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Is Your Mortgage Forbearance Ending Soon? What To Do Next

July 14, 2020

mortgage forbearance

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Millions of Americans struggling to make their monthly mortgage payments because of COVID-19 have received relief through the Coronavirus Aid, Relief, and Economic Security Act.

But mortgage forbearance is only temporary, and set to expire soon, leaving many homeowners who are still struggling perplexed on what to do next.

Enacted in March, the CARES Act initially granted a 180-day forbearance, or pause in payments, to homeowners with mortgages backed by the federal government or a government-sponsored enterprise such as Fannie Mae or Freddie Mac. Furthermore, some private lenders also granted mortgage forbearance of 90 days or more to financially distressed homeowners.

According to the Mortgage Bankers Association, 8.39% of loans were in forbearance as of June 28, representing an estimated 4.2 million homeowners nationwide.

So what are affected homeowners to do when the forbearance goes away? You have options, so it’s well worth contacting your lender to explore what’s best for you.

“If you know you’re going to be unable to meet the terms of your forbearance agreement at its maturity, you should call your loan servicer immediately and see what options they may be able to offer to you,” says Abel Carrasco, mortgage loan originator at Motto Mortgage Advisors in St. Petersburg, FL.

Exactly what’s available depends on the fine print in the terms of your mortgage forbearance agreement. Here’s an overview of some possible avenues to explore if you still can’t pay your mortgage after the forbearance period ends.

Extend your mortgage forbearance

One simple option is to contact your lender to request an extension.

Homeowners granted forbearance under the CARES Act can request a 180-day extension, giving them a total of 360 days of forbearance, according to the Consumer Financial Protection Bureau.

The key is to contact your lender well before your forbearance expires. If you let it expire without an extension, your lender could impose penalties.

“If you just stop making regular, scheduled payments, you could have a late mortgage payment on your credit,” warns Carrasco. “That could severely impact refinancing or purchasing another property in the immediate future and potentially subject you to foreclosure.”

Keep in mind, though, a forbearance simply delays payments, meaning they’ll still need to be made in the future. It doesn’t mean payments are forgiven.

Refinance to lower your mortgage payment

Mortgage interest rates are at all-time lows, hovering around 3%. So if you can swing it, this may be a great time to refinance your home, says Tendayi Kapfidze, chief economist at LendingTree.

Refinancing could come with some hefty fees, however, ranging from 2% to 6% of your loan amount. But it could be worth it.

A lower interest rate will likely lower your monthly payment and save you thousands over the life of your mortgage. Dropping your interest rate from 4.125% to 3% could save more than $40,000 over 30 years, for example, according to the Consumer Financial Protection Bureau.

“Lenders have tightened standards, though, so you will need to show that you are a good candidate for refinancing,” Kapfidze says. You’ll need a good credit score of 620 or higher.

As long as you’ve kept up your end of the forbearance terms, having a mortgage forbearance shouldn’t affect your credit score, or your ability to refinance or qualify for another mortgage.

Ask for a loan modification

Many lenders are offering an assortment of programs to help homeowners under hardship because of the pandemic, says Christopher Sailus, vice president and mortgage product manager at WaFd Bank.

“Lenders quickly recognized the severity of the economic situation due to the pandemic, and put programs into place to defer payments or help reduce them,” he says.

A loan modification is one such option. This enables homeowners at risk of default to change the terms of their original mortgage—such as payment amount, interest rate, or length of the loan—to reduce monthly payments and clear up any delinquencies.

Loan modifications may affect your credit score, but not as much as a foreclosure. Some lenders charge fees for loan modifications, but others, like WaFd, provide them at no cost.

Put your home on the market

It may seem like a strange time to sell your home, with COVID-19 cases growing, unemployment rising, and the economy on shaky ground. But, it’s actually a great time to sell a house.

Pending home sales jumped 44.3% in May, according to the National Association of Realtors®’ Pending Home Sales Index, the largest month-over-month growth since the index began in 2001.

Home inventory remains low, and buyer demand is up with many hoping to jump on the low interest rates. Prices are up, too. The national median home price increased 7.7% in the first quarter of 2020, to $274,600, according to NAR.

So if you can no longer afford your home and have plenty of equity built up, listing your home may be a smart move. (Home equity is the market value of your home minus how much you still owe on your mortgage.)

Consider foreclosure as a last resort

Foreclosure may be the only option for many homeowners, especially if you fall too behind on your mortgage payments and can’t afford to sell or refinance. In May, more than 7% of mortgages were delinquent, a 20% increase from April, according to mortgage data and analytics firm Black Knight.

“When to begin a foreclosure process will vary from lender to lender and client to client,” Sailus says. “Current and future state and federal legislation, statutes, or regulations will impact the process, as will the individual homeowner’s situation and their ability to repay.”

Foreclosures won’t begin until after a forbearance period ends, he adds.

The CARES Act prohibited lenders from foreclosing on mortgages backed by the government or government-sponsored enterprise until at least Aug. 31. Several states, including California and Connecticut, also issued temporary foreclosure moratoriums and stays.

Once these grace periods (and forbearance timelines) end, and homeowners miss payments, they could face foreclosure, Carrasco says. When a loan is flagged as being in foreclosure, the balance is due and legal fees accumulate, requiring homeowners to pay off the loan (usually by selling) and vacating the property.

“Absent participation in an agreed-upon forbearance, deferment, repayment plan, or loan modification, loan servicers historically may begin the foreclosure process after as few as three months of missed mortgage payments,” he explains. “This is unfortunately often the point of no return.”

