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Mortgage Forbearance in the Age of COVID

By Liz Miller

Real Estate Agent with Coldwell Banker Residential Brokerage SA552583000

June 17, 2020 01:18 PM

COVID-19 concerns created record numbers of unemployment claims. Millions of people lost their jobs or found themselves with severely decreased hours each week. This impacted their finances, making it difficult to keep up with their mortgage payments. Banks found a serious increase in requests for refinancing, loan modifications, and mortgage forbearances. If you find yourself struggling with your monthly payments as a direct result of COVID-19, you might want to ask your lender for a mortgage forbearance to help you get through these trying times.

Mortgage Forbearance in the Age of COVID

What is a Mortgage Forbearance

When a lender or mortgage servicer agrees to a forbearance, they allow you to temporarily suspend or lower your monthly mortgage payment for a predetermined period of time. They also agree not to pursue any legal action (such as foreclosure proceedings) during this time provided that you adhere to the terms of the agreement. The forbearance terms last up to 180 days. If you still find yourself struggling to find a job at the end of the 180 days, you might be able to ask for an extension. That is totally up to the lender to decide.

A suspension of payments is not a forgiveness of debt. You still owe those payments. They might be able to divide up the payments due at the end of your forbearance and spread them out over several months in addition to your normal mortgage payment. The CARES Act provides this option for homeowners who used a government-backed loan when they purchased their property. Government-backed loans include FHA, VA, Fannie Mae, Freddie Mac, or USDA. Some lenders require you to pay a lump sum of the total missed payments at one time at the end of your forbearance agreement. Others may put the lump sum due at the end of your loan. So, if you can't afford to make your total monthly payment during the forbearance period, try to make as much of it as you can each month. This helps you when the forbearance agreement ends.

Loan Modification

Unlike a mortgage forbearance, a loan modification permanently changes your loan. They do this by either lowering your interest rate, converting from an adjustable-rate to a fixed-rate loan, or changing over to a longer term (from 15 to 30 or from 30 to 40 years for example). This permanently changes your mortgage loan instead of the temporary "fix" offered by a mortgage forbearance.

How to Apply

First, compile all of your financial information. This includes mortgage statements (including additional mortgages), loan payments, credit card statements, student loan payments, car loan info, paycheck stubs, bank statements, and income tax returns. Then, contact your mortgage company. Explain your current financial situation. Let them know if this is temporary or if you think it might last for a while. After that, ask about your options (forbearance or modification). Your best plan of attack is to do this as soon as you know you may have a problem paying. Waiting could cost you much more than just money.

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