What is Forbearance? If you had trouble paying your home loan in 2020, you were most likely offered forbearance by your lender. The Coronavirus Aid, Relief, and Economic Security or CARES Act allowed borrowers who have federally- or Government-Sponsored Entity (GSE)-backed or funded mortgages (that’s most of us) to stop making payments or to make partial payments, for up to 360 days. Millions of homeowners have taken part in mortgage forbearance programs.
Normally, when you stop paying your mortgage, the bank forecloses on the loan and you could end up losing your home. Under the CARES Act, foreclosures (and evictions for tenants) were not allowed. The Federal Housing Finance Authority announced that it is extending the forbearance protection and foreclosure/eviction moratorium period for FANNIE-MAE and FREDDIT MAC- backed loans through the end of January 2021 and for federally-backed mortgages until February 28, 2021.
Forbearance kept the banks from kicking you out when you weren’t making payments, but that doesn’t mean they’ll forgive or forget. That money is still owed and the banks will look to make a plan with you on how it will be paid.
What to do when your mortgage forbearance ends
A forbearance plan is an agreement between you and your lender to modify your monthly payment for a certain period. Even though you took a vacation from making the normal loan payment, just like when you defer your student loans, the interest has been accruing every month. If your mortgage forbearance offered through CARES Act will expire soon, don't hide your head in the sand. There are options available for you even if you’ve suffered pay cuts or job loss due to the COVID-19 pandemic and you think it will be difficult to resume monthly mortgage payments or to “catch up” with repayment plans.
*Contact your lender - During the COVID-19 pandemic, lenders are actively guiding borrowers and trying to provide the best additional relief to the nearly 4-million homeowners, who are enrolled in mortgage forbearance programs. So, before your forbearance period expires, contact your lender and discuss your situation with them. They are expecting direct communication from you so that they can find alternate options to avoid delinquency and foreclosure.
*Apply for a loan modification - If at all possible, avoid extending your forbearance period for another 180 days and instead, modify your mortgage loan. The loan modification could reduce interest rates, modify the monthly payment amount, or extend the loan term. This is different from refinancing as it is just a change to your existing mortgage, rather than engaging a different lender or initiating a new loan. You may need to apply formally to the current lender for a loan modification and produce documents that will prove your financial hardship or inability to repay the loan, due to issues caused by the pandemic.
*Refinance your mortgage - Another way to manage your mortgage loan after the forbearance period is by opting for a refinance. If the interest rate on your existing loan is high, refinancing could even lower your monthly payment. You can refinance with your current lender or with someone new. Refinancing will be just like when you initially got your mortgage. You’ll be providing all of the same paperwork, getting your home appraised, paying closing costs, etc. The lender will also run your credit, so keep that in mind if your credit has been affected by the pandemic.
Refinancing your mortgage may include closing costs and lender fees. Many lenders will allow you to roll these costs into the new loan, so you don't have to pay money out of pocket at closing. If you choose this option, be sure to compare the new loan with your existing mortgage to be sure that it is actually a better deal for you in the long run.
*Extend your mortgage forbearance - Per the CARES Act, a borrower will be protected through the loan forbearance program for up to 180 days, and may be able to extend another 180-days. Your lender might contact you when the end of your forbearance period draws near. It is suggested that you should reach out to them if you need to extend the period again.
Although only federally- or GSE-backed or funded mortgages are covered under the CARES Act, many private lenders are also working to provide mortgage relief to their clients. You may feel embarrassed or ashamed that you’re unable to make your loan payments but the best thing you can do is to be honest. Contact your loan officer right away and let them know that you’re having trouble paying your mortgage. It’s in their best interest to work with you and keep you in your home. If you don’t call them, they can’t help.
Please don’t suffer through this alone! If you have questions, call me and I’ll do my best to point you in the right direction.
Additional resources: CFPB HUD The Mortgage Reports JD Supra
This post was created with the help of Patricia Sanders.
Bio- Patricia Sanders is a professional content developer and a regular contributor to debtconsolidationcare. She specializes in the financial niche and is well known for her unique financial tips that can be very effective. To get in touch with her (or if you have any questions regarding this article) email at sanderspatricia29@gmail.com.
