The COVID-19 virus has appeared to have infected us in many more areas of our lives these days, other than as a profound illness. The economics of the virus has led to millions of layoffs, company shutdowns, and therefore the loss of immeasurable jobs. This burden is requiring many homeowners to search for an alternative or a reprieve from mortgage payments for a few months to help navigate this dramatic period.
The Federal Government recently approved the ability for mortgage lenders throughout the country to offer the option of Forbearance to help homeowners mitigate their mortgage payments during this unusual time frame. Forbearance, in the context of a mortgage process, is a special agreement between the lender and the borrower to delay a foreclosure. When mortgage borrowers are unable to meet their repayment terms, lenders may opt to foreclose. To avoid foreclosure, the lender and the borrower can make an agreement called "forbearance." According to this agreement, the lender delays his/her right to exercise foreclosure if the borrower can catch up to the payment schedule by a certain time. This period and the payment plan depend on the details of the agreement that is accepted by both parties.
Although investor requirements involving forbearance demands are continually evolving as the COVID-19 virus progresses, here are some of the current mitigation options and terms that many lenders might offer during this time:
- Reduced or suspended payments for 90-180 days with the option to extend additional days if needed (the best option for homeowners is to pay as much as possible each month to minimize past due amounts)
- Negative credit bureau reporting and late fee assessments are suspended (if the borrower was up to date or under 30 days delinquent for their March 2020 payment due).
- Prior to the end of the forbearance period, hardship/financial status must be evaluated to determine next actions.
- Forbearance is NOT payment Forgiveness. All payments are expected to be paid back in full. Payment forgiveness is not an option here.
- Servicing companies will also make sure that your escrow payments for taxes and home insurance will continue to be paid during this trying time.
Forbearance options can vary greatly between companies, and here is a breakdown of the most common alternatives in technical terms:
Reinstatement: pay all past due delinquent amounts to bring your loan current. There will be no negative impact to your credit bureau reporting.
Repayment Plan: repayment plans for 3-12 months, with no negative credit bureau reporting ot late fee assessment if you are performing on your repayment plan.
Deferment: eligible to those customers who missed no more than 2 payments, and have resumed making regular payments. However, they cannot remit the additional payments that were missed. These two payments may be deferred until payoff, refinance or other liquidation.
Modification: for customers with long term hardship. The investor may modify some or all terms of the original note, such as, interest rate, payment, or amount or term.
In order to investigate the forbearance process, consumers will want to call their servicing companies directly. This is the company you send your mortgage payment to, not your lender who owns the note. The servicing company handles the full procedure. They will explain and educate consumers on the options available for their particular mortgage. They would then proceed to help set-up the clients with the forbearance agreements who want to move forward. Be prepared to experience long wait times on the phone to get through to your servicing departments. Expect a minimum of 30 minutes as the volume of calls is overwhelming at this time.
In summary, please note that though forbearance is an option for some, many will forgo moving forward with this selection. Even though negative credit reporting will not be applied during the forbearance period, please note that how this economic period will be reflected on your credit report has not yet been determined. Although a forbearance is far better than foreclosure, you must follow the repayment plan exactly to avoid ramifications, and the action will be noted on your credit report.
It needs to be mentioned that if you defer payments, and or skip payments at any time, this does absolutely change the loan's amortization schedule and how much is actually owed at the time of payoff. The forbearance is interest free, but since you are not paying off your principal and interest owed each month in a consecutive manner, you will see an additional cost incurred at the end of the note or payoff. Your payoff will be higher and all payments will be due in full.
Susan Kelly is a Senior Loan Officer at Fairway Independent Mortgage. She is Licensed in MA.