Important to know!
I recently came across a great video explaining forbearance and what options are available to consumers. One main thing that was driven home is that "if you can make your payments, keep making them".
One of the unfortunate downsides of the forbearance plan is that it's costing some lenders more money than they have. There are major issues stemming from forbearance which will soon force some out of business. Most recently, it has to do with the "buy-back" of loans closed. A buy-back is when the lender who originated the loan is forced cut a check to the bond holder (or investor) when there is a default in their loan sale agreement. This is normally due to a borrower missing a mortgage payment in the early stages in their loan or because of a material defect. Recently however, many consumers who just refinanced are applying for forbearance before they make their first mortgage payment. This is an immediate buy-back and it's killing lenders.
Most lenders are now cash poor
Lenders and brokers make the majority of their income originating loans and then getting paid a fee from the investor they sell to. Oversimplified: They use lines of credit to fund their loans and then get paid back (plus their fee) when they sell. As I mentioned in an earlier article, many lenders are already dealing with margin calls and now they get to top that off with buy-backs. Prominent lenders in my area are successfully paying multi-million dollar margin calls and the question is... will the next one put them out of business? Or will the buy-backs coming in April and May be the nail in the coffin?
A positive note
A friend of mine encouraged me to shine some hope on this bleak situation. I'm thankful for the wise council, so here you go. The world is not crumbling around us and we will get through it. Psalm 147:5 says "Great is our Lord, and of great power: his understanding is infinite." I believe that God knows everything that's going on and knows each struggle, trial and tribulation. I also believe that there is hope and that He is there to show us "every good path" -Proverbs 2:9. Know that I pray daily for each of those affected by this horrible virus and if there is anything I can do, please reach out.
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