To Forbear or Not to Forbear During Coronavirus

with Frank Merola

The Cape House Show: Episode 88

 
Today, we’re gonna talk about getting through the biggest transaction of your life, through the biggest crisis you’ve ever dealt with in your life, a pandemic. And how to deal with specifically some mortgage issues and mortgage questions. And to help answer those questions, I have invited Frank Merola of William Raveis Mortgage (NMLS# 1020051) to help sort of answer some of these questions that we have and walk us through the other side of this.

 

Katie: Alright so Frank, thank you for coming to the show.!

Frank: Thanks for having me on the program!
 

Katie: So Frank is our in house mortgage experts and mortgage rep and he takes care of a lot of our clients. And he’s also the person I go to when I read mortgage news and I don’t understand it. And so, he’s an incredible resource. And I was reading recently that, the Federal Housing Finance Administration director Mark Calabria, says that he thinks the COVID-19 related delinquencies on mortgages won’t be as widespread as some in the market have predicted. Now that’s not necessarily a popular opinion. A lot of people think there’s gonna be some problems with people being able to pay their mortgages, with everybody losing their jobs and all. But we’ve got forbearance in there. And I think that’s the big question. Forbearance is designed to give people a break on their mortgage. Can you help us understand what forbearance really means and what we should do with it?

Frank: Yeah, great. I’m sure a lot people are hearing in the media and on Facebook and various other sources about the topic of forbearance. And the way that that works is, and if you look at this crisis compared to say, 2008, back in 2008, you know, we had a crisis. It was an economic crisis. The auto industry needed to be bailed out. Housing values came down and a lot of people needed some help. The difference back then, was they had to prove hardship to get any help. With this crisis, what people can do, is they can go into what’s called mortgage forbearance. And they really don’t need to prove hardship. All they need to do is say, “I’ve been affected by COVID-19.” Now the important thing that I think people need to understand, is that forbearance is not forgiveness.
So if you contact your service or your bank, your lender and you go into a forbearance program, say a six months forbearance program, then you don’t have a mortgage payment for six months. And come month seven, now you have your mortgage payment plus the prior six, lump sum. And a lot of people don’t understand that. They think that–

 

Katie: Whoa, whoa, whoa, whoa, timeout. Excuse me. So, okay. That’s insane. You could go, “All right, great, I have six months off.” But basically what they’re saying is, “Yeah, but still save six months mortgage payment, “and then give it to us on month seven.”

Frank: Correct, yeah. Give it to us lump sum which, you know, obviously a lot of people are not gonna be prepared for that.

Katie: What’s the point? I don’t even understand what the, how is that forbearance at all? That’s horrible. I think some people are gonna get in big trouble there.

Frank: And the other thing that I’m concerned with too, is some people you know, listening to the media may think, “Well, I just don’t have to make my payment.” And not contact their lender or servicer. And then what’s gonna happen is those people will have their credit impacted. So, it’s very difficult right now just to get a hold of the servicer or the banks or the lenders. You know, their phones are very very busy. So my advice to people is, if you can make your mortgage payment you should. And you should really understand what forbearance is, get it in writing so that you don’t have a big surprise you know, at six or 12 months down the road.

Katie: Yeah. It’s funny, like I hear the word forbearance, and it doesn’t have a positive connotation. I don’t think people should be too excited about it. It’s really delaying the inevitable. And before we, you know, we started recording what you said is, “There’s no free lunch.” It’s not like you never have to pay that money. There are some circumstances where people, you know, they might get six months off and they’re just adding six months onto the end of the loan. Is that happening too?

Frank: Yeah. Some of the situations people could go into what’s called deferment. Now that may allow them to add it onto the end of the loan. But I think what most likely will happen and we’re seeing this change daily is that after the six months, most likely what will happen is the service or the lender will take the lump sum payment, divide it by 12 and spread it over the next 12 months. So if somebody had a $2,000 mortgage, probably their mortgage would go up to maybe $3,000 for the next year. And hopefully that would be comfortable but, I think again in situations where people are affected, you know, it may be a challenge. And the other thing is there are a lot of people that could make their mortgage payment but are going to go into forbearance just because, you know, why make it if I don’t have to. And that could end up hurting the industry.

