What You Need to Know About Mortgage Forbearance During Coronavirus

April 30, 2020

Families are facing unemployment or reduced income because of the coronavirus. Renters are missing rent payments and homeowners are looking for ways to cover their mortgages. Depending on the type of loan that you have, there are mortgage relief options available. In this blog, we’ll shed some light on mortgage forbearance specifically and what you can do when applying.

What is mortgage forbearance?

Forbearance is when your lender or mortgage servicer allows you to temporarily pay your mortgage at a lower payment or suspend it when you, the borrower, have difficulty meeting your payment obligations. This can be due to hardship such as a job loss or significant medical costs that could prevent you from making payments. Forbearance is an option to keep your home from foreclosure. The forbearance agreement will lay out how long the forbearance period is, reduced payment amount, and the repayment terms. Note that forbearance does not equal forgiveness, which means that you will need to repay the reduced amount or missed payments after the forbearance period.

CARES Act and Forbearance

The Coronavirus Aid, Relief, and Economic Security (CARES) Act is a law intended to provide economic assistance during the pandemic. For those with federally-backed loans, you can request forbearance for up to 180 days if you experience financial hardship due to coronavirus. Once this passes, you can request an extension of another 180 days after that. If your loan is not federally-backed, there are types of forbearance depending on the loan type.

Under the CARES Act, the borrower cannot be charged penalties, interest, or fees that would not have normally accrued if you are able to fully pay on time. This also applies to landlords, who are barred from charging their tenants penalty fees for late rent payments during the granted forbearance period. As mentioned above, you will still need to repay missed or reduced payments later, either as a lump sum at the end of the forbearance or through another payment plan. In addition, there is no need to be worried about the forbearance docking down your credit score as it will not show up as a negative activity.

If your loan is government-backed, here are examples of repayment options from the Consumer Financial Protection Bureau:

Fannie Mae & Freddie Mac loans	Borrowers allowed to repay past due amount within 12 months after forbearance ends; Extend the term of the mortgage by the exact number of months in forbearance; Add past due amounts into loan balance and extend the term of the loan by the number of months necessary to make the monthly same as theprevious payment; Add past due amounts into loan balance and extend term of loan for 40 years (480 months).
FHA Loans	Borrowers may enter into a repayment plan to repay past due amounts within 6 months after forbearance ends; Extend term of mortgage to 30 years (360 months) by adding the past due amounts into the previous monthly payment; Past due amounts paid off at the end of the loan in a lump sum.
VA Loans	Borrowers may enter into a repayment plan to repay past due amount within 6 months after forbearance ends; Add past due amount into loan balance and extend term to 30 years (360 months); Targets lower payment of 31% of borrower’s gross income by extending loan term to 30 years (360 months) with option to forbear principal.
USDA Loans	Borrowers may enter into a repayment plan to repay past due amounts within 6 months; Add past due amount into loan balance and extend term to 30 years (360 months) as long as payment less than or equal to payment forbearance Lump sum repayment at loan payoff.

Source: Consumer Financial Protection Bureau

Mortgage Forbearance Do’s and Don’ts

Do continue making payments if you are able regardless of what type of loan you have.

Don’t mistake forbearance with forgiveness.

Do communicate with your lender or servicer to let them know about your circumstances.

Don’t wait to verify your loan type and find out what options are available for you.

Do prepare ahead of your mortgage forbearance application with documents such as your most recent mortgage statement and current income & expenses to facilitate a smoother process.

UW Funding is here to assist you with your available hardship options. We believe that there are no cookie-cutter solutions for everyone, and we are here to tailor your options to your needs depending on your goals. Work with a home loan expert who will listen to your needs and always have your best interests at heart. If you have any questions about your mortgage, we would love to help. Contact us today at (619) 320-2860.

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UW Funding