As the novel Coronavirus continues to wreak havoc on the health of Americans, one of its toxic side – effects is also threatening the financial health of homeowners all over the country.
At one of his daily press briefings, President Donald Trump proposed that a 90-day forbearance should be made available to those homeowners seeking to avoid foreclosure because of an inability to make their monthly mortgage payments. While the president’s pronouncement initially offered hope to millions of struggling homeowners, that hope was quickly dimmed when borrowers were confronted with the possibility that they would be on the hook for three months of back payments which included principle, interest, taxes and insurance, along with the mortgage payment that would be due for the fourth month.
Understandably, borrowers remembering the nightmare of the 2008 subprime crisis have begun to panic when thinking about the possibility of foreclosure looming over them. Millions lost their homes during the Great Recession and have yet to rebound from what proved to be an uneven recovery.
Lois Johnson, chief executive officer of United Security Financial, a minority-owned, full-service mortgage firm, has emerged as an industry leader with solutions that are designed to help homeowners avoid defaulting on their loans. Her proposed solutions also seek to keep lenders solvent throughout the duration of this pandemic.
In a nutshell, Johnson wants to offer homeowners a streamlined forbearance or a chance to refinance their loans without having to face the cumulative burden of three months of back payments due all at once.
With a streamlined forbearance, borrowers (even those receiving unemployment compensation) would be able to tack three months of payments at the end of what would be essentially be a new loan.
With the streamlined refinanced forbearance, borrowers could avoid all the inevitable hits to their credit status and enjoy a fresh start.
Johnson, understanding that her proposed solution for borrowers, by necessity, also had to include a companion benefit for lenders. Therefore, she is also advocating that lenders not be held responsible for advance payments to investors. “Providing forbearance to borrowers without agency assistance for lenders could cause many lenders to fail,” she stated.
With Johnson’s proposal (her company is a Ginnie Mae issuer), Ginnie Mae would not have to make advancements to lenders who would otherwise have to make payments on behalf of the borrowers who have sought forbearances. According to Johnson, “If Ginnie Mae does not have to grant loans to the lenders to cover forbearances, the government could then use this money to help fund other Covid-19 relief efforts.”
According to Michael Grant, president of United Security Financial, “The country would benefit immensely by undergirding strong support for borrowers and lenders, thereby allowing more wealth to remain in the hands of the many and not be siphoned off by a few as happened during the last housing crisis. Our proposed solutions are for the greater good of our industry. And we at USF are laser-focused on keeping people in homes that they have struggled to acquire.”