Take The Time To Think It Through
What is a mortgage forbearance?
Mortgage forbearance allows homeowners to pause their mortgage payments while dealing with a short-term crisis. In the case of coronavirus-related forbearance requests, most lenders are not requiring proof of hardship outside of verbal or written verification from the borrower.
Depending on whether you have a government-backed or privately-owned mortgage, your forbearance options might differ. Before you apply for forbearance, find out from your lender which type of loan you have.
What does forbearance mean under the CARES Act?
The CARES Act is the Federal Government’s relief response to the economic blow delivered by the coronavirus pandemic. The trillion-dollar relief package includes help for homeowners with government-backed mortgages, which make up about 3 out of 4 mortgages in this country. That includes home loans owned by Fannie Mae and Freddie Mac as well as VA, USDA and FHA mortgages.
Under the CARES Act borrowers facing economic hardship because of COVID-19 can get mortgage forbearance for up to a year. During this time, lenders cannot foreclose on your property.
What happens if you’re not protected under the CARES Act?
Borrowers with privately-owned mortgages are not covered under the CARES Act. Nevertheless, most lenders are offering forbearance and loan modification options for borrowers with privately-owned mortgages. Before you go into forbearance, make sure you understand what your repayment options are.
Can a private mortgage be switched to a government-backed mortgage?
The only way to get out of your current mortgage is to pay it off and get a new one via mortgage refinancing.
Will mortgage forbearance hurt your credit?
No, mortgage forbearance does not appear on your credit report as a negative activity. However, changes to reporting between servicers and credit agencies may not occur seamlessly. If you do pursue a forbearance, you will need to monitor your credit report to catch and report any errors.
Can you refinance your mortgage during forbearance?
The chances of refinancing during a forbearance are slim. Lenders will likely not be able to resecuritize your loan during forbearance.
Can lenders refinance once forbearance ends?
Generally, the borrower would have to pay off the foreborn amount (either with a new mortgage or cash) in order to refinance. However, there are variables that might affect whether a refinance is possible. Things like the type of loan you’re trying to refinance into, whether you ended up with a loan modification at the end of the forbearance and how the missed payments are being handled can all play a role in getting approved for a refinance.
Can you sell your home during forbearance?
Yes, homeowners in forbearance can sell their homes. The foreborn amount would become payable upon sale of your property.
Are rental properties or second homes eligible for forbearance?
It depends on the type of mortgage you have. GSE-backed mortgage securities, that is property owned by Fannie Mae or Freddie Mac, are eligible for forbearance if they’re used as rental properties or second homes. However, FHA, VA or USDA loans cannot be put into forbearance if the property is used as rental property or second home.
Repayment options for government-backed loans
For borrowers with Fannie Mae- or Freddie Mac-owned loans; or insured by HUD, the VA, or the USDA, there are several ways you can handle paying back what you owe.
Types of repayment plans available:
A lump-sum payment means that you would pay back the entire amount you owe in one lump sum. This is an option, but certainly not mandatory. And it may be impossible for folks who have come off of a spell of unemployment to come up with the cash, which could be tens of thousands of dollars.
Short-term repayment plan
A short-term repayment allows you to repay your forbearance amount over the course of six months. For example, if you postpone mortgage payments for five months and your monthly mortgage payment (including interest) is $1,000, then you owe $5,000. That amount would be divide by six, which is $833.33. So, when you resume making monthly mortgage payments of $1,000, you would also pay $833.33 for six months until your mortgage is current again.
Extended loan modification
This repayment plan extends your mortgage term by taking the amount you owe and tacking it on to the back of your loan. For instance, if before your forbearance you had 15 years left on your loan and you postponed payments for five months, your new term would be 15 years and five months. This option changes no part of your loan except for the term.
A flex modification is designed for borrowers who can’t afford the mortgage at their current interest rate and/or term. If this is the case, your lender will work with you to modify your loan so that it’s affordable for you. The possibilities for this are many, and so are the implications, so tread carefully here and consider seeking professional advice.
Cap and extend
For borrowers who can’t afford insurance or taxes (which are often paid through escrow accounts funded by borrowers), the lender will make these payments on your behalf during the forbearance. After the forbearance period is over, the amount the lender paid would be applied to your principal balance and the term would be extended.
Repayment options for privately owned loans
Borrowers with privately-owned mortgages are not covered under the CARES Act. However, government entities are encouraging lenders to work with their customers on manageable repayment plans.
Since each lender is different, borrowers should talk to their lender about the types of repayment programs available to them.
The content contained on this page is intended to inform consumers about mortgage forbearance. Consult with your lender for a complete understanding of the processes invloved and to determine if forbearance is the right option for you.