By Mindy Leisure
With all the craziness and changes going on in the world today it is easy to get confused with the sheer volume of information being released. Since the Fed dropped the interest rates to zero, there are many questions as to how this will affect mortgage rates. Additionally, with the surge in unemployment, the question becomes whether or not people can continue to make their mortgage payments.
First, the Fed rate cut does not affect mortgages other than Home Equity Lines of Credit. It also affects credit cards and some auto loans but not mortgages. If anything, a cut like that can actually cause mortgage rates to go up a little.
Mortgage rates are based on the bond market that is mortgage bonds or mortgage backed securities (MBS). During the refinance boom we have been experiencing, many consumers have been paying off their mortgages at a rapid pace. Mortgage investors are now paying less for mortgage debt. Paying less for mortgage debt usually means higher interest rates for mortgages. When investors see a short-term stimulus such as what the Fed did, they tend to move away from the safety of bonds or MBS. There may be a rally in the stock market but a sell off of the MBS, which can cause rates to rise.
What if you can’t pay your mortgage right now? First and foremost, contact your lender. The important thing is to continue to pay your mortgage, DO NOT just stop. Even though lenders have new regulations to follow, how they execute those regulations will vary from lender to lender. So before you do anything, call them! A lot of lenders will agree to reduce your payments or put them in something we’ve heard a lot about lately which is a “forbearance program” for anywhere from three to 12 months. This would be an example of how forbearance would work: let’s say you can’t make payments, you call your lender and find you qualify for a three-month deferral or forbearance. During this three-month period, your loan will still accrue interest. At the end of the forbearance, all the back payments and interest will be due immediately. Some lenders may be willing to work out a repayment plan where that amount is added on in increments to your monthly payment. However, not all lenders will be willing to do this. Work with your lender, go over all your options in detail, and once a decision has been made, make sure to get it in writing.
Another part of the regulation is that during this period you will not be charged late fees or be reported as late to the credit bureaus. This part should be viewed with great caution. Creditors use automated reporting software to report to the bureaus, so there is normally no manual intervention. With most lenders servicing thousands of mortgages, there is a big possibility for many errors like late payments showing up on credit reports that should not be there.
The other issue is that while they may not report a late payment, they may include a “remark” in their reporting that states “loan modified” or “load deferred.” Some of the bureau’s models pick up that verbiage as derogatory treat it as such. Therefore, even though there may not be an actual late payment reporting, the score could still take a huge hit just because of the verbiage. It would be wise to ask the lender about their reporting practices and ask if they will leave any verbiage out in regards to any modification, deferral or forbearance. During this time, it is very important to monitor your credit report to make sure everything is reporting correctly.
As far as having your mortgage payment deferred or altered, just be sure to do your due diligence, communicate clearly with your lender and ask lots of questions! As far as mortgage rates, yes they will continue to fluctuate a bit but they are still historically low and it is still a great time to refinance or buy!