Mortgage Forbearance Explained

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If you are experiencing difficulty making on-time mortgage payments due to the pandemic, forbearance may be an option.

Mortgage forbearance provides temporary relief by allowing you to make lower monthly payments, or no payment at all, for a specific time period.

Forbearance does not erase what you owe. You’ll still have to repay any missed or reduced payments in the future. So, if you’re able to keep up with your payments, keep making them. The types of forbearance available vary by loan type. The share of all U.S. mortgages in forbearance rose to 7.91% during the week ended May 3, 2020, from 7.54% in the prior week.

If you can pay your mortgage, pay your mortgage. Don’t call your mortgage servicer if you aren’t facing an immediate issue.

The CARES ACT – Mortgage Provision

The CARES Act puts in place two protections for homeowners with federally backed mortgages:

  • Your lender may not foreclose on you for 60 days after March 18, 2020. Specifically, the CARES Act prohibits lenders and servicers from beginning a judicial or non-judicial foreclosure against you, or from finalizing a foreclosure judgment or sale, during this period of time.
  • If you experience financial hardship due to the coronavirus pandemic, you have a right to request a forbearance for up to 180 days. You also have the right to request an extension for up to another 180 days. You must contact your loan servicer to request this forbearance. There will be no additional fees, penalties, or additional interest added to your account.

If you don’t have a federally backed mortgage, you still may have relief options through your mortgage loan servicer or from your state.

  • It’s important to know that forbearance doesn’t mean your payments are forgiven or erased. You are still required to repay any missed or reduced payments in the future.
  • Make sure you understand how the forbearance will be repaid. There can be different forbearance programs or options, depending on the type of your loan.
  • If and when your income is restored, reach out to your servicer and resume making payments as soon as you can so your future obligation is limited.

Your state may also offer additional mortgage relief options

Many states are implementing or considering various mortgage relief options that are in addition to federal initiatives, including the suspension of foreclosures, as well as additional assistance for homeowners. Check your state’s government website for details  

While your mortgage is in forbearance property taxes and insurance should continue to be paid.

How do I repay my forbearance?

After your forbearance period ends, you will have to make arrangements with your servicer to repay any amount suspended or paused.

Under the CARES Act, if you have a federally backed mortgage, you also can request an extension of the forbearance for up to an additional 180 days.

The method of repayment varies depending on your loan and the options offered. Not all borrowers will be eligible for all options. You should take steps to be aware of how these programs work and what you can expect in terms of repaying these amounts.

Generally, repayment of forbearance occurs by the amount being repaid:

  • in one lump sum at the end of the forbearance period
  • added onto your existing monthly payments over a set number of months
  • added to the end of your loan as additional payments or as a lump sum

Let’s do some forbearance role play:

– Peter has a monthly mortgage of $3,000.

– Peter loses his job and calls the mortgage provider to ask for forbearance. The mortgage provider gives John 6 months of forbearance.

– Six months later, Peter has gotten his job back but has no savings. Forbearance is lifted and he now owes $18,000 + $3,000 for a total of $21,000

– Upon inquiring why that amount Peter is told by the mortgage provider that it is 6 months of forbearance and current month’s mortgage. After picking himself off the floor Jim says…WHY?!?

Peter: “I can’t do that, can we work something out?”

Servicer: “Sure, we can spread the $18,000 out over the next 12 months.”

Peter: “OK what will that look like?”

Servicer: “That will be $4,500 a month for the next 12 months.”

Peter: “OMG! I can’t afford that, can I refinance?”

Servicer: “No because the loan was in forbearance.”

The bottom line is that you will need to assess your individual need and then discuss with the company who is currently servicing your mortgage. They may have different options based on individual need. I sincerely hope that you are able to get the relief that you need if you need it.

Depending on the kind of loan you have, there may be different forbearance options.

For example, if you have a Fannie Mae, Freddie Mac, FHA, VA, or USDA loan, you won’t have to pay back the amount that was suspended all at once—unless you are able to do so.

At the end of the forbearance, your options can include paying all of your missed payments at one time, spread out over a period of months, or added as additional payments or a lump sum at the end of your mortgage.

Forbearance does NOT = forgiveness.

So you see, it leaves a lot of room for interpretation and that is my point. Not every mortgage servicing company is handling it the same. One company may tell you that you can skip 3 payments and we will simply tack them on the back of the mortgage which would be real and actual mortgage payment relief. Yet another company may tell you that you can skip 3 months of payments and then after 90 days you will owe 4 payments plus a hefty service fee.

The following information provides some of the options to repay your forbearance.

  • Fannie Mae & Freddie Mac loans:
    • Borrowers allowed to repay past due amount within 12 months after forbearance ends;
    • Extend the term of the mortgage by the exact number of months in forbearance;
    • Add past due amounts into loan balance and extend the term of the loan by the number of months necessary to make the monthly payment the same as the previous payment;
    • Add past due amounts into loan balance and extend the term of the loan for 40 years.
  • FHA loans:
    • Borrowers may enter into a repayment plan to repay past due amounts within 6 months after forbearance ends;
    • Extend the term of the mortgage to 30 years by adding the past due amounts into the previous monthly payment;
    • Past due amounts paid off at the end of the loan in a lump sum.
  • VA loans:
    • Borrowers may enter into a repayment plan to repay past due amount within 6 months after forbearance ends;
    • Add past due amount into loan balance and extend the term to 30 years;
    • Targets lower payment of 31% of borrower’s gross income by extending the loan term to 30 years with an option to forbear principal.
  • USDA loans:
    • Borrowers may enter into a repayment plan to repay past due amounts within 6 months;
    • Add past due amount into loan balance and extend the term to 30 years as long as paying less than or equal to payment prior to forbearance;
    • Lump-sum repayment at loan payoff.
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