Defining Elements of Mortgage Forbearance – Part I

Key Highlights

• Mortgage forbearance under the CARES Act came into being on March 27 in response to crippling economic impacts of COVID pandemic
• Homeowners with mortgages backed by/insured by federal government were eligible including Freddie Mac, Fannie Mae, VA and FHA mortgages
• Mortgage forbearance loans dropped from 4.3M in
  April to 3.4M at end of September, according to Mortgage Bankers Association
• According to Urban Institute, some 400,000 or 2% of mortgage holders are “needlessly delinquent” and are eligible for forbearance options

Tim and Julie Harris Real Estate is offering this two-part series on mortgage forbearance to help us all understand the latest information, news and updates in order to assist your clients who may/may not be in forbearance. (Know that some of your clients may not be aware they are eligible for forbearance – see the last bullet point – please share this with them.)

This Part I of the defining elements of mortgage forbearance concentrates on both forbearance questions/answers and post-forbearance options.

This information is important to understand as, according to Mike Fratantoni, Mortgage Bankers Association senior vice president and chief economist, “Many homeowners with GSE loans are exiting forbearance into a deferral plan and resuming their original mortgage payment, but waiting to pay the forborne amount until the end of the loan.”

Questions About Forbearance Answered 

1. Definition of mortgage forbearance – Forbearance is a short-term postponement or delay of mortgage payments designed to provide assistance relief to homeowners who have been financially negatively impacted by COVID (job loss or reduced hours/income loss or reduction). Mortgage forbearance is essentially a loan, not a grant, and deferred payments must be repaid. A homeowner (the borrower) negotiates with a lender (bank or mortgage servicer) to create a repayment plan (terms and amount) to pay back deferred payments until the forbearance period ends.
2. To be eligible for mortgage forbearance, you (the homeowner and mortgage borrower) MUST HAVE experienced a job loss or reduced hours, income loss or reduction, or a COVID related illness.
3. Mortgage borrowers can request mortgage forbearance by either…
   1. Phoning your mortgage servicer (the company to whom you send your monthly mortgage payments) directly.
   2. Writing and sending a hardship letter to your mortgage servicers that explains and affirms the negative financial impacts caused to you by COVID. (This option is preferred because it establishes a written record, not hearsay, of your need and intention to pursue forbearance protection. Borrowers can email, fax or physically mail this letter to your mortgage servicer.)
4. Once your lender/mortgage servicer approves your application request to enter into forbearance (your written letter explaining your financial distress due to COVID described above in 3b), your lender/mortgage servicer will give you a forbearance agreement that will outline the terms (length of time of deferring mortgage payments, extensions, etc.) During your forbearance period, the lender/mortgage servicer is not allowed to initiate or continue with foreclosure proceedings.
5. A payment deferral is when your monthly mortgage payment amounts are not paid “on time” and will be paid later at the end of your forbearance term. Your deferred payment amount creates a non-interest-bearing forborne balance.
6. You will know when your forbearance plan is ending when your lender/servicer contacts you to discuss the options you have to making current or repaying your missed mortgage payments. Or, you can contact your lender/servicer before your forbearance plan is ending to kick off these discussions REMEMBER, YOU ARE NOT REQUIRED TO PAY OFF YOUR DEFERRED MORTGAGE PAYMENTS IN ONE LUMP SUM.
7. There are 3 (three) options to repay your missed mortgage payments:
   1. You can BUT ARE NOT REQUIRED TO REPAY ALL MISSED MORTGAGE PAYMENTS IN ONE LUMP SUM. If you have the money to repay all missed payments at once, you can BUT IT IS NOT REQUIRED.
   2. You can NEGOTIATE a repayment plan with your lender/mortgage servicer. Chances are upcoming payments be larger than existing monthly mortgage payments
   3. You can MODIFY your existing mortgage loan that could include lower interest rates and/or a longer loan term or longer period of time to pay off your loan.
8. Prior to your forbearance period ending, your lender/servicer will contact you to negotiate the end of your forbearance terms, negotiate a repayment plan for missed/deferred mortgage payments and/or an extension of your forbearance loan OR a relief workout option at the end of forbearance.
9. If you (the borrower) request an extension for your forbearance plan, mortgage forbearance CAN BE EXTENDED for an ADDITIONAL 180 DAYS if you have a federally backed mortgage.

Thanks to Freddie Mac and HousingWire.

Also read: Purchase Applications WAY Up – Interest Rates WAY Down, Mortgage Forbearance Numbers Increase to 4.2M, Mortgage Size Hits New Record High While Rates Hold