Questions and Answers About the Fed Rate Cuts

How to Skip Mortgage Payments

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3/23/2020 | Casey Fleming |  There’s little question that we are already in a recession.  Perhaps you have been affected personally.  If so, you may wonder how to skip mortgage payments.

During the Great Recession people lost their homes because they could no longer afford to make their mortgage payments.  The resulting foreclosures exacerbated the downturn and made it much worse that it otherwise would have been.

The Federal Reserve is tasked with manufacturing continued economic growth (at a sustainable pace) and – if we are going into recession – to make the landing as soft as possible.  They learned a lot of lessons in 2008 through 2010, and are applying that now.

Related: Fed’s New Measures to Support the Economy

As a result, Fannie Mae and Freddie Mac (who own about half of all mortgages in the U.S.) have announced that they will allow servicers (the lender you make your mortgage payments to) to allow you to defer payments on your mortgage for up to 12 months without creating a negative “late payment” mark on your credit report, and without penalties.

But you can’t just stop making your payments.

If you find yourself in need of payment relief, here’s how to skip mortgage payments, and what you can expect:

First, call your servicer.  They probably will not reach out to you.  Let them know you are having trouble making payments, and they should offer you some options.  Here’s where it can get interesting.  Fannie and Freddie have not issued any rules about what kind of terms they can offer you – only that they can’t charge late fees or report your payment as being late.

So, after the deferral period, you’ll have to make up the lost payments somehow.  It might be as a slightly higher payment for a while until the deferred payments are paid back, or perhaps they will add the deferred payments to the back end of the loan.  Take note, however: interest will still accrue on the unpaid balance of the loan.  In the long run, therefore, you’ll end up paying more interest than you would if you kept making your payments.  This is NOT free money.

Think of it instead as taking out a long-term loan at whatever interest rate you currently are paying on your mortgage.  If your interest rate is 4%, then you’re borrowing one mortgage payment each month at 4% for whatever period your lender offers.  If you have been laid off or have very little savings, this could be a very good thing.

Finally, if you are thinking of taking advantage of this benefit, you are probably wise to call your servicer to ask them how to skip mortgage payments sooner rather than later.  Most folks will wait for a couple of months until they see it as being absolutely necessary, and lenders will not be staffed up enough to handle the volume of requests.

Related: Apartment Owners Offered Relief, Too

It Won’t Hurt My Credit to Skip Mortgage Payments?

If your lender allows you to skip mortgage payments, then they can’t report you as having late payments.  However, the scoring algorithms used by the credit reporting agencies (e.g. FICO) look at your payment patterns.  (This was implemented two or three years ago.)  There’s no certainty that deferred payments would not have a negative impact on your credit score.  More to come on that as news rolls out.

When to Not Ask for a Deferment

If you have not yet refinanced and are thinking of doing so, or if you are in the middle of the process right now, don’t ask for a deferral.  Neither Fannie nor Freddie have issued any guidance to lenders as of this writing as to whether or not they can fund a new loan while you are in deferment.  So, this would almost certainly kill your chances of getting the loan.

If you have any questions or want guidance through this process, please fee free to call me.  And if you are thinking of selling your home, there are a lot of first-time home buyers out there who have been waiting for an opportunity to buy, and springtime is traditionally when they get serious.

If you want to find out what your home might sell for today, please call and I will introduce you to an experienced, ethical Realtor who understands today’s market and how to market your home.

Casey Fleming, Author The Loan Guide: How to Get the Best Possible Mortgage (On Amazon)
Mortgage Advisor, C2 FINANCIAL CORPORATION
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This article represents the opinions of Casey Fleming, and not necessarily those of C2 Financial Corp.  This analysis was prepared with the best information available at the time it was written.  Neither Casey Fleming, nor C2 Financial Corp., have any magical insider information about bond markets, real estate markets or mortgage markets that would make economic projections any more reliable than any other source.  No warranty is made that the outcome will reflect the projections in this article, and neither Casey Fleming nor C2 Financial Corp. are responsible for decisions that you make regarding your own choices about your real estate or mortgage or those of your clients.

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Resources used for this article:

https://fortune.com/2020/03/23/mortgage-deferment-forbearance-modification-coronavirus/

 

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