By Ron Wynn
There are times when there is just no other choice than to miss a mortgage payment or to run late. I urge you to read up on how to maintain a high fico score and to navigate the do’s and dont’s. Understand for example, that closing one credit card and opening other accounts can only hurt your credit.
Instead, try to pay down balances without closing out and continue to show positive and timely activity and payments. Also know that a closed account with poor history will still show on a credit report.
Now for the new important message: given the current economy with job losses, shelter in place and many nonperforming tenants, the “CARES” act has rolled out a comforting “safety blanket” so it appears.
First of all, be clear that Santa Claus doesn’t really exist. The “CARES act” should not be under-stood as a gift to anyone, particularly to mortgage holders. At best, an interpretation of the language provides “a window” in which you do not need to pay your mortgage with a handshake promise that you will not ruin your credit. Please do not misunderstand this or start spreading rumors of false information.
The CARES Act includes forbearance as a “lifeline” to distressed homeowners who have lost their jobs and are struggling to meet their mortgage obligation. The act does in fact contain language that lenders cannot negatively impact a borrower’s credit re-port if they choose forbearance.
Do not take advantage of this program when you are still in a position to make your monthly payments if you have any intentions to purchase or refinance your home in the next 2 years. It may feel like a total contradiction, but be clear, that while lenders cannot legally report for-bearance as late or missed payments, forbearance can be (and often is) noted in the comment section of the lender’s reporting, which then becomes part of your credit record for years. If you plan to refinance or purchase a new home in the next 24 months, banks will note the forbear-ance, which will likely negatively affect your future interest rate and possibly your overall ability to obtain a new loan altogether. Also, a comment such as “forbearance” might potentially leave you only with compromised loan options, particularly when lending guidelines become more stringent among banks and institutions in the “prime loans” lending arena. And note, lenders are not under obligation to divulge the criteria used in rendering their approval decisions.
In a nutshell, I suggest that you only opt for forbearance after exhausting other alternatives and definitely not if your intentions are to obtain a favorable interest rate on a refinance or new home purchase in the foreseeable future.
By now you’ve heard about the unexpected surge in home sales amid “Work at home,” “mandatory masks in public,” “all public open houses ordered cancelled,” and real estate offices banned to the public” orders. Who would have guessed that with the most significant obstacles in the history of real estate sales that many of the proactive and resilient type real estate professionals are reporting “their best year ever for home sales?
Granted it’s not every city and every price range, but there is some consistency here to take note to.
Certainly, in Los Angeles County, average days on market for homes below $2,500,000 is back to 43 days, much the way it was pre COVID-19. With inventory even thinner than the beginning of 2020, there is a very slim chance of a home bring overlooked by a serious buyer searching online listings.
Sideline amateur forecasters are saying that the market will still see an adjustment when foreclosures start appearing and inventory increases. This notion is predicated on there being foreclosures in prime locations and a noticeable increase in unsold homes. Perhaps for that to happen in strong local markets there might also need to be an increase in mortgage rates which we’ve been told there will not be.
So now we must weigh the “people need homes” concept against the “millions of people are without a job” reality.
This is a serious consideration. Time will tell how many homeowners will be forced to sell and how many previously qualified buyers will be extracted from being a potential buyer for the foreseeable future.
This will vary from one market to another and certainly will have more significance in areas heavily dominated by employees of businesses that have been forced to close or scale back?
Could it also be that people are suddenly again beginning to treasure the mindset of owning “the American Dream?”
Not long ago I conducted a survey of young people that pointed to a desire to live in the moment and to stay a liquid as possible.