As the coronavirus began sweeping through the country in March, many states issued shut-down orders for businesses, putting as many as 40 million people out of work by May. On March 27, Congress passed the CARES Act to offer economic relief to those affected by the shut-downs, expanding unemployment benefits and offering mortgage forbearance to homeowners with mortgages backed or insured by the federal government, including Freddie Mac, Fannie Mae, VA and FHA.
Under the CARES Act, homeowners can ask for forbearance from their mortgage servicer and suspend payments for up to 12 months. Approximately 4.3 million homeowners have requested forbearance since the program began, although, over the last several months, the number of people with mortgage loans in forbearance has continued to drop, decreasing to 3.4 million in the last week of September, according to the Mortgage Bankers Association.
Now, servicers are doing the hard work of helping borrowers as they exit forbearance with payment deferral/partial claim plans, lump-sum payments and other modifications.
“The share of loans in forbearance continues to decline and is now at a level not seen since mid-April,” said Mike Fratantoni, MBA’s senior vice president and chief economist. “Many homeowners with GSE loans are exiting forbearance into a deferral plan and resuming their original mortgage payment, but waiting to pay the forborne amount until the end of the loan.”
What is mortgage forbearance?
Forbearance is the temporary postponement of mortgage payments negotiated between a borrower and lender for repayment relief. This does not mean the loan is forgiven, rather, payments are deferred until the end of the forbearance period.
How do I request mortgage forbearance?
To request mortgage relief under the CARES Act there are two options:
You can phone your loan servicer directly. Your servicer is the company that you send your mortgage payments to each month and the number should be available on your payment statement or online.
You can write and send a hardship letter affirming that you are enduring financial distress brought about by COVID-19. This creates a written record that you are pursuing forbearance protection. Letters may be emailed, faxed, or physically mailed to your mortgage servicer.
Will I need to repay my missed mortgage payments in one lump sum?
No, though that is an option if you have the financial capability and would like to. Otherwise, you can:
Negotiate a payment plan, that will make upcoming payments slightly larger
Modify the existing loan, which may include a reduction of interest rates, an extended loan term or both.
How does my mortgage transition into forbearance?
If your servicer approves your request, you will be provided a forbearance agreement outlining the terms. During the forbearance period, the servicer must not initiate or continue with foreclosure proceedings.
How does it transition out?
Before the end of your forbearance period, your servicer should reach out to you to negotiate end of forbearance terms for repayment and possible extensions in certain situations, or a relief or workout option following forbearance.
Are there eligibility requirements?
Yes, if you have experienced job loss, reduced income, illness or other issues related to COVID-19 you could be eligible for forbearance.
Can the forbearance be extended and for how long?
Yes, under the CARES Act, if you have a federally backed mortgage, you can request an extension of the forbearance for up to an additional 180 days.
What is payment deferral?
An option where the delinquent amounts are deferred and will become due later (i.e., mortgage maturity date, payoff, refinance, etc.). The deferred amount creates a non-interest-bearing forborne balance.
What do I do if my forbearance plan is coming to an end?
Your servicer should contact you prior to the end of your forbearance plan to discuss options for bringing the mortgage current. However, you can contact them to begin this discussion and determine the best option for you, based on your individual circumstances.
Post-Forbearance Options
How do I bring my mortgage current after my forbearance plan ends?
If you have the financial capacity, the most desirable option is to do a reinstatement or repayment plan. Reinstatement is the act of restoring a delinquent mortgage to current status. A repayment plan is when the homeowner pays the regular monthly payments plus an additional agreed upon amount in repayment of the delinquency for a period of time. However, there are additional options, including deferring missed payments until the end of the loan (payment deferral), payment relief options if needed (loan modification) or other alternatives.
Is it possible to do a partial reinstatement with a repayment plan after my forbearance plan ends?
Yes.
What are my options after forbearance if I can’t afford a reinstatement or repayment plan?
Home retention options may include payment deferral or a loan modification. For COVID-19 related hardships, there are additional flexibilities for these options. If homeownership is no longer affordable, there are options to exit the home without facing the costly impacts of foreclosure, including a short sale or deed-in-lieu.
What is a loan modification?
An option for homeowners who can no longer afford their pre-forbearance payment. For example, a Freddie Mac Flex Modification, targets a 20% payment reduction by extending the mortgage term to 40 years, reducing the interest rate (if applicable) and creating a forborne balance (if applicable).
If I had a loan modification in the past, is another loan modification an option after my forbearance plan ends?
You may be eligible for another loan modification, pending no eligibility restrictions. Your servicer will confirm your eligibility.
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