Episode 3 -What to do about your Mortgage during Covid-19
Most of us who work and own a mortgage are worried about the immediate future due to the coronavirus. How will we pay our mortgage? What programs are out there to help? What steps should we take to save our home and our credit? Mortgage expert Bob Griffin joins TWMI to talk about the state of your mortgage and what you can do to protect yourself. (Recorded March 22, 2020) www.soundchoicemortgage.com
Bob Excerpt: Get on the phone with your lender. Talk to them. They don't want to get in a collection situation. They really don't. They're willing to work with you on a deal. Chances are you can put something together. It's going to be advantageous to both of you.
Opening: You're listening to The Working Man Interview, a podcast about building purpose with conversations on issues facing men in the middle class, hosted by Rutland Walker, founder of Union Up.
Rut: A lot of people including myself, are worried about making mortgage payments as a result of the COVID-19 crisis and I thought today we'd explore what options are available to those of us working folks who are in jeopardy of seeing their income dry up as a result of being laid off or their customers letting them go or whatever the case may be. Today my guest is Bob Griffin. Bob is the owner of SoundChoice Mortgage, a mortgage brokerage out of Atlanta, Georgia that has written thousands of mortgages for homeowners in different States, maybe all States and has been in the business through several different cycles in this economy, both good, bad, and, and now what amounts to be dire. And Bob, I wanted to ask you for those working families and others struggling to come up with a way to pay their mortgage, what are you hearing in terms of relief programs from the lenders?
Bob: Well, it's been announced last week that Fannie and Freddie have allowed the lenders to let payments go into forbearance for at least up to 12 months. Okay. And that's a case by case scenario. Everyone you know obviously is not going to qualify for that. I think it's an individual case by case scenario. So if they're not sure if they lost their jobs or laid off or whatever the situation is in regards to what's going on right now, the best option they need to do is get ahead of it. Don't let it fall behind. Then make the phone call all your individual lender, get on the phone with someone and say, listen, this is my situation. What do you guys have to offer us? And every lender is going to treat that now they're not going to forget about the payments. It's a forbearance. How those work basically is that the payments are either put in back of the loan, it could be a lump sum when the whole thing ended, it could be a slightly larger payments for a period of time. It just depends on how the individual servicer of your loan handles that situation basically, so the best course of action is in front of it. Make the phone call to your individual lender, see what they have in there. Now those are Fannie and Freddie guidelines. There are other types of loans out there as well. Jumbo loans, FHA loans, VA loans, what they call non QM loans, which is the old subprime stuff, and they probably have some program in place as well because the last thing they want to do is get in the collection situation because honestly it cost them a ton of money.
Rut: I had read about the Freddie Mac and Fannie Mae thing, mortgage buyers. "Freddie Mac and Fannie Mae". I'm reading out of the Dallas morning news "said Wednesday, they would suspend all foreclosure sales and evictions of borrowers in single family homes owned by companies." What specific relief measures are Fannie and Freddie offering? Do you know?
Bob: No. The only thing they're really coming out with right now is saying exactly what you just said. They're suspending all foreclosures and evictions and also I believe applies to renters as well. They basically say, okay, we're going to take a pause here, any foreclosures right now, we're going to hold off on that at this time and we're going to allow our lenders, give them guidance, basically saying, Hey, you know what? You guys need to offer some sort of relief program up to 12 months, relief on their mortgage payments and however you come up with that, that's up to you.
Rut: Is there any statistics out there that...?
Bob: No it's way too early. I mean, this is a developing story obviously, but I think the lessons learned from the 2008 crisis are coming into play again. What they learned from that going forward, how the best handled their businesses, how they're handling their clients and keep the disruptions to a minimum. Basically. One of the issues I had before was the forbearance where they were reporting to the credit files, Hey, these people are behind X amount of months, which was obviously negatively impacting their ability to obtain credit somewhere else. Credit Card. Car Loan. Apparently they're putting this time saying, you know, the second is not going to affect the credit. They're not going to report those as late payments. That's what they're saying. Let's see how it really rolls out down the road basically. So yeah, they're saying that the credit is someone who's in a forbearance situation or they've taken some sort of relief from Fannie and Freddie under these programs offered through the variety of different lenders are not going to impact their credit negatively. Having said that, you know, been in business a long time, you know, proof is in the pudding. Let's see how that really rolls out.
