Forbearance-to-Foreclosure Pipeline

Laurie MacNaughton © 2021

She’s 78 years old.

She’s 78 years old and heading into foreclosure.

How did she get here? How the HELL did she get here?

A year ago, as allowed for under the CARES Act, she put her home into forbearance. Now one year on she’s newly widowed, meaning she’s got half the income and all the debt, and her home is coming out of forbearance in just a few weeks.

According to correspondence from her mortgage company, she also has a $69,000 lump sum due on her existing mortgage come September 1. If she cannot come up with that amount, per her mortgage company, her home is headed toward foreclosure. She has tried to refinance both with her current lender and with several other lenders.

But here’s the thing: it can be very difficult to refinance if you are not currently making payments. This means many thousands of our seniors may soon be in dire distress.

So back to our 78-year-old.

This past week her banker mentioned the possibility of refinancing using a reverse mortgage.

To answer your question: yes.

Yes I can qualify her.

Here’s why: with a reverse mortgage she does not have to have income enough to make monthly mortgage payments…because with a reverse mortgage there is never a monthly mortgage payment required. Rather, the mortgage will be repaid on the back end – in reverse – when the home is sold. All remaining equity belongs to the homeowner, the heirs, or the estate.

Because homeowners still own their home, they continue to pay homeowner’s insurance, property taxes (unless tax-exempt), and HOA or condo dues, if applicable.

We may well be in the calm before the storm. But our older homeowners currently in forbearance do not have to lose their homes if they can refinance using a reverse mortgage.

Please, please be proactive in asking the hard questions of your loved ones currently in forbearance. You know, as do I, that many older homeowners are not comfortable asking for help – until they’re out of all options they know to pursue.

Do please pass this message on to lenders, bankers, planners, attorneys – anyone in your life who deals with older homeowners.

And do call at any time if you have a client, friend, or family member aged 62 or older who wants to talk. I’m always available.

Foreclosure: the gathering storm

Laurie MacNaughton © 2020

Let’s have a go at Jeopardy. The answer is: “Ten million.” The question? “How many Americans lost their home in the Great Recession?” Ding, ding, ding – you’re right. Ten million.

During the Great Recession it took nearly two years before the US saw the first 1.6 million homeowners fall delinquent on their mortgage. That many homeowners fell delinquent on their mortgage in April 2020 alone. On top of that, some 4.7 million homeowners are currently in forbearance, representing some $1 trillion in unpaid principal balances, according to Black Knight, a mortgage analytics aggregator. Out of that number, less than 30% report having funds on hand to catch up. That ten million from the Great Recession? By early next year it potentially could look like child’s play.

Just like in any crisis, the most vulnerable are hit first, hit hardest, and suffer longest. Included in this group are our youngest homeowners, our communities of color, and our hourly wage-earners, all of whom are likely to have little in savings. And then there are our aging homeowners. Homeowners who worked their entire lives. Homeowners whose largest asset may well be their home. Homeowners who were planning to retire in the next year or two. These homeowners – these are those for whom losing a home may well mean a rewrite of the whole retirement chapter.

We’ve already watched how this scenario rolls. We already know this pre-retirement demographic may not ever fully financially recover if the US drops into an extended recession.

Here’s the classic scenario: husband, wife, or both lose a job, and finances get tight. Rather than falling behind on the mortgage they begin to tap into their savings, and then into their investments, to meet their monthly mortgage payment. By the time they reach out for professional help, their options are severely limited.

So what are realistic options?

If they’re lucky, adult kids can help. However, rarely is this the best option, as bankrolling mom and dad means the kids are using dollars they should be saving for their own retirement. On top of that, adult kids may also be scrambling right now, as many professional positions have been hard hit.

