Epic Real Estate Investing - Forbearance. Pros & Cons | 1009

Episode Date: May 5, 2020

Amid the pandemic, a lot of CARES Acts suggest using forbearance if you are affected by COVID-19. Hence, Mercedes is rejoined with Caeli Ridge from Ridge Lending Group who explains what are the pros and cons of this mortgage agreement, who should use it, and who should avoid it. Tune in and find out more!   Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terio Media. So you want to be a real estate investor, but you don't want to do the work. If there were only a way where someone else could do it for you, now there is. Tune in here each and every Tuesday on the Epic Real Estate Investing show for Turnkey Tuesdays with your host, Mercedes-Torres. Hello and welcome, welcome to Turnkey Tuesdays brought to you by Epic Real Estate Investing. My name is Mercedes Torres, your turnkey girl, and I am lucky enough to be partners in crime with Mr. Matt Terrio, the guy who created the epic real estate empire.

I help busy professionals create passive income so they can retire even sooner, and I do that by educating them about passive income and real estate investing. So if this is your first time here, so glad you made it. If this is not your first time here, welcome back. So despite what is going on in our crazy world with this pandemic, our deal of the week is still going strong, believe it or not. We are still crushing it on the deal of the week. And this last week, we sold an awesome duplex in Birmingham, Alabama. Now, it's important I say I don't specialize in duplex.

I do come across them every once in a while, and I am a little picky about the duplexes or any multifamily that I pick up simply because I just have done the numbers on a multifamily, and although sometimes they appear to be better on paper, the transition of multifamily statistically has it performed a little bit lower just based on the turnarounds that multifamily's ten to have. But this duplex that was a deal of the week was in a stunning location and it was fabulous. And besides, we did a complete rent ready to this property. So it had just about everything new, new plumbing, new HVAC system, a new roof. So it was almost a new property.

And this duplex was 1,800 square feet total. So each unit was about 900 square feet. Each unit had two bedrooms and one bath, but it sits on a lot of about 20,000 square feet. So it's a pretty big lot. It sold for $149,000 and it is renting for $1,400 per month, $700 a unit. Now, I was very conservative on the $700 per unit. It's actually one unit is rented at $725. the other unit is rented at 700. So I use 700 for the analysis and it came in right at around a 9% cash on cash return. Not too savvy. So because that property is already rented, the buyers are benefiting from automatic cash flow at closing. So are buyers from Michigan. Congratulations on a great investment property. I know that you are in.

great hands because you are currently undergoing the loan process with our exclusive lender, Ridge Lending Group. And speaking of that, this show is brought to you today by Ridge Lending Group. If you've been searching for a lender that is knowledgeable and experienced and will actually talk to you about your financial situation, well, we found them for you. Yes, a Ridge Lending Group is Epic Real Estate exclusive lender. They're not only the ones that we trust for our clients, but Ridge Lending does my personal loans. They are not only nationwide, but the CEO of Ridge is a real estate investor herself. She's spent over 20 years just helping educate investors to help them create passive income and wealth in their world.

She's helped thousands of families, and she has become our exclusive lender because she is phenomenal. And having said that, speaking of Ridge Lending, today I am joined by our exclusive lender herself, CEO of Ridge Lending Group, Ms. Chaley Ridge. How are you, lady? I am so great. I always love being with you Mercedes. Thank you for having me, my love. I love when you just bless us with your years of experience and knowledge. And I know you were on a couple of weeks ago, Chaley, and I brought you on the show because so much is going on in the world and specifically in the market of mortgage banking, lending, and just real estate.

So you kind of gave us a couple of weeks ago an update on what the market was doing. And I brought you back again because there's a whole. whole lot of talk about forbearances and deferments. But specifically, a lot of the CARES Act talks about if you're being affected by COVID-19, you can qualify for financial assistance. So I want you to really tell me, and please spare no details and share about forbearances. So first and foremost, let's talk about what is a forbearance? Yeah, it's actually a really good question because I think there's a lot of confusion about what this means. Forbearance is not forgiveness, okay? Forbearance is deferment, which just simply means your mortgage payment has been put on pause.

We'll be paid back at some point depending on how the servicer, which is the entity that you're actually making your mortgage payment to, decides that the repayment will look. Now, real quickly, I'm going to give you a couple of those variables. I've heard four different ways in which the repayment of a forbearance will be made. One would be a lump sum, right? Let's say you go outmaking a mortgage payment for four months and you start up again in month five, the lump sum would be the four months plus that month, that fifth month mortgage payment. Now, I'm hearing it, which is insane, right? I think it's just absurd that they would put something out there that says,

yes, you can take advantage of this forbearance, but as soon as it's over, then you've got to come up with $5,000, $6,000, $10,000. Who's going to have that kind of money if they couldn't make the mortgage payment anyway? Ridiculous, okay? There has been talk just in this last week that Fannie and Freddie have come out and say, no, that is not going to be mandated, even if the servicer has said so. there's been confusion between the language of the CARE CARES Act and what the services were telling