Rut: What can somebody do if they are not a Freddie or Fannie loan to find out if they qualify for some type of a mortgage relief program?
Bob: Well, the first question is, if you have you lost your job? If negatively impacted you gotta say, okay, I lost my job. Here's my situation that was directly impacted by this current situation. Okay. That's the first step. Second thing is get on the phone with your lender. Talk to them. They don't want to get in a collection situation. They really don't. So they're willing to work with you on the deal. Chances are you can, you can put something together, it's going to be advantageous to both you. Make the call.
Rut: Yeah, that makes sense. So let's say a homeowner does find out that they qualify for some type of relief program. What other fees are they responsible for in escrow? I know, you know, my escrow is, taxes are included in that. Insurance is including that and so forth. What other fees in escrow, if any will they be responsible for?
Bob: Well, again, a forbearance isn't letting you off the hook for anything. You're still going to have to pay it. Okay. It's not a get out of jail free. Hey, we're making those payments go away during this time. It's basically saying, we're pausing these payments right now. You're still gonna have to pay them one way or the other. Interest is still going to accrue on your mortgage loan as long as you have it, that's not going away. So for as far as normal mortgage payments, as far as taxes and insurance, if you do have an escrow account, most people do, that's a great question to ask them. When you get on the phone with it's how is this going to impact my escrow account because if they don't collect it and the mortgage company does pay your taxes and/or insurance when they come to, they're going to come back eventually want that money back. So that's a great question, Rut, one that you should definitely talk to your servicer about how that's going to be handled.
Rut: And you said that generally speaking, the forbearance, I'm using your term, I'm not familiar with that term, but the forbearance of your mortgage payment would not affect a person's credit. Correct.
Bob: That's what they're saying right now. The guidance that I'm seeing right now, again, very fluid situation. Not sure how I think they'll stick to that. But again, that's another one of the questions that you need to write down when you call the mortgager how they are going to report that. What have they put in place to ensure that, yeah, you know what you told me they weren't gonna report that, but you did. How do we correct that? Those are all great questions.
Rut: I remember in '07, '08 a lot of people just pitched the keys on the counter and walked away from their mortgage leaving the banks to just deal with it. What happens in this situation if someone just stops paying their mortgage or you know, without finding out about or qualifying for a relief program, how long do they have before they are evicted?
Bob: Well, every state has rules around foreclosure. And some of them are more stringent than others, but typically back in '08, Hey, you just throw your keys on the counter, walked out the door, you're going to get foreclosed on. Simple as that and the rules still apply too, it's still a contract. You still have to pay your agreed upon mortgage payments. If you did not contact the mortgage lender and make some sort of arrangements to do some sort of forbearance rather pushing the payments back or lowering the payments for a period of time, then you're going to lose your house. No doubt. But that's not going to go away. So the important thing to remember about that is if they sell the house for less than what they owed on the mortgage you are going to get a 1099 from that mortgages company for the difference on that which you owe taxes on as well. But that's one thing that really never mentioned before. So there's all cases, try to work something out. Okay. If you can't do it try to sell the house or at least break even on the property. Because when you get a foreclosure, especially reporting your credit files, you're out of the game for a while.
Rut: What sort of documentation do they need? I mean, I know you said to call the lender and that's certainly what I'm going to do. What sort of documentation do you need that says that you've had this conversation and documents what they say in return? Just an email confirmation or record the call or what do you do?
Bob: Again, every lender handles their business differently. Some will work right? Some honestly aren't. If you get on the phone with him, you get ahold of someone and say, Hey, you know we're going to do this. Nine out of 10 times, they're going to email you the details of the transaction, who they sent it to, but always write down, you know you've got a pen and paper there. Hey, I talked to George over at XYZ bank and this is what they told me. This is his extension. This is when I talked to him. Don't let them be the keepers of all the information that goes in between you two. So let's say it's with somebody else and that person told longer there, at least you have a track record of who you spoke with. They're usually pretty good about, they usually mark it up on the system anyway. But I would definitely ask them to send you some sort of email confirmation of what you discussed or Hey, what's your email? I like to send it to you to kind of detail or keep a recap of what we discussed. So something happens, you know, you can always go back, Hey, I talked to this guy and this is what he said. Oh, okay. Because there's going to be multiple people that are going to be coming in and out of that process and you want to make sure you have some sort of timeline and who you spoke to.