Katie: Yeah. And that is actually something that I think a lot of people are concerned with. Like if people just, you know, listen, some people are really gonna need to take advantage of it. Ain’t nothing free. There’s no way to get out of it. So, we all think of things in terms of like our bills, and you know, we have to pay our mortgage and our electric bill and all that stuff but, money has to flow, right? Money has to keep moving, for it to flow to you. And so if you stop the flow of your mortgage payments, so you know, everybody’s like, “Oh, the bank taking my money.” You know but like, they gave you money actually. They gave you a lot of money so you could live in that house and pay it back over time so, you know, they earn the interest. So those guys have bills to pay. The servicer has bills to pay.

They’ve got investors like, and if you stop that flow, what could happen? Like what are the consequences?

Frank: Yeah, the consequences could be enormous. So you know let’s say, you know, you make your mortgage payment to your servicer and that just, we’ve all heard of Wells Fargo. So let’s say your servicer is Wells Fargo and you go into forbearance. Wells Fargo’s still needs to pay your real estate taxes and your insurance. And they still need to pay the ultimate investor that owns that loan. So, some of these services could be facing liquidity issues and be facing some dire economic circumstances. It is true, though. And it won’t be as bad as was previously predicted.

Katie: Yeah, no. And it’s entirely possible that it won’t. But that’s one of the reasons I wanted to talk to you about this and make sure people understand, that when you say liquidity issues, you’re nicely saying that some of these parts of the mortgage industry could go under.

Frank: Yeah. And another very important topic too is, since you know, you’re a real estate agent and you specialize in buyers and listings is, anybody that may be looking to make a move next year, say in 2021. If you do a mortgage forbearance, it means that you’re not paying your mortgage as agreed. And then that could be problematic to getting a mortgage down the road or refinancing. So it’s very important to understand what’s being offered to you and then try to avoid it if you can.

Katie: It just doesn’t seem like, like forbearance seems like an absolute last resort that people should be taking. ‘Cause there’s consequences to taking advantage of forbearance. It’s gonna affect your credit. It’s gonna affect the industry. It could hammer you next year. You could end up like, ’cause and it sounds like different servicers and different banks have different ideas of what their forbearance looks like. So you could end up in a heap of trouble next year. You think you’re in trouble now, it’s like out of the frying pan into the fire. So, I think whatever anybody can do to pay their mortgage, pay it. And if you can’t, you can’t. And you might have to take advantage of forbearance. In which case, make sure like you said, and I’m gonna stop giving advice at this point. My only advice is be as proactive as you can. But for specific tactical advice, what would you say Frank people should be doing if they know they’re gonna struggle at least a month or two on their mortgage?

Frank: Yeah. I would just definitely say reach out to your financial institution, whether it’s a mortgage, whether it’s an auto loan, whatever it might be. We have been seeing some tighter guidelines with credit scores. We have been seeing some investors sort of get out of certain types of loans. I mean, William Raveis Mortgage has a big menu of loans. And that menu is slightly shrunked in the last couple months. So it’s very important that people protect their credit scores, try to pay their bills on time as quickly as they can. And if they are struggling, to reach out to the financial institutions to try to work something out.

Katie: Okay. So what I’m hearing is just in general a theme of productivity. Pay your bills if you can. Reach out if you can’t. And in fact, you know, when this all started to go down, my husband and I were like, our bills are fine, we’re doing fine. But we’re like, we don’t know what’s coming, so we started making phone calls right away and we’re like, “Listen, I know we’re current “and we intend to stay current, “but we’re a little nervous about what’s happening. “Just giving you a heads up.”
I gotta tell you, our creditors were like, “Thank you. “We’ll, yeah let’s, we can work with you.” That seems to put you in good stead. They take notes on that stuff and you wanna be prepared. Believe me, I’m the last person who wants to talk about like stressful money things. But like you have to, you have to deal with it. And you may have mentioned of another thing which I think is important is, there have been some, and I wanna kind of get all the way to the punch line on this one so I don’t sound like such a Debbie Downer. But like, there’s been some changes and you know, people sort of, first of all, the choices of borrowing options have narrowed a little bit. And the pool of borrowers has narrowed because they’re not accepting,

like their minimum credit score has gone way up. Now that’s all true, but from what I understand, and you gotta help me out with this Frank, we anticipate this to be a temporary situation. Tell me more about the bad news and the fact that it’s gonna end. Tell me a good story Frank.

