Negative affects of forbearance?

23 Replies

I heard a rumor that commercial lenders are asking about forbearance. Specifically, if you had to ask for forbearance from your bank since it indicates a borrower has less than a stable financial position. Anyone else hearing anything? Personally I'm holding off and will only ask my bank if I absolutely need to skip a payment.

@Gregory Schwartz you are asking a HUGE question here that has real implications on someone's ability to borrow.  Not just for commercial lending but residential lending as well.  I'll try to summarize this as easily as possible.

Let's say your mortgage payment is $1500.  And let's say you decide to skip 3 payments, essentially 3 months.  After those 3 months pass, you call your lender and say that you are all good now and don't need to skip anymore payments.

SURPRISE!  You know owe 3 months of payments right then.  $4500 In full.  Oh, and you regular monthly payment is due too.

Now of course you are going to say something to the effect of "I've just been out of work, I don't have $6,000 to pay you right now".

So then your lender will say, no problem.  Will just spread those 3 payments over the next 3 months.  So now your regular $1500 payment is only $3,000 per month.  What a deal!

And of course, if you were having trouble paying $1500 per month...you're probably not going to be able to pay $3,000 per month either.

So now your lender will casually say "we'll just put you in a loan modification".

And for people who remember the housing crises....this is where everyone will get into trouble.  Since you cannot enter a "loan modification" without your loan being delinquent and since you can't pay your payments up back immediately or it will be really hard to pay the higher payment....you will now be ineligible for any mortgages for about 2 years.  Because you cannot go into a loan modification UNLESS you are behind on payments.

This whole scenario is a mess.  And it's going to get messier.

Anyway, I hope this makes sense but certainly is frustrating how this is being explained elsewhere.  Let me know if you have any questions on it.

@Andrew Postell thanks for that. Sounds like this will lead to a real mess in about 6 months to a year.

I was referring to property owners who simply enrolled in the forbearance program even if they never missed a payment. I had heard this could be held against you with some lenders.

@Gregory Schwartz

I don't think there is an official answer yet as no one really knows. I personally am on the same boat as you as I have commercial loan payments being made every month. I plan to make my payments regardless of what rents come in and deal accordingly. 

I wouldn't be happy when I apply for my next deal and my lender brings up that I "missed" a few payments...My commerical lenders are slammed with SBA/PPP loans right now. 

@Gregory Schwartz the only way they will be able to tell if you are IN forbearance is if your lender reports it to your credit....and if your forbearance is COVID-19 related they are not supposed to report it.  After your forbearance period is over....that's when it might get messy.  You know there will be some lenders that will make mistakes...but no one should be able to tell you are in forbearance under this scenario.

@Gregory Schwartz   @Andrew Postell   My mortgages are also commercial and not subject to the forbearance program, not that I'm aware of.  The loans don't report on my credit, but I have the same concerns, if I go to that bank in 1 or 2 years to refi or possibly purchase a new property, would that internal history the bank has be held against me?

Not sure..messy times ahead indeed!

@Tom S. commercial lending is an ENTIRELY different subject. I think there is a commercial forum here that might be able to address this better but essentially loans like FHA/VA/USDA/Fannie/Freddie (residential) will examine your personal credit and your personal income. That's where you personally are obligated. The payment history of a commercial loan doesn't really come into play with those loan types...that is, as long as you didn't personally obligate yourself on that commercial loan (some will require this from you). Anyway, hope that helps in some way.

@Andrew Postell to be clear then for residential mortgages...the missed payments during the 3 months forbearance should NOT negatively impact anyone when looking for future mortgages? Would payments show up as "current" on credit reports during this period due to Covid?

@Indro Dhar of course I will always state to speak with your servicer but lenders are under direct congressional act that Covid related forbearance cannot be reported to credit nor have penalties associated with it for the 3, 6, or 12 months that your agreement with your servicer allows. After the forbearance period is over is a different discussion though.