In the wake of the Baton Rouge area’s historic flood, some homeowners may be tempted to take advantage of a three-month mortgage payment deferment option that the underwriting agencies of home loans offer in times of disaster.
But the Greater Baton Rouge Mortgage Lenders Association is advising homeowners to be careful if they go that route, and is asking the real estate community to help spread the word about the potential risks.
“We’re not saying people shouldn’t do it,” says Bill Holt, president of the GBRMLA. “We just want to make sure they understand all the parameters.”
At issue are “forbearance policies” offered by the big three government sponsored enterprises that underwrite most conventional home mortgages: Fannie Mae, Freddie Mac and Ginnie Mae. Those policies give homeowners affected by disaster, like the recent flood, a 90-day deferment on their home loan payments.
However, those payments are due in full at the end of the deferment period, unless the homeowner qualifies for a loan modification, which is a separate and lengthy process with its own downside.
“A loan modification is not good for your credit and there is no guarantee you will qualify for it,” Holt says. “So if you defer for 90 days hoping to get a loan modification and you don’t, then you are suddenly 90 days late on your mortgage and the whole amount is due immediately.”
Holt lays out the potential consequences in a letter to the Greater Baton Rouge Association of Realtors and asks the group’s members to “help affected homeowners by managing their expectations if they are asked about payment deferral options.”
Holt decided to write the letter after seeing a lot of chatter on social media encouraging flooded homeowners to look into such deferment options.
“We just don’t want people to get into this without being aware of the consequences.”
—Stephanie Riegel