Frank: So it’s not all doom and gloom. I heard somebody said this week that, in the past mortgages were being given out like candy. And that’s, I guess a good phrase. And we are seeing some tightening of that. So maybe some of the candy is being taken away just the last couple months. And it’s been a crazy couple of months. There’s daily guidelines changes. It’s evolving daily. But what I think that we have seen is some investors have said, “Hey, we’re not doing jumbo loans for until we say we are.” And I think that eventually, when things normalize, these loan programs that may have been paused you know, we’ll come back. So I may have 20, 25 different lenders that would do jumbo loans a month ago, and now we may only have 18 or 19, but we still have them available.
It’s just that some, you know, some people are being cautious in this market. I think that the guidelines will relax. And I think that these loan programs we’ll come back once we go normalize. I can say, it’s been a great spring for me for refinances. This month alone, I’ve had about seven closings
and they’ve all gone through. So we’ve been able to, you know, mortgages are going through. Banks are lending, appraisers are doing appraisals. It’s not business as normal, but business is you know, is being transacted. But obviously,

some of the verifications of employment are getting, you know, stricter. They wanna make sure people are working and have an income before the loan closes. So, we just have to, you know we have to deal with these changes.

Katie: It is what it is. Again nobody like, you know, you don’t like it when you’re on the receiving end of it. You’re like, “Oh, I have to show you all these invoices”. You know why? Because some people lie. That’s why. Some people lie about the money that they’re making, and then they get a loan and then they can’t pay it. And that’s bad business and bad behavior. And we know you’re a good guy, but this bad guy ruined it for you. So sorry, just do it. And, you know, if you’re actually in business and you know, making what you say you’re making, it shouldn’t be an issue, honestly. So we do kind of have to take you know, just do that. There was something else that you mentioned. We were talking about forbearance, and when at all possible for a million reasons why to just do everything you can to pay your mortgage. I don’t think there’s a lot of people around here who would shed a tear if they saw Wells Fargo go under just from a personal perspective, even though they have no idea what an impact that would have on the industry. But it’s not just the Wells Fargo’s of the world that would be in danger, right? Like we have all these wonderful local banks that also rely on these mortgages, am I right?

Frank: Yeah. We have we have great local banks. And we have amazing local banks here on the Cape. And they obviously do a lot mortgages. Quite a bit of their business is mortgage products. So, if all of a sudden, most of their clients turn around and say, “I can’t pay my mortgage.” Or you know, some of them take advantage. Yeah, some of them take advantage of it when they could. Then yeah, the consequences for them could be enormous. We don’t wanna see that happen to a loans officer a bank or financial entity you know, or a mortgage company.

Katie: Yeah. And it’s just another theme of like we just, we gotta try to take care of each other. We’ve all got to get through this together. And so I’ve seen a lot of things online about you know, the ways people can save money or not. I know that’s not you know, your jam, but there are some really cool resources. And I’ll try to find them and put them in the comments, where people can, you know how to, like that’s one of the first things we did. We called the creditors and then we went through our bank account. We were like, cut that, cut that, cut that, cut that. We can always bring it back in. Like, we just ruthlessly cut stuff out. And also some of it like, “I shouldn’t have been paying for that anyway.” Like how often do you really look if you’re not really paying attention.
 

Frank: And I can say the same thing. I mean, during this crisis, I feel like I haven’t been spending, I haven’t been going out. I haven’t been spending any money so that, hopefully, and a lot of people are in the same position and there’ll be, you know, putting their bills first and you know, protecting their credit and doing some of the things that we talked about.

Katie: Yeah, yeah. So those of us who lived through the housing crisis in 08, 09, remember it all too well. And so that’s, I think a lot of us are like right on top of it. Like we are not messing with this. It’s actually interesting to see, for me personally to see how we responded to it after having gone through such a hard era. It was an era. And you know, like we are not screwing around this time. Really we are gonna be okay. So Frank, you’re a font of knowledge and wisdom for me. Is there anything else that you wanted to make sure people knew or understood about kind of what’s going on in the mortgage industry right now?