the actual consumer. So that's still kind of up in the air and a lump sum. The other three are going to be a secondly mortgage could be that. It could be just tacked on to the end of the principal balance when you go to sell or refinance. And then finally, some sort of modification where whatever the total amount of unpaid mortgage payments are, they'll divvy it out over the remaining term of the loan over 12 months, 24 months. It'll be up to the servicer. So real quickly, anybody that's actually considering this, it's extremely important to understand straight from the servicer what those options are going to look like. You want to be real clear about that. But forbearance is not forgiveness, it's deferment. One good thing is, is that there will not be

any penalty or additional interest accrued. Ah, okay. And so you keep referring back to whoever the provider is, the lender is. But yet I hear CARES Act, it's a universal thing. So all of these potential possibilities, when are we going to know what the actual penalty will be for taking the forbearance and who ultimately is making that decision? Is it each individual bank or is it the government telling each individual bank? The government is giving guidelines. It'll be individual servicers. I want to correct one thing. So the servicer is the one that is providing the forbearance, which by the way, a lot of people are unaware when we don't make our mortgage payment, it is the servicer's responsibility still. They're still on the hook to deliver that PITI

principal interest plus the taxes and the insurance to the note holder. Okay, that still has to be paid, even though we're not making the payment to the servicer, the servicer is still obligated to make that payment. But it will be the servicer under the federal government's guide. guidelines that dictates how the repayment's going to work. Again, Fannie Freddie came out and said they will not be allowed to collect in a lump sum. We're still waiting on more information, but that was kind of good news for those that do take advantage of it. The servicer, though, what I was going to say is the servicer and the lender are going to be

two different things. And this is going to be important when I get to that part of the point. Servicer is who you make your mortgage payment to. The lender is who you're probably. going to go and look to get financing from down the road. Now, if it's okay, I'm just going to kind of segue into something here. One of the other provisions of the CARES Act specifically says that the credit will not be impacted for the individual that takes advantage of a forbearance. That's correct. There will be no mortgage lates reported. The servicer will not report to the repositories, right?

That's Equifax. That's TransUnion. That's Experian. They're not going to report mortgage lates. Okay. So it is correct that the score itself will remain intact. However, it will be reported on that trade line as forbeard or deferred. This comes with some fine print. And I think offline you had asked me, what's, Chaley, what's the fine print all this? How is this going to really impact us? So I'm stealing your thunder. So you're giving us a wealth of information. So keep it coming. Okay. So what's going to happen, though, three, at least so far, three of the biggest banks in the country have already started to rewrite underwriting guidelines that tell us that if you have deferment or forbearance on that trade line, on that mortgage trade line, you will be ineligible for conventional financing up to four years. Two to four years is what we're hearing right now. So I would say that that's a pretty big impactful piece of information that's not being delivered

out there as far as I know. Exactly. And this is why we invite you on the show because every service or every bank that, you know, I have several mortgages and they say, yeah, your credit score is not going to be impacted. You're not going to be reported late. You're not going to get penalties, but they don't tell you that we are going to advise the world that you have qualified for some kind of forbearance. And ultimately, it will affect you. I promise you it will. I deal with just our clients that did a short sale eight years ago, you know, 10 years ago bankruptcy. And it still comes up on their credit report. And some of them won't even qualify to buy a car because of that. So, yeah, I'm so glad you're sharing that with me. So you shared about the fine print.

But one thing that I hear a lot of confusion from my clients in itself are what's the difference between a forbearance and a deferment? Is there a difference? No. No, not as far as I know. My definition is going to be the same between forbearance and deferment. It really means the same thing, at least in this context. A lot of people, though, I've been talking to have mistakenly thought that one of the other means forgiveness, and that it does not mean. Ah, got it. So neither will a forbearance or a deferment means that you're excused from that mortgage payment. At some point, it still has to be paid back. Correct.

Now, tell me, Chaley, let's just say that one of my clients come to me and says, I absolutely need a forbearance. Who ultimately pays for that? I mean, somebody is impacted other than you as the individual that's asking for the deferment. We've already discussed how it potentially can affect you in the future. But who pays for that? Yeah, you know, I think that there are a lot of unindexamined. intended consequences. And I've been talking on this for the last several month and a half, two months now,

as a result of what we're all kind of dealing with right now within the CARES Act and as it relates to our forbearance, almost everybody is going to pay for the forbearance. We've already talked about how we as consumers are going to be impacted if we take it, if we absolutely have to take it and how what that means to our eligibility for financing down the road, the servicer pays, the tax taxpayers are going to pay. I mean, listen, if anybody out there thinks that somehow these trillions and trillions of dollars that are being pumped into the economy in all different sectors as a stimulus to help relieve the pressures that so many people are under is just going to be printed money that no one's ever going to have to repay again, they're sorely mistaken. It will be paid back

one way or another. And the taxpayers, I think large, they're going to be responsible for that. And I think most people probably resonate with that thought. Yeah, my son, my eight-year-old son, who has been around real estate and cash flow and financing since the day of his birth, since the day of his conception, to be quite honest. But, you know, he's eight years old. He's now asking a lot of questions. And he says, Mommy, do you mean the government is just printing money? And I said, honey, that is a great question. because, you know, long of the short of it is yes, but it's going to have to be repaid back in some way.

