Homeowners across the country are seeking mortgage forbearance as unemployment numbers continue to rise amid the coronavirus pandemic. The CARES Act stimulus package requires servicers to provide forbearance — a temporary postponement of payments — to any homeowner with a federally-backed mortgage.
Delaying one’s mortgage payments has proved exceptionally popular, as forbearance requests have significantly increased in recent weeks. According to the Mortgage Bankers Association, requests grew by 1,270% between the week of March 2 and the week of March 16, and another 1,896% between the week of March 16 and the week of March 30. The percentage of loans in forbearance has also gone way up.
While this relief is immediate and necessary for some, many worry about repaying what they owe once the forbearance period ends. It’s important to keep in mind that borrowers are responsible for repaying the full forbearance amount as well as interest on the payments that were put on hold. You will also be considered in arrears, and this could preclude you from financing in the future.
If you lost your job or need to do it, do it. If you don’t need it, don’t take it. You will need to pay it back anyway, and you may not qualify if you want to refinance or apply for a new purchase in the future until all past payments have been paid off.
Also, it’s important to note not all mortgage servicers are handling this the same. Some are asking for the postponed payments to be paid after the waived period in one lump sum.
Keeping that in mind, below are some frequently asked questions about forbearance:
What are the benefits?
- Lower or temporarily suspend your monthly payment—giving you time to improve your financial situation and get back on your feet
- Less damaging to your credit score than a foreclosure
- Stay in your home and avoid foreclosure
How do you know if you qualify?
To qualify for forbearance, a borrower must have a mortgage backed by one of the following federal agencies:
- Fannie Mae
- Freddie Mac
- The Federal Housing Administration (FHA)
- The U.S. Department of Veterans Affairs (VA)
- The U.S. Department of Agriculture (USDA)
How does it work?
Forbearance reduces your monthly mortgage payment, or suspends it completely, during the forbearance period. If you qualify for forbearance, you and your mortgage company will discuss the forbearance terms:
- length of forbearance period,
- reduced payment amount (if the payment is not suspended), and
- the terms of repayment.
After the forbearance period has ended, you will need to repay the amount that was reduced or suspended.
Be prepared to answer some questions
You don’t need to provide documentation to prove your financial hardship at this time, but your servicer may have some questions to determine how much assistance they will offer you.
The Consumer Financial Protection Bureau suggests being prepared to answer the following:
- Why can’t you make your payments?
- Is the problem you are facing temporary or permanent?
- What is the current state of your income, expenses and other assets, including money in the bank?
- Are you a service member with permanent change of station orders?
If you have any questions, or want more information, please contact us or call 410-598-9410.