Mortgage Forbearance: The Who, What, When, Where and How

Gene Mundt, Chicago mortgage originator, offers some insight into the mortgage forbearnce program available during the COVID-19 pandemic.

No one knowingly buys a home envisioning that financial hardships lie ahead …

Yet hardships and challenges come even when planning and preparations have been made.

Those are the circumstances that many American homeowners now find themselves in.  The COVID-19 virus has delivered them to their home’s door.

If you are one of those Americans that have been negatively impacted financially, either via loss of employment/work hours, income loss, other financial stresses, or health considerations due to COVID-19 … you are definitely looking for a dose of good news.  And thankfully, there is some to share.

A large percentage of U.S. homeowners … about 70% … hold mortgages that are federally backed (Government-Sponsored Enterprise (GSE).   The recently-passed (3/27/2020)  Coronavirus Aid, Relief and Economic Security Act passed by Congress offers relief to homeowners that have financed their homes in this manner.  If you’re unsure if your mortgage is federally-backed, contact your Mortgage Servicer or loan officer right away.

(If you do NOT hold a federally-backed mortgage and you have a privately-held or securities-held mortgage:  Relief may still be available to you via other avenues.  Check with your mortgage servicer for further info).

Mortgage forbearance is one option available to those homeowners that are presently experiencing COVID-19 related financial/payment difficulties … and also have a federally-backed mortgage.

What relief is being offered via the CARES act as it pertains to mortgage forbearance?  

Here’s the “Who, What, When, Where and Why” of mortgage forbearance info.  It will prove insightful, educational, of value, and also help you move forward should you currently find yourself needing relief:

  • The Consumer Financial Protection Bureau (CFPB) defines mortgage forbearance:  Forbearance is when your mortgage servicer, that’s the company that sends your mortgage statement and manages your loan, or lender allows you to pause or reduce your payments for a limited period of time
  • Mortgage forbearance does NOT mean that your mortgage payments are forgiven indefinitely or erased forever.
  • Mortgage forbearance is only a temporary agreement and according to your mortgage servicer’s forbearance agreement, you will have to repay your missed/reduced mortgage payments as agreed upon at some point in the future
  • Homeowners should not wait until they have missed monthly mortgage payments to request mortgage forbearance
  • Dependent on the type of loan you have, mortgage forbearance options can differ.  Do not proceed with any actions until you fully-understand the forbearance program or option you are being offered by your mortgage servicer
  • As their part of the forbearance agreement, the mortgage lender is promising that they will NOT foreclose on your property during the forbearance agreement period.
  • It’s important to make sure your mortgage forbearance option is received in writing.  Keep safe possession of your documentation and written proof of the agreement in your records
  • Each mortgage holder must APPLY for their mortgage forbearance.  The mortgage servicer does NOT offer it automatically.  Homeowners must be prepared to provide proof of hardship upon their request for forbearance
  • Examples of Lender’s mortgage forbearance conversations can be found at:  Fannie Mae … as well as Freddie Mac.  Proactively prepare for your conversation requesting mortgage forbearance
  • While in conversation, have your mortgage account number available.  As with your initial mortgage application, information regarding employment, pay stubs, information regarding current debt and savings, tax returns and more may be required during the Lender’s assessment of your individual/specific situation
  • Be aware that your Lender may request to review your Credit Report at this time
  • Be prepared, if requested, to make your request in written form/letter
  • Continue to protect your credit and finances as well as possible throughout your mortgage forbearance period.
  • Pay special attention to the upcoming mortgage statements received during the forbearance period.  If you have an escrow account, be aware that insurance and property tax payments should continue to be made during the mortgage forbearance period.
  • Moving forward, protecting your credit scores, credit history, and credit report will continue to be important.  Monitor your credit health at:
  • The initial mortgage forbearance period is typically (up to) 180 days.  An additional forbearance period may be possible but may require further request/approval
  • Depending on the type of loan you have, mortgage forbearance options/programs available may differ.  Please consult with your Mortgage Lender as to the specifics of your forbearance options and requirements
  • Mortgage forbearance is made at the sole discretion of the Lender
  • AT THIS TIME and of this date (5/5/2020):  There is no law that specifies what happens once your mortgage forbearance period is over.  Mortgage servicers/Lenders continue to work on specific details of the options they offer.

Those options can/might include:

A.  The option of a Loan Modification (a restructuring of mortgage terms)
B.  Mortgage term date is delayed or “pushed back”
C.  Monthly mortgage payments may be increased moving forward (making up for payments missed while in forbearance)
D.  Payment of one lump sum (often called Reinstatement)

Should you think that you will NOT be capable of returning to your initial/normal monthly mortgage payment schedule, contact your Mortgage Servicer well in-advance of the forbearance period expiring.  Other additional options may be available to you.

The objective of mortgage forbearance is to assist homeowners through a difficult time and to help them sustain the least amount of credit/financial hardship and injury as possible while navigating their financial difficulties.

Documenting, conversation, and full-disclosure with mortgage servicers also aids homeowners in achieving that goal and each action will benefit you greatly … both in the short and long term …

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