Forbearance is Not Forgiveness

Forbearance is a temporary postponement of mortgage payments.  The lender can grant this option to a borrower instead of forcing the property into foreclosure.  The CARES Act provides protections for homeowners with mortgages that are federally or Government Sponsored Enterprise backed or funded such as FHA, VA, USDA, Fannie Mae and Freddie Mac.

A mortgage holder should contact the lender to explain the temporary difficulty they are having making payments and ask for relief under forbearance or other options.  Once the lender grants approval, it is important for the borrower to get the terms of the forbearance agreement in writing to be clear about when the payments will resume and how the missed payments will be recovered.

Generally speaking, homeowners in a forbearance plan will not incur late fees and it should not adversely affect their credit.  Unfortunately, borrowers must be vigilant to see that the lender is protecting them from delinquent credit marks according to their agreement.

Forbearance is easy to receive but not so easy to recover from.  Free credit reports can be obtained on a weekly basis until April 21, 2021 at www.AnnualCreditReport.com.  Reports are available from Experian, Equifax and TransUnion.  This will allow borrowers to monitor whether the lender has inadvertently reported items inaccurately.

Prior to the end of the forbearance period, borrowers should contact their loan servicer, the company that accepts their payments.  Review the terms of the forbearance plan and expectations for repayment.  Verify the unpaid balance and that there are not any payments marked as late or delinquent during the forbearance period.

One more item to discuss with the loan servicer is the payment of the property taxes and insurance.  Since multiple mortgage payments may have been missed and most payments include 1/12 of the annual amounts for these items, there may not be enough to pay for them when they become due.

Since it is estimated that there are over four million borrowers in forbearance currently, it may be difficult to talk to the servicer but starting the process early and being persistent will be helpful. 

At the end of forbearance, the borrower needs to resume regular payments and establish a plan with the lender to repay the missed payments.  The terms are negotiated between the borrower and the lender.

One way is through a loan modification which can restructure the loan.  In some cases, it would add the missed payments to the loan balance and recalculate the payments for the remainder of the term. 

A borrower could pay the forbearance money in cash but the practicality of that is not realistic.  If the person couldn't make the payments during forbearance, they probably don't have the liquidity to pay them afterward.  This option is entirely at the buyer's election.

Forbearance is a temporary way to postpone the mortgage payments with the understanding that you will be able to resume repaying the loan.  If the circumstances that caused the issue initially become permanent, then, other remedies must be considered.  If there is equity in the property, selling the home may be the way to materialize it for the homeowner.

Please contact us at (858) 382-3763 if you need to know what your home is worth and how long it would take to sell it.  We're happy to provide this information as a service without obligation so you can be aware of your options.