The post Is Your Mortgage Forbearance Ending Soon? What To Do Next appeared first on Real Estate News & Insights | realtor.com®.

Mortgage Deferment and Mortgage Forbearance—Is There a Difference?

April 8, 2020

Mortgage Deferment and Mortgage Forbearance—Is There a Difference?

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With finances in peril due to COVID-19, many homeowners are in search of mortgage relief. Two strategies that many borrowers are anxious to invoke right now are mortgage deferment and mortgage forbearance.

Both tactics allow a borrower to skip monthly payments for a set period. Depending on the lender, there can be subtle differences between the two terms.

“We are seeing the terms being used interchangeably,” says Sara Singhas, the director of loan administration for the Mortgage Bankers Association.

She adds that both tactics allow a temporary period during which a borrower need not make contractual monthly payments. The differences between the two strategies come at the end of that period.

“What happens at the end of the forbearance period is the amount of payments that you missed during that forbearance will be due in a lump sum,” says Singhas.

Sometimes, lenders will work with borrowers to structure a payment plan, instead of demanding a lump sum.

Deferment—especially special programs that lenders have introduced during the pandemic—often allow customers to repay the money over time or to add it to the end of the loan period.

Clearing up confusion about mortgage forbearance

“In the mortgage world, it’s very fluid … [but] what we hear more is the term forbearance,” says Mary Bell Carlson, a certified financial planner professionally known as Chief Financial Mom. “Overall, forbearance is saying, ‘Hey, something has happened, I cannot pay.’”

A book Carlson has dubbed her Bible of the financial world, “Surviving Debt,” by the National Consumer Law Center, makes no distinction between forbearance and deferment.

“They do not even use the word deferment in terms of a mortgage, everything is called a forbearance in this book,” she says.

If a lender does differentiate between the terms deferment and forbearance, the difference will be at the end of the loan period, according to Singhas.

Some borrowers will be able to add extra payments to the end of the loan or make other arrangements to spread out repayment, while others will not. Sometimes, payment terms involve a new loan or a rewriting the existing loan.

Mortgage loan originator Krista Allred says one differentiation can center on foreclosure proceedings and timing.

“Technically, a mortgage forbearance agreement is when you’ve possibly been late, and the lender agrees not to foreclose during that forbearance period,” says Allred. In this scenario, a borrower already has a history of nonpayment before entering into a forbearance agreement.

But with the pandemic only revealing its enormous scope within the past 30 days, many borrowers haven’t been late—yet.

However, because of sudden job loss or because of the quarantine, borrowers have besieged the phone lines of their lenders, to get out in front of the financial iceberg.

Contact your lender for mortgage relief

No matter what you call it, if borrowers ask for help during this crisis, many lenders are allowing them to miss payments and not charge them late fees or penalties.

“The definition really doesn’t matter. The moral of the story right now is to call your lender. Don’t just assume you can skip a payment. Call them, let them know, and make arrangements,” Allred advises.

Carlson struck the same chord and told us that borrowers shouldn’t get caught in the weeds about the semantics of forbearance versus deferment.

She says, “They just need to pick up the phone and say, ‘Hey look, I’m in a bad situation, I’ve lost my job, and I think it’s going to be rough for the next three months.’ From there the lender can come back and say, ‘Here [are the] options.’”

Due to the current financial situation, the mortgage world is shifting. Options that weren’t on the table for borrowers a few months ago might be available now.

Singhas says the length of time that the forbearance could be extended and the options at the end of the term might be different. She adds that borrowers in good standing prior to the current crisis may able to do a modification wherein any monthly payments missed now are simply tacked on to the end of the loan.

Pressing pause on your mortgage

Whatever terminology your lender uses, it’s important for you to understand what is really happening with your loan. Nothing is free. You can’t expect to stop paying your mortgage forever.

“It’s not free mortgage payment, it’s not free money. [Forbearance] is temporarily hitting the pause button on your mortgage, and not having to make the payment,” Carlson warns.

“It does not necessarily pause the interest that is accruing, and it does mean that you’re going to have to make that principal and interest payment at a later date.”

Key questions to ask before seeking mortgage forbearance

When calling your lender, Carlson recommends asking:

  • What relief options are available?
  • Will interest continue being calculated during the length of time I am not paying?
  • Will there be any fees?
  • How will it be reported to the credit bureaus?
  • Do I still need to pay for my escrow to cover taxes, insurance, and mortgage insurance?

 

Singhas says some lenders have decided to allow certain loan modifications. In some cases, they will allow the monthly payment to be changed later in the life of the loan, to include the amount missed during the forbearance.

She adds that the main confusion for consumers right now is the fact that most lenders will not necessarily require a lump sum payment after the forbearance period ends.

“I think some people are panicked that if they get a forbearance, they have to pay it all back immediately,” she notes.

“That’s one option, or they can enter into a payment plan if they can’t make the lump sum, and if they can’t make a repayment plan work, there are other options available to them.”

If you work out a forbearance or deferment plan with your lender and don’t just skip payments, it can protect your credit.

“It doesn’t show a positive or a negative, but it doesn’t show like a missed payment,” Carlson explains.

“So if you were to ignore it and just not pay anything and pretend it will go away, that’s absolutely going to affect your credit report in the long run. But the forbearance or deferment is a neutral. It’s not positive or negative on the credit report, but it’s a lot better than having missed payments on your mortgage.”

One caveat to keep in mind is that if you can pay your mortgage, pay it, and don’t ask for relief.

“It’s always better to make your monthly payment if you can,” Singhas says.

The post Mortgage Deferment and Mortgage Forbearance—Is There a Difference? appeared first on Real Estate News & Insights | realtor.com®.