Your options for making your mortgage payment and paying your other bills during this Covid-19 crisis can be very confusing, but if you make a mistake navigating through all this your credit will suffer. That is why I have written this to inform you of what to do with your credit during this crisis. First and foremost, make your mortgage payment if you can! Why? There are many reasons for making your mortgage payment during this Covid-19 crisis, but the biggest reason is your future. If you put your house into forbearance, or pause your payment, or not make your payment at all, your credit could suffer and prevent you from getting a refinance or any credit when this all subsides.
If you are considering not making your mortgage payment because you have been laid off or have been put on leave during this crisis there are some steps you have to do to ensure your credit moving forward is not disrupted. The very first thing you need know is that when the Government tells you that you can defer your mortgage payment up to 12 months you have to realize that there are no rules for this and it has never been done before so take caution as private industry are the ones who are servicing your mortgage not the government. The rules have not changed with respect to the way mortgage servicers collect your mortgage payments and then forward their portion on to the secondary markets to pay for the bonds created by mortgage backed securities. Sounds confusing and it really is but know that if you just stop making your mortgage payments your credit will go bad as your mortgage company will continue to report your payment history to the credit bureaus.
“But the Government said we can defer our payments up to a period of 12 months.” Yes, they did say this, however, the Government doesn’t speak for private industry even if they want to. So that said if you find you can’t make your mortgage payment because you just don’t have the money you should call the company where you send your mortgage payments to and see what they can offer you as an option. The mortgage servicers will work with you, but you must do your part in helping them. When you call them, you will be asked some questions about your employment, savings and such, and then offer you some options. The first option you will probably hear about is the Forbearance option. Forbearance is where the mortgage servicer will allow you to defer your mortgage payments. Note the word that is used here “defer”, is where you will still owe what you have missed and it is added to the end of your loan and you will be charged interest on the payments you miss. This could extend your loan term by a year or 2 depending on how long you “defer” your payments. Another option I have been hearing about is the straight payment “pause” for 3 months. This is where if you have 250 payments left at the time of the pause and after the 3 months on pause you will start making your payments again with 250 payments left. Both of these options may be noted on your credit report and may hinder you from obtaining credit when this is all over, so you have to ask. This is very important that you ask the servicer how they will report to the credit bureaus, if they report it as deferred or in forbearance you will NOT be able to refinance under current guidelines, you would if the payments were just “paused” and not reported as “paused”.
Another situation that you will be hearing about as this crisis moves forward is the fact mortgage companies are not currently getting government aid to cover the costs of the servicer paying their bonds when they are not getting your mortgage payments. The consequences of this could be catastrophic for the mortgage industry to the extent of the 2008-2011 financial crisis. We are currently seeing servicing premiums not being paid in the interest rates that are being offered to consumers and the interest rates are higher as a result. If a majority of people don’t make their payments then Wall Street will be hit with nonpayment of bonds created by FNMA, FHLMC, and GNMA and that will hurt most people’s retirement accounts that have mutual funds that are heavy with these securities. I know you say” but that won’t affect me”, but you would be wrong you would feel it in higher interest rates and fewer financing options in the future.
As for not paying your revolving accounts or installment accounts you need to contact your creditors on these as well. If a creditor does not hear from you that you can’t make your payment they will report your payment as late on your credit report. You have to remember that government does not control private industry, so if your elected officials says you don’t have to pay your bills DON’T BELIEVE IT, you might be able to get a temporary reprieve from paying your bills but you have to contact each one and make arrangements to have your payment held for a period of time. Also make sure that if you do defer your payments that it won’t hurt your credit. Again, you must ask each creditor in order to get a reprieve if they even will. If they don’t give you a reprieve you will be obligate to continue to make payments and if you don’t then your credit will get hit.
Let’s talk credit again, as this is what could be what get’s you in the end. I can’t reiterate enough how important it is to check with each of your creditors before stopping payments as if you do stop making payments without telling your creditors your credit will be hurt and it could take a long time to recover and you could miss the low interest rates that are going to be on the other side of this crisis. I am going to simply go over the steps and options for you here, so if this is all you see I hope it will save your credit in the end. The options and steps you will have to do to defer or pause any creditor’s payments are as follows.
These are the options you will be offered so be prepared and talk like you know what is going on as most lenders will try to get the most out of you they can. Be honest with yourself and if you can make even a portion of the payment it is in your long-term best interests to make the payments if you can. Do your part and help others by making your payments. I truly hope this helped you to navigate the payment options for creditors. We are also here for any of your home loan and Real estate questions so go to our site for more information at www.maecapital.com