So, yeah. So having said everything that you just shared with us, who do you think is a good candidate for a forbearance, knowing that, you know, there are options out there for, you know, unemployment if you've been laid off or, you know, yada, yada, yada. Who's a good candidate for it? And who should have to do that advantage of it? Yeah, I think so let me, I'm glad you. ask this question because I think it's important that I mention or comment. One of the biggest problems I feel about the forbearance and the way that it's been delivered is the moral hazard that it creates overall. There is zero hardship required for the forbearance offering.

You simply have to attest. And I think that a lot of people unwittingly and wittingly are going to take advantage of this. And I think it's going to create more harm than good. So that's number one. if you can make your mortgage payment, make your mortgage payment, okay? First and foremost, the people that legitimately cannot, they do not have the funds or the access to make that mortgage payment. That's who this is intended for, and that's who should be using it. I might, something just triggered, one other thing I want to share with you guys, a lot of my clients, obviously, this is a hot topic. I've been having the conversation all the time, and we have a client right now that's actually in process to close on a purchase,

And he had called his servicer just to check it out, just to find out what it was, what was going on with it, etc. And he went online first. He clicked two boxes. And lo and behold, before he even knew it, he was enrolled into this forbearance program. So when we went, and he wasn't even aware at the time. So we went to pull his credit. We saw a deferment on the trade line for this mortgage. And he wasn't eligible to get a loan or we could not close that loan for him.

so we've had to kind of work through our credit reporting agency and get a letter of a supplementation from that bank saying that, no, he has not actively secured the forbearance. And it took two and a half weeks. So, you know, just be sure that that's what you want to do before you actually, and you need to do it before you actually go and pull the trigger on it. That is a great, great point because I understand that that client, regardless, made that mortgage payment regardless, because he was just in. acquiring about it. And he made that mortgage payment. And just because he clicked on the box, it appeared on his credit report. And it delayed everything for everybody. So everybody was affected. The seller was, the buyer was, the tenants were, I mean, yeah, it is a trickling effect that really nobody thinks about it until it happens. I did have a client email me just the other day about

a scenario and said, you know, I have an XYZ mortgage payment and I can make half of it. Will that help? And I said, you know what? Yes, it will help because it will show that you made half the payment. And maybe you can make the other half in two weeks. So if you are showing an attempt and it will allow you to not do a forbearance, it would be to your advantage. So Chaley, closing words about this whole topic that will hopefully resonate with all of our listeners. You know, I would just caution.

Okay. You use your own discretion. If this is something that you legitimately need by all means, okay? Otherwise, I think that the consequences are definitely not worth stockpiling two, three, four months worth of mortgage payments. If one, you're ineligible for financing for up to two to four years. You don't know exactly what the repayment's going to look like necessarily. And then further, and I don't think we touched on this, remember, you guys, the mortgage industry writes guidelines based on past, events. So as we see how many people ultimately end up taking advantage of this and trying to

determine which were eligibility under hardship or duress that really needed it in which weren't, that's going to mean stricter guidelines for you and I on a go forward basis. We're going to be required to provide more vials of blood, more DNA samples, more reserves, higher credits. So that'll be another unintended consequence, I would say, as well. So be sure this is absolutely what you need before you make any final decision. Yeah, I always talk about from crisis and just unfortunate events come opportunities. And I would dare say that a forbearance is not an opportunity. What's going to come of this whole pandemic will likely be an opportunity, but forbearance is not one.

So, Ms. Chaley, thank you so much for always blessing us with your knowledge. This is why you have become our exclusive lender because you provide so much education. So if someone wanted to reach out to you or your team, how do they do that? Yes, very easily. Thank you, Mercedes. A couple ways, gang, you can reach us on our website, ridge lending group.com. Feel free to call us toll free 85574 Ridge. That's 8557474343.

or finally feel free to email info at ridgallendinggroup.com. And tell them I sent you. My friends, thank you so much for joining us. And hopefully we were able to fill you with a lot of good information that you need during this critical time. Here's to an amazing week. And thank you for joining us on Turnkey Tuesday. Have an epic day. If waiting for your investments to grow feels like waiting for pink to drive.

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And it's yours for free. For the secret your financial planner doesn't want you to know, go to cashflow savvy.com. That's cashflow savvy.com. This podcast is a part of the C-suite radio network. more top business podcasts, visit c-sweetradio.com