Rut: As it relates to refinancing. I've read and heard stories of homeowners that have a lot of equity in their home right now and who knows how much equity they have right now because home values, I got to feel like have been compromised by this. But let's say they have a lot of equity and they're trying to pull cash out to keep solvent during this time.
Bob: They can absolutely do. Everyone's situation is different. If you have a bunch of cash, a bunch of equity, you probably don't need to do anything. If you have a lot of equity and you don't have much cash in the bank and you're worried about losing your job, that's potentially a way to make yourself more liquid. But again, it's one of those catch 22 things. You know, if you lose your job, you can't get the money, right. You don't qualify for it. So if you are employed gainfully right now want to get money on those deals and that's the only real viable option to pull money out. Yeah, go ahead and do that. Understand that it's going to cost you something to get that money and you're borrowing against it. You still have to pay it back. So these are all things you need to take in consideration. How much is that going to increase my overall monthly expense because I've got to make that payment too? Read it all out due to a capital budgeting decision and on your own personal level and say, okay, here's what we have. Here's what we need. What's the best course of action and get the right information. Start dialing for dollars.
Rut: As it relates to that, what is the state of the refinance market right now? If the fed has lowered interest rates to essentially zero right now, why have I seen mortgage rates go up to this point?
Bob: There's a couple of reasons why that's doing that way. First of all, the mortgage lenders are right now trying to best service their current customers that they have right now. They have a certain amount of capacity and they get to a certain place okay, we can't handle this type of business. So they're basically, what I call taking themselves out of the game, they're raising their rates up to the point where it makes no sense to do anything with that particular company. Additionally, you're seeing massive volatility on the bond market and that's how these guys price out their mortgage allowance. Everyone says, Hey, the fed dropped the rates to zero. Yeah, that's really, you know, a sister so to speak of the mortgage race, you really got to look at bonds. You've gotta look at the mortgage backed securities, how they're doing, how they're pricing out. And that's something an individual person really, that's not their job. Okay. They just need to know, Hey, you know what rates are going up right now basically because these lenders are pushing back. We have too much business we don't want to take anymore and we're not going to put ourselves in a dangerous liquidity situation. Putting too much money on the street where it might be gone tomorrow. You're seeing a lot of lenders pulled back in certain products such as the non-qualified or non QM market, which is really the old subprime market. Most of those folks have stopped lending.
Rut: What does that mean to me? I'm not familiar with those terms. I know what subprime is. It means, what lending to people who don't have excellent credit. Is that a fair...
Bob: that's a fair set. Less than perfect credits, income documentation issues, that kind of stuff. Higher risk borrowers. Those marketplaces right now are pretty much on the sideline right now because the risk is type of loss as they were back in 2008 but that doesn't apply to most people. Most people fall into the Fannie and Freddy bucket, which is your regular conventional mortgage loan. I think that's for most people, that's what they're most concerned about and that's really how do I have access to the money? What's the best interest rate? Rates will come back down. Okay. As soon as the bubble kind of pops to the system here, rates will come down a little bit, but I think there's a misconception of what rates should be and what they actually are in the marketplace right now. I've got a lot of people thinking rate should be way lower than they are and quite frankly, I agree with them, but the lenders have pretty much said, okay, we're taking a breather right now. We're pushing back. We have way too much business we can possibly handle right now. Plus the people we have that work for us are experiencing the same issues as everyone else. We don't have the staff or they're trying to work remote or they're trying to take care of everything differently, so it's impacting everyone in that marketplace as well. They've got to rethink how their process works as well as everyone else.
Rut: Yeah, a question on refinance, so I've heard ads over the years about collateralizing credit card debt as a reason to refinance. Is that a wise move to use home equity to pay off uncollateralized debt, like credit cards right now?
Bob: There's a lot, there's been a lot of debate on that. Some people believe that is the worst thing you could possibly do, take an unsecured debt and then securitize it to get your property. Really what you're talking about, Rut, is debt consolidation loans, and they could be credit cards or cars, automobile, you name it, but the individual basis, what are they trying to accomplish by doing that? A, lowering their industry. B, lowering their monthly payment and nine out of 10 times it falls in those two buckets. Okay. Hey, You know what? I'm paying $1,000 a month right now on these credit cards and on a home equity loan or a cash out loan, my payments go up 100 bucks. For me, that's the best option. So I would say for most people making that decision whether they want to, as you say, collaterized their debt, do a debt consolidation or lower their monthly payments, look at their situation. Remember you're not getting new money, you're just shifting it around. Is it putting in a lower interest rate situation where you're paying less per month in interest charges? Is it a situation where you need to free up extra cash on a month to month type of basis? And I think that's the real question for most people is the month to month situation. Hey, I'm paying a thousand. I'm just giving myself a raise because now my payments only gone up a hundred bucks opposed to 1000 bucks. Does that make any sense?
