COVID-19 has had a major impact on numerous industries. The real estate and mortgage industry, by comparison to many others, has fared quite well. To be certain, there are people still struggling to make payments and many families are still struggling with housing issues, but real estate sales, especially new construction, have continued strong.
But certain aspects of industry have been changed. Through not fault of their own, many people have struggled to pay the bills. This has caused delinquent payments and forbearances on mortgages.
Currently, interest rates are extremely low, which makes refinancing very attractive. But if you have struggled to make payments, it can be difficult to refinance. Fortunately, the industry has created solutions that allow people impacted by COVID to still take advantage of low rates by refinancing their loans.
Refinancing a Property that is in Forbearance
Recognizing that many people are struggling to make payments, and that the special circumstances of the past year were out of the control of many homeowners, the industry has tried to make compensations and ease restrictions. One of the biggest changes we have seen is the easing of restrictions related to forbearance.
Missed payments over the past year caused by COVID-related hardships will not count against you in certain situations. As long as the issue has been resolved and the account has been brought to current, these will not be considered delinquent payments. This flexibility, however, does not apply to FNMA high-LTV refinance mortgages or FHLMC Enhanced Relief Refinance Mortgages. For further details, and to help sort through the complexities, feel free to contact you lender or lending agent at any time.
While restrictions on accounts with missed payments have been eased, underwriters still need to review your credit report in an effort to determine the status of your mortgage loan. They will have to perform their “due diligence” for each mortgage loan that is attached to the applicant, including any loans where the applicant is a co-signer. This also includes mortgages not related to the subject transaction.
Eligibility for Mortgages in Forbearance
To be eligible for a mortgage despite having a past forbearance, you will need to meet a variety of requirements.
If a forbearance has been identified, the applicant may be eligible for a refinance if they have paid all obligated mortgages and made them current through the previous month. If everything is current, the borrower will likely be eligible.
If a borrower is not current, there are situations where a refinance could still be possible. As long as the borrower meets certain requirements, they may be able to proceed. The first possible situation is if the payments were resolved in accordance with a reinstatement plan. If the borrower resolved the issue through a reinstatement, they are eligible, but the underwriter will need to document the source of funds. It’s important to note that proceeds from a refinance cannot be used to reinstate a mortgage.
The issue could also be resolved through a loss mitigation solution after forbearance. If outstanding payments were, or will be, resolved through a loss mitigation solution, the borrower may be eligible for a refinance. As long as you have made at least three timely payments as of the note date, the transaction may proceed. Certain criteria apply in this situation:
- For a repayment plan, the borrower will need to have made either three payments under the repayment or completed the entire repayment plan, whichever would occur first. (So if the repayment plan only includes two payments, and those payments have been made, you’re good to go!) If the plan includes more than three, it does not need to be completed, but three payments must have been made.
- If the account is on a payment deferral, you will need to have made three consecutive payments following the effective date of the payment deferral agreement.
- Some accounts are on a modification plan. If this is the case for you, you will need to have completed the three-month trial payments.
- There are a variety of other solutions to the problem, so if your loss mitigation solution is not listed above, it’s likely that as long as you have completed the program or made three payments you will be eligible for a refinance. Again, contact your lending agent for more information.
Throughout the above solutions, we constantly mentioned three timely payments. Regardless of the solution, these payments will be verified by the lending agent. Verification can include the loan payment history from the servicer or third party, as well as the latest mortgage account statement brought by the borrower. Another solution is a verification of mortgage.
“Due Diligence” by the Lender Is Critical
In order to refinance your mortgage and take advantage of low interest rates, the lending agent on your account will have to perform their “due diligence.” Due diligence can include methods of documentation that further verify a borrower’s ability to make payments on the refinance.
Due diligence may include:
- Documentation of loan payment history from the loan servicer or third-party affiliation and verification service.
- Statements of payoff for mortgages being refinanced
- A current and up-to-date mortgage account statement, which will be supplied by the borrower
- A verification of the current existing mortgage
These and other methods can be used to verify the loan and increase the chances of refinancing.
The steps we have outlined may seem complicated, but don’t worry. With the support of a knowledgeable and dedicated mortgage agent, you can work through the details and increase your chances of refinancing your loan. Interest rates are low, so if you have multiple years left on your loan and could reduce your mortgage rate rate by a whole percentage point or more, it may be worth your time and energy to refinance.
Work with San Diego’s Refinancing Expert
We understand the complexities of refinancing and forbearance. If you have experience a past forbearance on your loan but want to take advantage of historically low rates, contact our staff today!
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