Answering our own question from yesterday on the proposed (this is not a done deal yet) foreclosure moratorium:
Questions, questions. Chief among them: What happens when the 12 month deferment period is up? Can the lender go after the borrower for unpaid principal and interest during the deferment period after it is over? What about unpaid amounts that pre-date the deferment? If that’s the case, aren’t we just postponing the inevitable?
We traded emails on this with U of M law professor (and primary architect of Minnesota’s Predatory Lending Law) Prentiss Cox, who confirmed our take – The outstanding mortgage debt will not be discharged, and past due principal, interest, and penalties not only carry over, but continue to accrue during the 12 month deferment period.
In other words, even if your subprime loan is not negatively amortizing now, it sure will be after signing up for the deferment.
The cynical take on this is that all that’s being accomplished is a delay of the inevitable – which will be the case for many if not most that qualify for the deferment – but a few folks should and will use this time to get their finances in order, we suppose.
And they better, because if they’re underwater now, just wait until a years worth of payment shortfalls rack up.