When Mortgage Forbearance Ends: Know Your Options
Last year, a $2 trillion stimulus bill called the CARES (Coronavirus Aid, Relief, and Economic Security) Act was enacted to soften the impact of an economic downturn set in motion by the coronavirus pandemic. Since then, more than nine million Americans have pushed the pause button on their monthly mortgage payments and entered into what is technically referred to as forbearance.
Under the CARES Act, homeowners with conventional, FHA, VA, or USDA loans could request an initial home loan forbearance for up to six months. They could also request a six-month extension for up to one year of total forbearance. “Forbearance plans are based on when you requested them,” explains David Shapiro, president, and CEO of EquiFi Corporation. That means homeowners who entered forbearance plans early in the coronavirus pandemic are likely nearing their forbearance end dates.
Anticipating a wave of pandemic-fueled foreclosures, the Consumer Financial Protection Bureau has issued new rules to ensure borrowers have time to explore their options, including loan modifications and selling their homes. The rules cover loans on an owner’s primary home and will go into effect on Aug. 31, a month after a federal moratorium on foreclosures is set to expire.
About 2 million people are currently under forbearance plans, with at least 900,000 homeowners projected to exit forbearance between now and the end of the year, according to the CFPB.
Concerns over foreclosure increases have been “wildly overestimated.”
As forbearance periods come to an end and homeowners resume making their mortgage payments, one mortgage and foreclosure expert said concerns over foreclosure increases have been “wildly overestimated.” Once homeowners exit their forbearance periods, they have several options available to them to resume payments on their mortgage loan.
A new servicing rule from the Consumer Financial Protection Bureau (CFPB) stipulates that mortgage servicers can move all missed payments to the end of a loan term, and may not modify the loan in a way that increases monthly payments.
“An unchecked wave of foreclosures would … risk destabilizing the housing market for all consumers,” said Dave Uejio, the CFPB’s acting director. We are giving homeowners the time and opportunity to make informed decisions about the best course of action for them and their families” said Uejio. The new rules include safeguards like requiring mortgage servicers to increase their outreach to borrowers before beginning a foreclosure.
When Mortgage Forbearance Ends: Know Your Options
Mortgage forbearance is not the same as mortgage forgiveness. After your forbearance period ends, you’ll have to make arrangements with your loan servicer to repay any amount suspended or paused. Forbearance repayment can look very different depending on your lender. Borrowers will typically have several options for repayment once forbearance expires:
- Make a full repayment. This is a one-time lump sum payment. Lenders are not allowed to require this and if you’re unable to pay one lump sum, there are other options available.
- Make intermittent payments. Borrowers can repay the missed amount over 3-12 months on top of their regular monthly mortgage payments.
- Lengthen the loan term. Pay off the missed amount at the end of the extended loan term by additional mortgage payments.
- Request payment deferral. This allows borrowers to pay off the missed amount when the home is sold or refinanced, or at the end of the loan term.
- Pursue a loan modification. This helps borrowers who are at risk of default change their mortgage terms, usually including a lower interest rate, reduced length of the loan, or reduced monthly payment.
Just as your eligibility for debt forbearance may differ between different lenders, so might the options available for repayment of those deferred payment agreements. The most important thing is that you ask your lender about the options available to you, and make sure you get the final agreement in writing. Ultimately, the right option for you depends on your current finances, employment status, and ability to resume mortgage payments.
Will the housing market be affected by foreclosures?
Homeowners are currently at an advantage, partly due to historically low-interest rates, resulting in competition and high demand driving home prices higher. “Demographics (millennials reaching prime homebuying age in very large numbers), low-interest rates, and pandemic-driven trends (migration from urban renter to suburban homeowner) will continue to drive demand,” RealtyTrac Executive Vice President Rick Sharga said.
” While some borrowers will not be able to recover from the financial distress COVID inflicted on them and will face the choice of selling their home or losing it to foreclosure, there won’t be enough of those properties to fix the supply/demand imbalance in the market, and they shouldn’t need to be sold at so much of a discount that they’ll impact prices in any given market,” said Rick Sharga.
Additional actions to prevent foreclosures
On July 23, the White House released a fact sheet explaining how homeowners with government-backed mortgages will be given further options to enable them to keep their homes when exiting forbearance. These actions were taken by three federal agencies that back mortgages including the Department of Housing and Urban Development (HUD), the Department of Veterans Affairs (VA), and the US Department of Agriculture (USDA). The Federal Housing Finance Agency (FHFA) provided similar relief for mortgages backed by Fannie Mae and Freddie Mac. Here are two examples mentioned in the release:
- “For homeowners who can resume their pre-pandemic monthly mortgage payment and where agencies have the authority, agencies will continue requiring mortgage servicers to offer options that allow borrowers to move missed payments to the end of the mortgage at no additional cost to the borrower.”
- “The new steps the Department of Housing and Urban Development (HUD), Department of Agriculture (USDA), and Department of Veterans Affairs (VA) are announcing will aim to provide homeowners with a roughly 25% reduction in borrowers’ monthly principal and interest (P&I) payments to ensure they can afford to remain in their homes and build equity long-term. This brings options for homeowners with mortgages backed by HUD, USDA, and VA closer in alignment with options for homeowners with mortgages backed by Fannie Mae and Freddie Mac.”
For non-federally backed loans
Check with your loan servicer for the forbearance repayment options that they offer. You may be able to find information about forbearance programs by checking the websites of your lender and servicer for more detailed information. Be sure to inquire about what limitations, options, and fees may apply to the repayment of your loan due to the fact that it is not federally backed.
Ultimately, your best next steps depend on whether you plan to sell your home or adjust your finances to pay an adjusted mortgage after your forbearance period ends. Familiarize yourself with your options so you’ll know what to request. If you are concerned about losing your home, contact a HUD-approved housing counseling agency. They can help you figure out your options and guide you through the paperwork and process of working with your loan servicer. Find a housing counselor near you. Remember, help is free. You don’t have to pay anyone to help you avoid foreclosure.
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