If you haven’t found yourself in a difficult financial situation stemming from the COVID-19 pandemic, you should thank your lucky stars; 4.1 million Americans requested forbearance plans from their lenders as of April 20201. Most homeowners should by now be familiar with the CARES ACT.
What is forbearance?
Forbearance is the act of giving a debtor more time to pay, basically put, it’s time. The CARES ACT was passed by Congress in March, 2020. It grants homeowners relief in two ways:.
- Lenders are barred from foreclosing on properties with federally backed loans , but only until August 31.
- It allows homeowners with those same federally backed loans, the option to request up to 6 months of forbearance (time) on their mortgage payments. This option only applies to those whose financial hardships are because of COVID-19.
Forbearance is a lifeline but don’t mistake it for forgiveness. Like we said before, forbearance is “time”. After the forbearance period ends, it’s time to make amends.
Keep in mind, not all homeowners are covered by the CARES ACT.
Homeowners with loans owned by private lenders (usually banks), not backed by the federal government are not included. That’s as many a 30% or about 14.5 million American homeowners. Privately held loans, although not covered by the CARES ACT may offer homeowners relief. Options available will vary because each bank will do things differently, but typically follow federal guidelines. It’s reported at estimated 11% of private mortgages are in some type of forbearance program. (Compare that to federally backed loans, which peaked in June at 8.55%.) However, not every bank is offering these programs and not every mortgage is eligible for forbearance or repayment options.
What are your options after forbearance?
That’s going to depend upon who owns your loan but for most it will be similar. You will have 3 ways to correct the situation.
- The first and simplest being “Loan Reinstatement”. This is where a homeowner just pays back the amount of money, they owed over the forbearance period. Simple and easy, but not often possible.
- The second is a “Repayment Plan”. This is where the missing payments are divided into 3, 6, 9 or 12 payments. These payments are added onto the regular monthly mortgage for the predetermined number of months.
- The third option is a “Loan Modification”. The loan is adjusted to make up for the amount owed. There are often different options in how this can be done.
- Extension – Adds the missed payments to the end of your loan.
- Deferral – The missed payments are added to the end of the loan. This is not the same as an extension. The missed payments are usually turned into a balloon payment at the end of the loan. This just kicks the can into the future and for most, it won’t be any easier to pay that lump sum in the future.
- Re-Amortization – The entire remainder of the loan is recalculated, at today’s interest rate and you simply start again. Be mindful of your loan term, these payments can extend up to 40 years.
What do you do now?
You need to balance being your own advocate and accepting reality. Once you’ve gone through your options with your loan servicer and agreed to a relief program, be sure to ask for written documentation that confirms the details of your agreement. Don’t take what the loan servicer says at face value. Do your research, learn who owns your loan and figure out your options (kind of like you’re doing now) ,and make the best move for your situation. If you have questions after the call, you can submit a “request for information”, in which case the loan servicer is required to respond within 30 days.
What if you’re already in Pre-Foreclosure?
Don’t stress too much, you still have options and that’s where we can help. Give us a call at (360) 939-1151 to discuss how we can help save your credit from the stain of foreclosure.
1 https://www.mba.org/2020-press-releases/april/mba-survey-shows-spike-in-loans-in-forbearance-servicer-call-volume
