In times of financial distress, some homeowners can seek relief from monthly payments through mortgage forbearance programs. These programs can be helpful during rough times, but they must be handled with care. Let’s take a closer look at mortgage forbearance.
How mortgage forbearance works
Mortgage companies offer forbearance to borrowers who have suffered income loss because of circumstances such as job loss, natural disaster or illness. These are also referred to as hardship programs. It’s important to understand two aspects of mortgage forbearance programs: how relief is offered and how the indebtedness is to be repaid.
Relief can be offered two main ways. First, the mortgage company can temporarily suspend your mortgage payments for a designated period, such as three months. Or the company can allow you to make reduced payments for an agreed-upon period.
Typically, you can repay the relieved amount in three ways. You may be required to pay it back in a lump sum with interest at the end of the mortgage forbearance period. The second method adds the relieved amount to the end of the loan, also with interest, thus extending the life of the loan. Third, the lender may divide the payback over a period of months and add those monthly amounts to the existing loan payments. With this method, the additional payment amount may be treated as a separate loan.
Because of the unprecedented national scale of the coronavirus epidemic, the federal government has ordered lenders to grant forbearance on Fannie Mae- or Freddie Mac-backed mortgages. Specifically, mortgage companies are required to offer 12 months’ relief to borrowers who need it and are not allowed to report you to credit agencies as delinquent during that time. Fannie and Freddie back about half of the nation’s mortgages.
Applying for relief on your mortgage
Mortgage forbearance programs are complex, and you should pay close attention to their details.
First, call your mortgage company and explain your situation. Request information on its forbearance or hardship programs. Jot down the name of the customer service representative with whom you speak. Ask that they put notes into your file about your conversation and any decisions regarding mortgage forbearance. Take detailed notes of your own. Carefully read the details on the company’s website or on any materials the lender provides you.
Never base your decision to pause or reduce payments solely on an oral conversation with customer service. There have been instances in which borrowers believed they had arranged forbearance based solely on a phone call, only to find themselves later facing foreclosure with their credit damaged for missed payments. That’s why it’s vital to make sure the company’s decision on mortgage forbearance is documented in writing and placed in your file. You should be required to apply and submit forms for mortgage forbearance and should be sent an email or letter of approval that outlines the terms of your forbearance and the details of your repayment plan. Document everything.
The National Association of REALTORS® offers a helpful resource with links to various associations that service the real estate industry, outlining important measures being taken during the coronavirus outbreak.