Frank: Yeah, I think the overall, you know, message I wanna give to people is that, you know, like as a mortgage company, we’re 100% digital. And we’re basically, I don’t have to meet with clients face to face which luckily for me I don’t have to. A lot of it is phone and email and internet based. So we are still lending. We are still locking loans. Appraisers have been given some relax guidelines to protect their health. So a lot of times an appraiser now instead of having to go into the home, will just do an exterior drive by. We do see some, you know, some relaxed guidelines with appraisers. And also rates are great. I mean, rates are mid threes. Historically that’s amazing for a lot of people. So I think that, once we get back into our spring market here in Cape Cod and people are buying houses and second homes, it’ll be, you know, think things will be back to normal. And I also think that maybe, you know, we’ve had a really strong real estate market. We’ve had multiple bids. Highest and best by eight o’clock Sunday night. So maybe that will come down a little bit and then it won’t be as frustrating for buyers to purchase property with the spring of the summer when things normalize. So maybe, that’s the silver lining.

Katie: Yeah, that’s possible. Yeah. I think there’s gonna be a lot of really good things that come out of it. There’s no way to tell you know, what it’s gonna be yet but I think you know, day by day, we seem to get a little bit more of a picture of what to expect. So Frank if people, I mean, I’ll share all the links to contact you. But if they wanna call you, where would they,

what number would they call?

Frank: Yeah, they can contact me. I use my cell phone exclusively 508-740-5922. You can call or text me. And you know, like, you know, we work together quite a bit. In the mortgage world, I’m just like at Katie Clancy, I work 24/7. Days, evenings, weekends, part of the job. So feel free to reach out–

Katie: That’s actually, you guys if you’re not like in the market for mortgage right now you might not understand how what a big deal that is. But like, you’re not shopping for a house Monday through Friday nine to five. You’re shopping for houses on Saturdays. You come home at the end of the day and you go see a house, you make an offer. You’ve gotta get it in by five and you need a pre approval letter, Frank will set you up. He handles that stuff. He’s so responsive. And all weekend long, it stuns me. I really can’t believe that there are people who call themselves mortgage loan officers, who are just only available during like nine to five Monday through Friday. I can’t even believe it. And there’s actually, I know you know, this Frank, but there’s mortgage companies who have zero digital capabilities. Zero. They were still faxing. Like that’s as digital as they’d gotten and they hit this crisis and they’re like, “I guess I got an email.” I don’t know if it was quite that bad, but like, wow. What Frank and Raveis Mortgage I think brings to the table is we’ve got this like totally touch less experience that’s actually extremely high touch. Like Frank is really accessible. You won’t get him, you know, we can arrange to meet in person if you want but you don’t ever have to. So we’re not held up by, oh, meet me here, meet me there. Or, but I’m in Boston or I’m buying a house in Orleans. It doesn’t matter, Frank will handle it.

Frank: Yeah that’s great. I get to go to closings. I do get to meet with people. A lot of times people wanna put a name to a face. But the great thing right now, when we’re not supposed to be together is that most of the mortgage can be done virtually which is great. So it allows me to you know, keep going on.

Katie: Yeah, and you keep us posted too. I got a notification today that one of my loans, one of my clients loans is at conditional commitment, like in record time in the middle of a maelstrom, like what! I was blown away that that happened so fast. Anyway, all right. Well, thank you so much Frank. I really appreciate it. And this will not be the last time you are on here. This is too good to not keep sharing!

 

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Meet Katie

Picture of Katie Clancy, Agent and CEO of The Cape House in Cape Cod MAMother. Singer. Runner. Dog Parent. Realtor. Speaker. Cape Cod Local Expert. When I want the freshest oysters, I don’t go to the fish counter at the grocery store; I go to John, the East Dennis oyster guy. When my husband wants a perfectly tailored suit, we don’t go to the mall; we go to Puritan Clothing in Hyannis. When I want the best chocolate this side of the Alps I don’t go to the candy store, I go to The Hot Chocolate Sparrow in Orleans. A Cape Codder since I was a kid, I can find you the right house, bank, builder, school, auto mechanic, and yes, even the right oyster guy.

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