Millions of Americans facing the prospect of unemployment or reduced wages are seeking breaks on their mortgage payments in droves because of the coronavirus pandemic. But before you request forbearance on your mortgage, understand that it isn’t foolproof. Struggling homeowners won’t automatically receive forbearance.
The $2.2 trillion CARES ACT stimulus package requires mortgage servicers to provide forbearance – a temporary postponement of payments to any homeowner with a federally backed mortgage. This is also extended to Americans with other mortgages, but at their servicer’s discretion. The provisions in the stimulus package stipulate that during the forbearance period, mortgage servicers cannot make negative reports regarding the borrower in question to the credit bureaus, including the big three, Experian, Trans Union and Equifax. Additionally, borrowers won’t owe any late fees or penalties if they are granted forbearance.
According to the Mortgage Bankers Association, forbearance requests grew by 1,896% between March 16 and March 30th. Prior to that, forbearance requests had increased by 1, 270% between March 2nd and March 16th.
YOU NEED TO KNOW WHO YOUR SERVICER IS
A mortgage servicer isn’t necessarily the same as your lender. Before you pick up the phone, check your mortgage statement to figure out who your servicer is. You can also search it by going to the Mortgage Electronic Registration Systems website. And you can always check with Fannie Mae and Freddie mac if your loan is backed by one of them.
HOW DO YOU KNOW IF YOU QUALIFY
To qualify a borrower must have a mortgage with 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)
BE PREPARED TO ANSWER LOTS OF QUESTIONS
You may not need to provide documentation to prove your financial hardship right now, but your servicer will have questions to determine how much assistance they’ll offer you:
- Why can’t you make your payments?
- Is the problem your 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 a permanent change of station orders?
GET YOUR FORBEARANCE AGREEMENT IN WRITING
Once you qualify for forbearance, ask your servicer to provide written documentation confirming the details of your agreement and to ensure that you are clear on what the terms are. This agreement will protect you in the event of discrepancies on your mortgage statement or credit report.
WATCH OUT FOR BALLOON PAYMENTS
Discuss your repayment options. You don’t want to get hit with payments that are due immediately in one lump sum at the end of forbearance. A balloon payment may be the option offered to you the borrower, but there’s no mandate requiring payment in this form. Homeowners should negotiate for the best possible repayment options tailored to their financial needs. A better option for some is to have the additional payments applied at the end of the term of the mortgage depending upon the amount received from the servicer. And there’s amortization that allows for the borrower to repay a portion of the balance owed in addition to their usual payments.
IF YOU’RE FINANCIALLY STILL IN TROUBLE CONSIDER A LOAN MODIFICATION
If you find your self out of work or impacted financially for an extended period of time, the most beneficial option is to request to modify the loan at the end of forbearance. This will change the details of the mortgage such as adjusting the mortgage interest rate, extending the duration of the loan or deferring the amount until the end of the loan as a separate lien.
Contact one of our loan consultants to learn more about this program.