Three tips for those fretting over mortgage payments

Mike Querrey, vice president of strategic retail growth for Guild Mortgage, poses outside Turnberry Towers Wednesday, May 20, 2020.

With the coronavirus pandemic driving unemployment in Nevada to a record-high 28.2%, thousands are struggling to make ends meet—from buying groceries and paying utility bills to making car payments.

But one of the biggest monthly expenses is a home mortgage.

According to a national survey by the Mortgage Bankers Association, the delinquency rate for U.S. mortgage loans for the first three months of this year was about 4.3%, an increase of over a half-percent from the final three months of 2019.

And that period represents only the leading edge of the pandemic.

The brunt of the economic fallout didn’t hit Nevada until mid-March, when Gov. Steve Sisolak took the unprecedented step of ordering casinos and other nonessential businesses statewide closed to help slow the spread of the virus.

Vegas Inc recently talked with some mortgage industry experts to learn how borrowers might be able to get some relief. Here are three general tips.

Communication is key

Mike Querrey, Las Vegas-based vice president of strategic retail growth for Guild Mortgage’s Mountain West Division, said the first thing those facing financial peril should do is get in touch with their lender.

Among the experts interviewed for this story, this was a universal recommendation.

“You should contact your loan servicer, whoever you make those monthly payments to,” Querrey said. “Inquire with them about a forbearance. They will work with you on a forbearance, which usually comes in segments of three months at a time.”

A forbearance allows the homeowner to defer payments. It’s important to remember, however, that it doesn’t forgive that portion of the mortgage debt.

Those who enter into a forbearance agreement will eventually have to make up those payments—either in a lump sum or over time.

“Let’s say you need three months … and your house payment is $2,000 per month,” Querrey said. “That $6,000 at the end of the three months is now owed. Perhaps you would pay that back with an extra $500 per month for 12 months. That wouldn’t be reported as a negative credit issue because payments weren’t made, but you have to contact your lender to work it out.”

As of May 10, some 4.1 million homeowners nationwide were in a forbearance plan, according to the Mortgage Bankers Association.

In Nevada, where hundreds of thousands of people have lost their jobs because of the pandemic, the state’s Division of Mortgage Lending in March extended the available consumer forbearance period from 60 to 90 days.

A moratorium was also placed on foreclosures in March that is still in effect.

Think twice about a forbearance

While a forbearance can be beneficial in the short term, it’s important to understand the implications of the agreement, said Holden Lewis, a mortgage and real estate expert for NerdWallet.

It’s probably not a good idea unless really necessary, he said.

Some people are taking advantage of the fact that they can claim an economic hardship because lenders aren’t asking many questions, he added.

“The decision was made pretty early on to streamline this because it’s affected so many people,” Lewis said. “It was decided they weren’t going to make people prove their hardship.”

Because a person can basically just say he or she is going through difficult financial times, some are delaying mortgage payments even though they’re still able to make payments.

“I think that’s a really bad idea,” Lewis said.

“Even though a forbearance isn’t going to be reported to the credit bureaus, if you apply for a mortgage in the future, the question will come up,” Lewis said. “To get a new mortgage, a person will be required to have paid 12 consecutive on-time payments. A person might figure this is a good excuse to not pay their mortgage, but a few months from now, they might want to refinance, because rates are low. They won’t be able to do that, even if they’re caught up with forbearance payments.”

Some agencies, however, have started to relax some refinancing rules.

The Federal Housing Finance Agency on May 19 announced that Fannie Mae and Freddie Mac are allowing borrowers who entered a forbearance to refinance or get a home loan after just three consecutive months of on-time payments.

Consider tapping into retirement funds

Brandon Rizk, a branch manager with Planet Home Lending in Las Vegas, said it might not be a bad idea to borrow from a 401(k) before missing a mortgage payment.

Some retirement account servicers are even offering no-penalty withdrawals from retirement accounts, although the money must be paid back over time, he said.

Putting mortgage payments on a credit card can also be dangerous, Rizk said. “If you rack up $10,000 or $20,000 in credit card debt, and you make $50,000 per year, you’ll never pay that off,” he said.

Borrowing money from a family member or friend is also possible but simply isn’t an option for many people, Rizk said.

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Notes

This story appeared in Las Vegas Weekly.

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