What is a mortgage forbearance and how does it work?
If you are suffering a financial hardship and do not have enough money to make your mortgage payment, you could be eligible for a mortgage forbearance. A forbearance is a period of time set by your mortgage servicer, where your monthly payments are temporarily suspended or reduced. This option allows you to deal with a short-term financial problem and get you back on your feet with the hope of bringing your mortgage current once the forbearance is over. For most borrowers, there are no additional fees, penalties, or additional interest (beyond your scheduled amounts) charged to your account during this forbearance period.
Some reasons that may cause you to seek a forbearance include:
- Covid-19 hardships
- Loss of employment
- Medical issues
Is mortgage forbearance a good idea?
A mortgage forbearance can be a lifeline for some borrowers facing hard times, but there can be a concern of whether it’s a good idea. At the end of the day, whether to enter into a forbearance agreement is a personal choice. If your household income allows you to keep making payments, you should, to avoid any additional interest. However, if a forbearance is your only option, make sure to contact your lender and make sure they provide you with the forbearance agreement in writing.
Will mortgage forbearance affect your credit score?
Unless you are under a COVID-19 related mortgage forbearance, even if you have entered into a forbearance agreement with your bank, the missed payments are technically delinquencies and your mortgage lender has the option to report the delinquency to your credit bureaus, but they are not required to do so. Therefore, it is important to ask your lender about their policy before accepting a forbearance agreement so you know what to expect.
In regard to federally backed loans, pursuant to the Coronavirus Aid, Relief and Economic Security (CARES) Act, if you were current on your mortgage when the CARES Act forbearance was granted, your mortgage servicer is required to report your account as “current” during the forbearance period to the Credit Reporting Agencies and therefore the forbearance will have no negative impact to your credit score. However, if you were delinquent on your mortgage prior to requesting the CARES Act forbearance, your forbearance should still be granted but your mortgage servicer is required to maintain the “delinquent” status reported to the Credit Reporting Agencies during the forbearance period. If you are able to bring your mortgage current during the forbearance period, then your mortgage servicer is required to report the status as “current”.
How to qualify for a mortgage forbearance:
Contact your mortgage servicer to see if your servicer offers forbearances. You will most likely have to provide a brief explanation of your financial hardship and how many months you anticipate your hardship lasting. It is also possible that you will have to provide additional documentation to substantiate your hardship.
If your forbearance is approved, you should receive written notification from your servicer of its approval and the term of the forbearance period.
How long will the mortgage forbearance last and can it be extended?
Generally most mortgage servicers will offer forbearances for 3 month periods of time. However, if you are still struggling financially, most servicers will allow further extensions of your forbearance agreement.
If you qualify for a mortgage forbearance under the CARES Act, you are eligible for a forbearance for up to a year of time, in 3 or 6-month increments. The deadline for requesting a CARES Act forbearance is June 30, 2021.
What happens when mortgage forbearance ends?
Forbearance does not equal forgiveness. Once the forbearance period is over, your forbearance payments are not erased or forgiven. Ultimately, it is up to your own mortgage servicer to determine when these payments will be due. Some of the options would include:
Repayment plan: If you can afford to pay more than your regular mortgage payment, then a portion of the amount you owe will be added to your regular monthly mortgage payment.
Deferral or partial claim: If you can resume your regular payments but cannot afford to increase that payment, your servicer could add the missed payments to the end of your loan as a balloon payment or put the missing payments as a subordinate lien repayable only when you refinance, sell or terminate your mortgage.
Loan Modification: If you can no longer afford your regular monthly mortgage payment, applying for a loan modification would be the best step forward. This would allow the bank to review your current financial status to determine if the payment can be lowered, interest rate can be changed and if the loan maturity date can be extended.
Reinstatement: If you want to pay back all of your missed payments at once, at the end of the forbearance period you can make a lump sum payment to your servicer.
Getting Mortgage Forbearance Help
Whatever situation you might be facing or if you need help to see if your mortgage is eligible for a forbearance, it is important that you speak to an attorney who has experience in negotiating the best option for you. CGW has been helping borrowers navigate through all stages of ownership for over 40 years. Please give us a call to schedule a free consultation.