaningful difference. Yes, a year from now, the option may be gone but a year from now your 6 month forebearance will have expired. With your assets, $6700 won't make a difference unless you both cannot work for several more years.

2. It's a forebearance. You still owe it. Whether you foreclose on the home or not. This isn't like the stimulus check. There is zero additional security here for someone that can pay their mortgage.

On what conditions would one use this? When one has no money to pay the mortgage. This will provide a roof over their head for an additional 6 months for them to find a job.

And I do not think you're gaming the system if you take advantage of the program. They wrote it for people who lose their job and have a mortgage. That's you. I just don't think it benefits you in any way and that's assuming there are no negative consequences to your credit history.
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