Mortgage forbearance requests have skyrocketed thanks to the current pandemic, growing by 1,896 percent over the last two weeks of March alone.
Getting a temporary pause on mortgage payments might make sense for a distressed borrower. However, they should consider what a forbearance might mean.
Forbearance Does Not Equal Forgiveness
A mortgage borrower with a forbearance will still have to pay off their loan. Depending on the agreement, the borrower may pause payments or make lower payments for a specified period.
Those with mortgages backed by a federal agency are eligible for a forbearance of up to 180 days under the CARES Act plus a 180-day extension afterward if they still need assistance. Servicers cannot make negative credit report entries or add penalties and late fees during a forbearance.
Borrowers Must Identify Their Servicer
A borrower requests a forbearance from their current mortgage servicer, which is the company receiving their monthly payment.
A mortgage statement should show the current servicer. If the information is not on the statement, the borrower can check the Mortgage Registration Systems website and with federal loan-backing agencies Fannie Mae and Freddie Mac.
Qualification and Questions Apply
For a CARES Act forbearance, a borrower must have a mortgage backed by one of the following federal agencies: Fannie Mae, Freddie Mac, the Federal Housing Administration, the U.S. Department of Veterans Affairs or the U.S. Department of Agriculture.
The original mortgage document can provide clues about whether the loan is backed by a federal agency. A borrower without a federally-backed loan may still be able to receive a forbearance via a servicer’s own forbearance program.
There’s Fine Print
A borrower should get forbearance agreement terms in writing to protect themselves. They should also know how the deferred loan payments will become due so they can negotiate options with the servicer.
Under a balloon option, the borrower will have to pay the deferred payments all at once at the end of the forbearance term. Another method sees the deferred payments tacked onto the loan term’s end.
While a distressed borrower can use a forbearance for help, they must know the terms and keep in mind that the money will become due. Borrowers who can afford to continue making their mortgage payments should so do, as there is no way of knowing what will come down the road.