Rut: Yeah, it does. One last question. Assume that someone can get relief of some sort. What other steps can they take to lower their monthly payment? Like dropping PMI, private mortgage insurance, deferring tax payments, etc. What other steps or rules are there around that?
Bob: Again, the relief stuff that's out there right now is basically pushing payments back, putting it in forbearance basically. It doesn't excuse you for making, it doesn't stop the interest. It doesn't stop the taxes. It doesn't stop the insurance. That's going to continue on that. Are there any programs to lower the amount of taxes? No, not that I've seen. That's usually done every single year. Whatever County you're living and they always come out reassess the property up or down. Really, that's gonna affect your taxes and property. Insurance. Obviously you gotta have it. And that's up to the individual insurance companies. I don't see them backing off their stuff. So other programs out there, I mean there are some foreclosure properties, things out there in Georgia. They have a couple programs out there I think for people who have completely lost their jobs, but you'd have to dig into that. But as far as getting reduced taxes or insurance or interest, well on the loan side of it. That would fall under what they call loan modification and loan up modification, if it gets to that point would say, Hey, I can't make my mortgage payments at the current amount. What can you do to lower those payments? The lender might say, okay, we don't want to foreclose, we want to work with you. So we are going to lower the interest rate to this and we're going to extend your term out longer than you currently have right now. You're still responsible for the full amount, but we're going to stretch it and lower it to bring the payments down.
Rut: And I'm guessing there's some sort of paperwork and documentation that goes along with that.
Bob: And I would tell anyone who's even thinking about that work only with the lender don't go to any of these rip off companies and all that kind of stuff. Cause there are a bunch of scams that came out in 2008 about that. The other important thing to remember, if you consider doing that, you're pretty much taking yourself out of refinancing that loan. The guidance still to this day is if you're within I think seven years of a modification of a mortgage loan, none of the lenders will touch it. Cause it's was put there to help that borrower out and doing that would negate the whole purpose of doing that. So I got a loan I want to refinance, get a lower as well. Guess what? You took out a modification five years ago. Sorry I can't help you out, but you gotta do what you gotta do. And if a loan modification, if the lender's offering that too is the best course of action so you stay in your house. Yeah. Do it.
Rut: So all of these questions you can go through if you contact your lender, your advice essentially bottom line is to contact your lender ASAP.
Bob: If you, you know, get ahead of it. If you think you're going to lose your job or you lost your job or you've been laid off or that's something that's tied directly to what's going on right now, contact the mortgage lender. If it was my guess, if it was something outside that realm, Hey, this has been going on for a year and now you want to have some relief because what's going on? I'm going to guess throw the red flag and that's no, but if something, you say, Hey, you know what? I work in the hospitality industry. I was a waiter. I'm not getting obviously any tips anywhere right now. So my income has been impacted by that. They'll probably work with you. The lender, generally speaking, wants to work with you and keep you in the house. They do not want to foreclose. They lose tons of money by doing that. And the last thing they want to do is go through that process. Believe it or not.
Rut: Especially now everybody doing it at one time, they're probably more willing to work with you now than any other time?
Bob: Well, again, these are lessons learned from the last deal when you had so many houses going into the foreclosure market to depress the marketplace to where they were way upside down on properties. They don't want to go down that road again where they have a $200,000 mortgage loan on a $100,000 house. So what do we do? So they don't want to flood the market with any of that stuff either. These are all lessons learned. What do we do in this particular case? How do we do this? We want to stay solid too. We're a bank. We want to stay in business. What happens if we foreclose? First of all, A. we start getting interest payments on the current mortgage loan. B. We got to hire all these folks to take care of the foreclosure being we got to pay for the house to be maintained. C. We got to pay for something to get sold. They don't want to go down that path. It's in their best interest. I would reach out first because every one of these lenders is going to have a different program in place.
Rut: Good stuff. Thank you Bob. If you want to get in touch with Bob, you can find him at SoundChoiceMortgage.com Bob, thank you so much for spending some time with us.
Bob: Hey No problem.
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