What you need to know about mortgage forbearance during a pandemic (Q&A)
As millions of Americans continue to file for unemployment, we can expect to see the share of mortgage loans in forbearance continue to climb.
Data from the Mortgage Bankers Association‡ (MBA) shows that about 7.5% of home loans were in forbearance as of April 26 and according to the MBA’s estimate, that means 3.8 million homeowners are affected and not able to make their full house payments. Rick Bennett, executive vice president and consumer lending director at UMB Bank, recently shared with Forbes what consumers need to know about mortgage forbearance during these difficult times.
Many loan services are offering forbearance under the CARES Act. However, rules and clarifying information continue to change, which is causing increased confusion among homeowners. Rick Bennett has been with UMB Bank his entire career and has more than 41 years of experience in the financial services industry. In the Q&A below, he shares some of the most common misconceptions about mortgage forbearance, including its impact on credit scores and future loans, and offers advice on how to cut through the noise and receive help during this difficult time.
What are the misconceptions you hear when it comes to mortgage forbearance?
Borrowers are concerned about their creditors’ reaction to a request for help. Contrary to popular belief, however, creditors want communication with borrowers who need assistance. We have solutions for individual situations that can relieve stress and help work through issues. Our mission is to be partners during these challenging times.
For a borrower seeking forbearance, what advice do you have when they engage with their lender?
Explain your circumstances honestly. There are many unknowns in today’s pandemic. For example, when will everyone return to work, and will the company you work for survive? The unknowns are scary. We will work with the facts that we do know. If the borrower does know how long they will have reduced pay or be without income, then the solution can be tailored accordingly.
Forbearance for private mortgages is at the discretion of servicers. What recourse do borrowers with private mortgages have?
Most creditors base their strategies and solutions on guidance from regulatory agencies. The fact that a mortgage is not federally insured may allow for more flexibility in finding an equitable solution. Again, communication is the key.
When it comes to the type of lender (bank, credit union), what should customers be aware of when they are requesting forbearance?
Lenders with a physical presence, like a branch, in the community are invested in being good partners. A strong, healthy community has lenders who are an integral part of their customers’ growth and success. Those lenders are vested in homeownership. It’s in their best interest to provide financial advice with service to the residents.
What is the impact of forbearance on credit scores and future loan refinance?
If a borrower requests loan forbearance, it will not damage their credit score during this time. However, one thing to be aware of is that if you take forbearance, you may not be able to refinance your home loan immediately afterwards since it does still count as a gap in payments.
What are the repayment options available today?
There are numerous options, and they can vary from lender to lender. Some borrowers may need only a grace period and a short recovery time. Others need a 90-day deferment of their monthly payments and may have the payments added to the end of the loan. Since we don’t know what the recovery will be like for any given industry or geographic region, a second deferment may be necessary. The goal is the same: Keep the borrower in their home so they can resume repayment when things have improved.
Do clients have room for negotiation when it comes to repayment?
There is some latitude to the solutions offered by creditors, and they may vary. There are guidelines and boundaries to everything, but these are unprecedented times. We’re all in this together.
When they are considering the options, what should they keep in mind?
Everyone’s situation is unique. However, we all have the same end goal. Creditors and homeowners want to maintain a mutually beneficial relationship. The recovery, both individually and nationally, will happen much sooner if consumer credit ratings remain in good standing.
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