Dave: Hi everybody! Dave Sullivan here a part of the marketing team at People Driven Credit Union. I have a special guest…
Joe: Hi! This is Joe Woodhams with Member First Mortgage. I am the team leader of the default department.
Dave: Great. Joe, thanks for being on I have a few questions about forbearance. With the cares act coming to an end, at least for now we do not know of any extensions, do we?
Joe: There was an extension yesterday that rolled out with the GSC’s. They have not linked it directly to the cares act yet, but I anticipate that we will get more guidance on it in the next few days. But as of right now, it is still set to expire here in a couple of days.
Dave: Interesting and I appreciate you sharing some knowledge on this. Again, this is not individual advice, and you should always consult an attorney before you make any decisions, but we are just going to try to share some information in general for people to give some knowledge about what’s going on. Now, in the cares act, there was a forbearance portion of the cares act that allowed people to go into forbearance but not have an eviction, correct?
Joe: That’s correct.
Dave: So, what that allowed people to do is let the lender know “Hey, I can’t make my payments right now” and normally they would go through an eviction process.
Joe: Correct.
Dave: But the cares act said no. So, my question kind of is what happens. Let us say that it expires or someone, in general, was in forbearance because it is not necessarily tied directly to the cares act but let us say someone was in forbearance and they’re coming out or they would like to come out of forbearance. What does that look like, what kind of arrangements need to be made?
Joe: So, thanks Dave for asking that, it is one of the questions that we get quite frequently is you know, how do we transition out of forbearance and get our loan back to good standing? Probably the most important thing is to stay in contact with the servicer as your forbearance is expiring, to look at what options there are because there is a wide range of options that are available.
Anything from a full reinstatement to a formalized repayment plan to a modification to reinstate the past due amount. Then one of the new things that has kind of come about that is a term that is being thrown around in the industry is a deferment.
A deferment is taking a portion of that past due amount and putting it towards the end of the loan and so that is kind of the new solution that is out in the industry right now that a lot of people are questioning. We get calls, we say you know what this deferment is and again it is just basically taking that missing amount and just putting it at the end of the loan and dealing with it once the loan actually matures.
Dave: So, you are just adding that amount that was deferred to the end of the extending the term of the loan without doing a refinance at all?
Joe: That’s correct.
Dave: In some situations, right? Everybody is different but there are some situations that allow you to do that. It is pretty good because I was expecting everybody to have to refinance in order to pay that other amount back and kind of bring your current, but you are seeing people even work with them so they could make a little extra payment on their mortgage and to get it caught up as well?
Joe: Correct, I mean it is really split across the board whether you know formalized repayment plans, there are some individuals that are out there that with the pandemic that we have been going through, we are really concerned that they wouldn’t have enough money going through the pandemic and as it’s coming to an end, they have the funds to fully reinstate the loan and bring it current. So, everybody’s situation is individualized.
Dave: Sure, so the best thing for them to do is come to you or come to their lender, I should say and what should they bring with them? or what should they be prepared to provide to kind of let the lender know what kind of situation they are in and see what the lender would be comfortable doing with them?
Joe: So, the industry has with loss mitigation has a phrase out there and the phrase is resolved and so what we are looking for is to make sure that going forward that we are not going to repeat the incidents or the hardship that has happened within the last few months. So, what we are looking for is to make sure that you know we’re offering a solution that is going to allow them to continue to stay current.
So, when individuals come to us and say I’m ready to move forward, some of the things we’re looking at are if their finances recovered and that may be if they were unemployed it may be pay stubs, we take a look at the bank statements to make sure and it’s not that we’re trying to find fault in the member with their hardship, we’re just trying to ensure that you know they’re in a good situation to move forward.
Dave: So, if they had a job too, you would want to want to know about that obviously and I’m going back to work and here’s my start date or I’ve already started. So that you know that there is a stream of income coming in, moving in the future. Correct?
Joe: Correct! I mean I think the thing that is really surprising across the board is a lot of people through the pandemic have gone through job switches.
Dave: Really?
Joe: Your entertainment industry, you look at the airline industry. Some of these industries that have not fully recovered yet. You may be a former airline employee and now all of a sudden, you’re working in either a factory or some other position and we’re looking at two different things.
One is what is that you found new employment, the second thing is did you have a cut in pay? That plays into making sure that you can move forward with the mortgage payment.
Dave: Yeah, and I’m sure that the lender will work with them to do what’s best, and I think that is a big change from the last housing crisis, that this situation is totally different than last time because we didn’t have the same lending practices leading up to it. We were much more conservative, so hopefully, there will not be a repeat of what happened. Now, if people were in forbearance many people escrow their taxes, correct?
Joe: That’s correct.
Dave: So, if they are not making their mortgage payments, their escrow is not accumulating. What in that situation, what would they expect to do for their taxes? They are still going to need to pay them obviously or the city will come after them.
Joe: So, I think the most important thing for individuals to know is that if they are escrowed with a mortgage company, the mortgage company will continue to advance the property taxes and the homeowner’s insurance if they are escrow so that they are not falling behind in their cape in those cases.
The flip side of that is if you are. missing your escrow payments over a number of months, your taxes and insurance bucket may start to run in the negative and that’s where individuals may need to set up a plan or when they come out of a forbearance how are we going to handle this negative taxes and insurance bucket because what most lenders are going to look at is they’re going to do a tax analysis after it comes out of forbearance and any shortage amount to get them caught back upstarts out being spread over 12 months. Well, they’ve been in forbearance for anywhere from 6 to 12 months that adds up really quickly.
Dave: Yeah, well and that is another reason to approach your lender as soon as possible.
Joe: Right, that is correct. Stay in contact I mean; we always encourage we want to hear from all of our members at least once a month just to get an update on their situation. There may be no changes, but it is just good to stay in contact and follow up with the lenders and the members because that communication line is probably the most important thing as far as getting a solution in the end.
Dave: Great Joe, well again individuals should definitely reach out to their own mortgage servicer and try to work that out if they are in that situation. If they are not in that situation and they’re looking to get a mortgage, People Driven Credit Union’s got a great partnership with you guys. We’ve had it for how many years? I think maybe eight, nine, ten years we’ve been partners. We can do a great job on a purchase or a refinance, definitely reach out to us. Joe, I appreciate you being on the line.
Joe: I appreciate your time, Dave.
Dave: Okay take care.
Joe: You as well.
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