The term Mortgage Forbearance has been thrown around since the CARES Act was passed earlier this year. But what does it mean exactly and what is it really doing for homeowners and real estate investors affected by COVID-19? The information below may answer any lingering questions, doubts and hesitations you have regarding the program.
What is Mortgage Forbearance?
Mortgage Forbearance is when a mortgage servicer or lender lets you pause or decrease your payments for a certain amount of time. Forbearance doesn’t decrease the overall amount that you owe, you’re still responsible for repaying any missed or reduced payments. So, it’s crucial you continue making regular payments if you’re still able to.
What is a Mortgage Servicer?
A Mortgage Servicer is the company that borrowers pay their mortgage loan payments to. It may be the company that originated the mortgage, or it may have purchased the mortgage servicing rights from the original mortgage lender.
Government-Backed Mortgages
The CARES Act passed on March 27, 2020, which put protections in place for homeowners and real estate investors with mortgages that are either federally backed, Government Sponsored Enterprise (GSE) backed or funded (FHA, VA, USDA, Fannie Mae, Freddie Mac).
If your mortgage is federally or GSE-backed and you’re experiencing financial setbacks caused by COVID-19, you’re entitled to two types of protections detailed below:
1. The CARES Act prohibits your lender from beginning a judicial or non-judicial foreclosure against you, or from finalizing a foreclosure judgment or sale until at least August 31, 2020.
2. You have the right to request and obtain a forbearance for up to 180 days if you’re experiencing hardships caused by COVID-19. You also have the right to contact your loan servicer to request an extension for up to another 180 days (for a total of up to 360 days).
To take advantage of these protections, you won’t need to worry about additional fees, penalties or additional interest accrued (other than the scheduled amounts) being added to your account. You don’t need to submit additional documentation other than your claim to have a COVID-19 related financial hardship.
Just received your forbearance? Make sure to follow these steps
As you enter the forbearance period (or use any other mortgage relief option), there’s several steps you should take to ensure you’re well protected.
• Store all written documentation so you have evidence if there’s any mistakes on your monthly mortgage statements.
• Review your monthly mortgage statement for any errors.
• Make changes to any mortgage auto-payments that automatically deduct money from your account.
• Get in touch with your servicer and resume your payments as soon as your income is restored. You’ll still have to make the payments regardless, so it’s better take care of them when you’re able.
• If your mortgage has an escrow amount, your servicer should continue to pay any property taxes and insurance (be sure to confirm this with your servicer). If your mortgage doesn’t have an escrow amount, you’ll be responsible for paying property taxes and insurance. You’re also responsible for paying any HOA or condo fees during your forbearance.
Tips for repaying your forbearance
Make arrangements with your servicer to pay back any amount that was suspended or paused. Your repayment method depends on the loan and its protections— not all borrowers are eligible for all options. Repayment may differ depending on the agency or entity, so reach out to your servicer to learn how these programs work and what you can expect. If you still have questions, reference this forbearance fact sheet.
Negative effects of the Mortgage Forbearance
The Mortgage Forbearance is a temporary solution to an issue that may continue to affect Americans long after the forbearance period ends. Borrowers that haven’t found a reliable source of income by the end of the forbearance may even face foreclosure. Their credit may also be negatively affected, thus decreasing their chances of securing another mortgage in the future.
That’s why it may benefit some borrowers to sell their homes instead. Not only will they receive much needed cash, but they may avoid any hits to their credit and can even save on fees by selling through Hubzu.
If your mortgage is either federally backed, Government Sponsored Enterprise backed or funded, then be sure to put these areas into consideration, especially if there’s a chance you may enter forbearance. Pay close attention to the information above and revisit this page if you have any further questions.
