What Happens When Mortgage Forbearance Ends?
We’re here working to help you look after your most significant asset. Owning a home is an investment like no other because it represents the center of what matters to you, especially now. We get that. There’s nothing more important to us than helping you protect your home – and all that it means to you.
A new federal law, the Coronavirus Aid, Relief, and Economic Security (CARES) Act now offers mortgage assistance options for borrowers who have federally-backed mortgages and who are experiencing financial hardship as a result of the virus.
But before you make any decisions about pursuing these options, carefully assess your situation. If you are still able to pay your mortgage, even in part, please try to do so. Mortgage assistance does not relieve you from your obligation to make your payments.
The CARES Act offers certain protections for any homeowner whose mortgage is backed by the federal government. These protections include:
1. A right to forbearance due to financial hardship The CARES Act allows you as the borrower to request a forbearance on your mortgage.* A forbearance is a temporary suspension of your monthly mortgage payment with the understanding that all suspended payments along with the current month’s payment are due in full at the end of the forbearance term. There may be other options available to you at the end of the forbearance period based upon investor and insurer guidelines.
*Residential loans may be federally-backed or not federally-backed. The CARES Act only applies to federally backed mortgages. The vast majority of borrowers in owner-occupied homes have federally-backed loans. If you do not have a federally-backed mortgage, other mortgage assistance options may be open to you, but different eligibility requirements may apply.
A Note about Deferment: Deferment suspends the principal and interest portion of your mortgage payments for a specific period of time and defers them to the end of your loan. If your loan is federally-backed, you are not eligible for deferment under the CARES Act. However, if your mortgage loan is not backed by the federal government you may be eligible for other options like deferment.
2. A foreclosure moratorium For federally-backed mortgage loans, your lender or loan servicer may not foreclose or take eviction action on you for 60 days after March 18, 2020. Specifically, the CARES Act prohibits lenders and servicers from beginning a judicial or non-judicial foreclosure against you, or from finalizing a foreclosure judgment or sale, during this period of time. For non-federally-backed mortgage loans, some states have also implemented moratoriums on foreclosures and evictions.
Under the CARES Act, there are new options for homeowners. However, as with all major financial decisions – and especially with those affecting your home – you should carefully consider all the implications, weigh your options and run the numbers. Take a look at these examples to help determine if forbearance is right for you:
Example One: John’s monthly mortgage payment is $1,500 and is due on May 1. He chooses a 90-day forbearance in May. As a result, the forbearance period will run from May through July. During this time, his monthly mortgage payments are suspended. At the end of the forbearance period, John will owe a total of $6,000 on August 1. That is, he will owe $4,500 for the May through July payments, plus his August payment of $1,500 (total = $6,000).
Example Two: John’s monthly mortgage payment is $1,500 and is due May 1. He chooses a 180-day forbearance in May. As a result, the forbearance period will run from May through October. During this time his monthly mortgage payments are suspended. At the end of the forbearance period, John will owe a total of $10,500 on November 1. That is, he will owe $9,000 for the May through October payments, plus his November payment of $1,500 (total=$10,500).
Other Important Details
The length of the typical forbearance period has been extended under the CARES Act. A typical forbearance period is about three months, but under the CARES Act, you have the option to choose a forbearance period of up to six months and if necessary, extend for up to another six months. But again, this takes serious consideration. It’s important to weigh your options.
No negative credit reporting or late charges will occur on your account during the duration of the forbearance period.
If your loan was current at the start of your forbearance plan, your loan will remain current for credit reporting through the duration of the forbearance period. However, if your loan was delinquent at the start of your forbearance plan, your loan will remain delinquent throughout the forbearance period.
Here are a few things to think about as you are considering whether forbearance is right for you.
All suspended payments are due in full at the end of the forbearance term. Forbearance does not mean mortgage payment forgiveness. You will have to pay for all the months you missed – either in one lump sum or over time (if you qualify for a loan modification, repayment plan or payment deferral).
The CARES Act does give you the option of up to six additional months of forbearance when the initial forbearance period is done, however those additional months will be added to the final amount due. Proceed deliberately and carefully, weigh your options and run the numbers. You still have to pay taxes and insurance. If your monthly mortgage payment does not include an escrow payment for taxes and insurance, you must continue to pay for taxes and insurance during the forbearance period in accordance with your mortgage loan documents. However, if your account is currently escrowed for taxes and insurance, those escrow payments will be made on your behalf and assessed against your escrow account.
You should consider making partial payments during your forbearance period. If your financial situation improves and you are able to make partial mortgage payments, you will reduce the amount due at the end of your forbearance period.
Once the forbearance period is over, the full amount of your missed payments are due, but we will work with you to evaluate your situation and best next steps. There are several additional assistance options should you determine you need additional relief. These include:
Repayment Plan: The total amount of suspended payments is spread out over future payments until the full amount is repaid.**
Loan Modification. Permanently change the terms of your mortgage to bring it current.**
Payment Deferral: Deferment of suspended or past due principal and interest payments as a non-interest bearing balance, due and payable at maturity of the mortgage loan, or earlier upon the sale or transfer of the property, refinance of the mortgage loan or payoff of the unpaid principal balance and any unpaid fees.**
Extension of the Forbearance Plan: If you have a federally-backed mortgage, the CARES Act provides for the ability to extend the forbearance period for up to an additional 180 days. You do not need to submit additional documentation to qualify other than your claim to have a pandemic-related financial hardship. There will be no additional fees, penalties or additional interest (beyond scheduled amounts) added to your account.
** Available options may vary depending on investor guidelines. Additional eligibility requirements and documentation may be required for these options.