Will Forbearance Develop into Foreclosures in 6 Monthe

Question

COVID-19 has created havoc in the RE sector. Tenants can’t be evicted and Landlords have to pay there mortgage. Is there something wrong with this picture. I acknowledge the fact there are loans/grants to apply for. Is there enough money to go around. We have banks shutting down the applications because of the sheer number of applicants. 2 Trillion stimulus package sounds great. How long will that money last. I bet not long. Will that help the small landlord with 3 properties. The forbearance in most cases is delaying the inevitable. Most banks are stating the 3 month forbearance will all be due in 90 days. If you can’t pay what do think the banks will do. Start the Foreclosure process. Stimulus money to tenants by the government does not insure rents are paid. The no eviction law is an open door to not pay.

Thoughts on this are appreciated.

Evan Polaski · Answer

@CJ M. I get it.  I was not trying to imply you were doing anything bad at all.  I was simply stating the current actions only address one or two (evictions and foreclosures) of a 50 step chain reaction.

CJ M. · Answer

@Kenneth Garrett

Yeah, I don't understand the whole "all 3 months are due immediaty after the 90 day forbearance." That said, some lenders are adding the 3 months to the back end of their loans, so you need to check with each lender individually. I was very fortunate to have one of my lenders do that for 1/2 of my loans.

Evan Polaski · Answer

@Kenneth Garrett, yes forbearance on mortgage payments, just like rent payments, will lead to delayed foreclosures and evictions.

As I understand it, currently mortgage forbearance for 90 days, starting April 1, means July 1 you owe 4 mortgage payments or are in default.  This policy really only works if someone was laid off today, got a new job very quickly, but has to wait for their first paycheck and didn't have savings.  In reality, like most things, it is just going to delay the inevitable. If you get laid off with no savings, you will likely lose your house.  Even if you get another job in a month or two, and a payment plan with your lender or landlord, you are still behind behind, and assuming you didn't get a big raise with your new job, you still won't be able to catch up.

That being said, I am glad they are doing something, but even when we beat Coronavirus, there will still be a lot of unemployment for a while.  Just like in 2008, it will delay the downturn in real estate, but it won't prevent it.

CJ M. · Answer

@Evan Polaski

Understood. But at this point that's out of my control. I'm just doing what I can do that's in my control, to stay viable.

Evan Polaski · Answer

@CJ M., the issue with the tack onto the backend is now servicers are getting squeezed.  CNBC just had an article about how the head of the Federal Housing Finance Agency, who oversees Fannie and Freddie, is not offering help right now to servicers.

If you don't know, you pay your servicer each month, they have to pay the bond holders in the MBS markets.  Servicers are being told they cannot file for foreclosure, tack on late fees or penalties etc.  But the servicers are still required to pay the bond holders.  So the servicers are getting put into a liquidity crisis, and instead of offering to help, Calabria is saying he will just move servicing away from those struggling to those with more resources.

All that being said, I stand by my earlier point.  If things don't come roaring back soon, we will see a drop in RE (good as an investor, bad for overall public and economy), but it won't be 6 months from now.  It will be 18+ months from now.

CJ M. · Answer

@Kenneth Garrett

Agreed. And to clarify, in my situation it's not 1/2 of the loan $ amount that is due. It's "1/2 of all the loans I have" are eligible for 90-day forbearance where the entire 3 months $ (principal and interest) are getting tacked on the back-end of the loan

Kenneth Garrett · Answer

@CJ M.

I agree.  I don’t understand the forbearance being due in 90 days.  It seems to only delay the foreclosure process.  If I don’t have the money this month and/or next month, how will that help someone.  The 1/2 is due makes sense since you should have some revenue to catch up.

Kenneth Garrett · Answer

@Evan Polaski

Good points.  This will be bad for renters as well as mortgage holders.  Time will tell, but I believe by fall we will see a run on pre-foreclosures and foreclosures.

Will Forbearance Develop into Foreclosures in 6 Monthe

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