Under forbearance, part of the relief provided by the massive CARES Act signed into law in March 2020, millions of homeowners with federally backed mortgages were allowed to pause their mortgage payments for up to 18 months.
Since many homeowners put their mortgages into forbearance last spring, a lot of those loans – insured by the FHA, VA and USDA – will have to exit forbearance this fall. The borrowers who have continuously skipped payments since then will reach their maximum term in September, when their payments will restart.
At that point, homeowners will have a choice to make…and their lenders must be prepared to help them.
There are several ways to catch up and pay back missed payments, and considering the sustained low-interest rate environment, loan modifications that lower borrowers’ payments present an attractive option.
This mass exodus from forbearance could create a substantial refinance opportunity, giving you another reason to reach out to existing clients.
No matter what type of loan your homeowners have, the most important action to take now is to reach out to your borrowers to review when payments will resume and lay out their options.
Another update making the road toward a refinance attractive for many homeowners is the Federal Housing Finance Agency’s elimination of the controversial “Adverse Market Refinance Fee” instituted last year. The policy, which imposed an extra fee of 50 basis points on most refinance mortgages over $125,000, was abolished effective Aug. 1. According to a statement from the FHFA, the fee is being terminated “to allow families to save more money.”
The decision to eliminate the Adverse Market Refinance Fee was met with applause from around the industry. Many argued that with less than 2 percent of GSE loans in forbearance, and continued home price appreciation resulting in significant borrower equity, there was no need for the fee.
The removal of the half-point hit on conventional conforming refinances could be a positive push for prospective refinance volumes.
Now is the time to educate your borrowers that they can lower monthly payments, take cash out to pay for home improvements or other large expenses, or consolidate debt. You can help homeowners streamline debt payments by combining them into one lower interest rate loan, which can help provide easier and more predictable financial planning.
Additionally, current clients may not be aware that there are no appraisals needed on streamline loans (FHA/USDA), interest rate reduction refinance loans (VA), or conventional loans where a property inspection waiver is obtained.
With so many homeowners preparing to exit forbearance, you may have an unprecedented opportunity to help them potentially save thousands on their mortgage.
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