A second option is to sell the home and rent, so long as there are no illusions it’s truly going to be cheaper in the long run. A recent analysis put out by Trulia, the online real estate consolidator, states that after six years buying is cheaper than renting. Additionally, rents in many metro area currently are quite high, and doubtless will climb higher still as foreclosures limit supply. Nonetheless, there are those for whom renting may be the strongest option.

Another option to consider: “Golden Girl” style communal living. This has been a trend among aging women for the better part of two decades, and these arrangements can meet both financial and social needs. In fact, in happiness quotient studies, communal housing generally scores very well.

For some, a reverse mortgage will be their saving grace. If homeowners have income enough to pay property taxes and homeowner’s insurance for the long run, not only is reverse mortgage a strong option, but it may be the ideal option. For the three people left on the globe not familiar with reverse mortgage, here it is in a nutshell: it’s a home equity loan. Punto. It’s a home equity loan that’s repaid on the backend, in reverse, and it is this feature that typically makes it an ideal fit. If there is 50% equity or greater, and if at least one spouse is 62 or older, a reverse mortgage can mean the difference between losing a home and retaining the home.

In one way or another, everyone in has been affected by this pandemic – and it ain’t over yet. In fact, when it comes to the economy in general, and housing in particular, the worst may be yet to come. We’re all going to find ourselves helping others, even if that just means passing on information.

A reverse mortgage is not a fit for everyone. And it’s not going to help everyone. But it’s going to be the solution for many homeowners, aged 62 or older, who otherwise might lose their home.

If you would like more information for a client, friend, or family member, give me a call. I always love hearing from you.


Let’s talk about the “F” word

Laurie MacNaughton [NMLS ID#506562] © 2020

Forbearance. It’s the hot topic of the day. It may also prove catastrophic for some homeowners who haven’t read the fine print – if they can even find fine print to read.

Social media posts state in emphatic terms, “Congress gives free money!” “Mortgage holiday!” “Don’t pay your rent!” In a time of uncertainty it feels good to think those in charge are all-wise and all-knowing, that they are looking out for us, that they have our best interests in mind. But it is well to remember the saying, “Rumor circles the world while truth is still lacing on its shoes.”

From the outset I want to make clear: if it comes down to feeding your family or making your mortgage payment, feed your family. If you truly must, ask your mortgage servicer for forbearance. Just don’t imagine for one moment your mortgage payment was forgiven, that it disappeared, or that there will be no long-term consequences.

Which leads to my second point. To date there has been little guidance regarding penalties for forbearance. But as a federally-licensed lender I can tell you this: it is highly unlikely there will be no credit implications for missed payments. Some credit blemishes last a very long time, and mortgage lates can dog homeowners’ feet for years to come.

The likeliest forbearance scenario is that if you miss three months’ worth of payments, all four payments will be due in month four. Let’s say your mortgage payment is $2,000, and you engage in a “mortgage holiday” all three months. Now you owe $8,000 in one lump sum, and you’ve just gone back to work. This would be nearly impossible for most Americans under the best of circumstances, let alone current circumstances when many have been unpaid for weeks. I fear, I deeply fear, we are going to see a foreclosure crisis that makes 2009 pale in comparison.

The punchline is this: if you can pay your mortgage, pay your mortgage. If you can only make a partial payment, call your loan servicer to see if they will accept a partial payment. If you truly cannot pay, bear in mind there will be consequences.

One last word to homeowners aged 62 or older: this time may be the right time to look more deeply into a reverse mortgage. An FHA-insured reverse mortgage is far different than most people think. You do retain title, and the home remains yours until you or your heirs sell it. The loan is not repaid on a monthly basis, but rather in reverse on the back end when the home is sold. All retained equity belongs to you or to your heirs.

Because there is never a monthly mortgage payment due, there is nothing to fall behind on when finances are tight. The FHA-insured reverse mortgage is not exotic, nor mysterious, nor even complex. It can, however, be a financial safety net when life becomes unpredictable.

Be well, stay safe, and if you have questions, give me a call. I always love hearing from you.