There’s little doubt that COVID-19 has changed our lives significantly over the last days and weeks. There has been so much information released as a result of these unprecedented times that it’s been hard to keep up. To keep things clear, and to help you sift through all the information you’re getting, I wanted to provide a resource so you can better understand recent legislation enacted to help homeowners impacted by the COVID-19 pandemic.
The Coronavirus Aid, Relief and Economic Security Act signed by President Trump on March 27, 2020 (the “CARES Act”) provides help to borrowers with eligible mortgages who are experiencing a financial hardship that is due, directly or indirectly, to the COVID-19 national emergency. Specifically, the CARES Act provides that such borrowers may request and receive “forbearance” for mortgage payments on eligible loans if they affirm they are experiencing a financial hardship during the COVID-19 national emergency.
This summary and the FAQs will help you better understand the requirements for forbearance under the CARES Act, what forbearance is and isn’t, and what the impact of electing forbearance may be for your
personal financial situation. It is important to understand that forbearance under the CARES Act is available only to borrowers with “Federally backed mortgage loans”, a term that is explained in the FAQs below. This summary and the FAQs only describe the forbearance provisions of the CARES Act as
they apply to Federally backed mortgage loans, but do not address other situations or loan types.
If the COVID-19 pandemic has caused a financial hardship for you, I recommend that you carefully review the information below and contact your mortgage lender/servicer for more information.
Definition of Forbearance
A mortgage forbearance agreement is an agreement made between a
mortgage lender/servicer and a borrower who is experiencing financial hardship that allows the borrower to reduce or suspend payments for a specified period of time during which the lender agrees not to exercise certain legal rights related to such nonpayment. The forbearance agreement may or may not provide for specific terms of payment of the reduced or suspended payments after the forbearance period. Forbearance is not a payment waiver or payment forgiveness. All reduced or suspended
payments will need to be paid in full after the forbearance period, but the borrower may have options if he or she cannot pay all at once.
Forbearance due to the COVID-19 pandemic may be available to you if:
- You have lost work due to the pandemic.
- You are sick and can’t work.
- You are caring for a sick family member and therefore can’t work.
- You have experienced a loss or significant decline in income due to the pandemic.
What forbearance relief is provided to homeowners under the CARES Act?
Under the CARES Act, eligible consumers with a “Federally backed mortgage loan” (as defined below) are entitled to certain forms of relief, including:
- Mortgage forbearance for up to 12 months.
- A prohibition on lenders/servicers charging additional fees, penalties or interest during the forbearance period.
- A moratorium on lenders/servicers initiating foreclosure actions for 60 days, until at least May 17, 2020.
- A prohibition on lenders/servicers reporting delinquencies related to forbearance to the credit bureaus.
How does forbearance work?
Forbearance reduces your monthly mortgage payment—or suspends it completely—during the forbearance period. If you qualify, you and your lender / servicer will discuss the terms, such as:
- The length of forbearance period
- The new, reduced payment amount (if the payment is not suspended)
- The terms of repayment
Does a forbearance mean I don’t have to pay my mortgage?
There are no “free” mortgage payments offered by lenders or servicers. Forbearance is really a last resort. While forbearance may be an option to help you through this crisis, remember, once your forbearance is over, any partial or paused payments will need to be paid in full. It’s important to contact your lender / servicer prior to missing a mortgage payment so you can work with them to establish a payment solution that works for you. Our best advice is to save a forbearance option until you need it most.
Am I eligible for forbearance?
You are eligible for CARES Act forbearance relief if you have a “Federally backed mortgage loan”, which is a loan that:
- Is secured by a mortgage or lien on a residential real property (including an individual unit of a condominium or cooperative) that is designed principally for occupancy by 1 to 4 families
- Has been purchased or securitized by Fannie Mae or Freddie Mac or insured or guaranteed by FHA, VA, or USDA
- Affirm to your lender / servicer that you are experiencing a financial hardship during the COVID19 emergency
- If you are not certain whether you qualify, you should contact your lender/servicer.
How long does forbearance last?
If you qualify for a forbearance, you’ll be able to reduce or pause your mortgage payments for the agreed upon forbearance period as permitted under the CARES Act, and as agreed between you and your lender/servicer. If you get to the end of your forbearance period and are not ready to start making your full mortgage payment again, you can extend the forbearance period, up to a maximum of 12 months total. You may at any time choose to shorten the forbearance period. After the forbearance plan ends, you will need to work with your lender / servicer to implement the repayment plan that is agreed upon.
If I skip a mortgage payment will it affect my credit score?
If you skip a mortgage payment without a forbearance plan in place with your lender/servicer, your mortgage payment will be reported as late. However, if you request and are eligible for a forbearance plan under the CARES Act and you have not been previously delinquent, your lender/servicer will not report missed payments during the forbearance period as late payments. If your mortgage was already delinquent at the time you requested forbearance under the CARES Act, the lender/servicer will continue to report your mortgage as delinquent until the prior past due balance is brought current.
What will happen after the forbearance period ends?
At the end of the forbearance period, you’ll need to pay the mortgage amounts that were reduced or suspended during the forbearance period. Your lender/servicer will help you determine the best option for you, which may include:
- Repayment Plan – you pay an extra amount to be added to your regular mortgage payment until the amount you owe from forbearance is paid in full.
- Lump Sum Payment – you pay the full amount owed in one lump sum payment.
- Loan Modification – if you are unable to pay a lump sum or additional amounts with your regular mortgage payment, your lender/servicer may offer other options and may work with you on a loan modification – which may include extending the end of your loan to give you additional months to pay the forbearance amount.
If or when I skip a mortgage payment in connection with a forbearance plan, will those payments simply get added to the end of my mortgage?
You should not assume that these mortgage payments will simply be “tacked onto the back” of your mortgage. While this may be a possibility, it is not guaranteed by all servicers/lenders. Not all lenders/servicers are issuing the same types of agreements with regard to forbearance. The options discussed in the question above may not be available through all lenders/servicers. If you must enter into a forbearance arrangement with your lender/servicer, it is very important that you discuss and
understand the options offered by your lender/servicer and fully read, discuss, and understand all of the terms of any forbearance agreement for the option you select.
If I am able to pay, but am concerned about my future financial position either related to health or employment reasons, should I skip my mortgage payment?
You should not simply stop paying your mortgage payments. You must have a forbearance agreement in place with your lender/servicer for these payments to not simply be reported as late payments. Moreover, keep in mind that while you are skipping your payments, regular interest continues to accrue on your mortgage – while forbearance may provide temporary relief at the end of the forbearance period you will remain responsible for the entire balance of your missed principal, interest, taxes and insurances normally collected by your lender.
Why forbearance and not payment forgiveness?
Most mortgage servicers collect payments on behalf of major mortgage investors like Fannie Mae, Freddie Mac, FHA, VA, USDA, and others. These mortgage servicers are typically contractually obligated to remit all or a portion of scheduled borrower mortgage payments to these investors, even if the borrowers are unable to pay their mortgage or fail to pay.
Should I consider a forbearance?
I recommend that you speak with your lender/servicer and consult with any legal and financial advisors you may work with to better understand how forbearance works, whether you are eligible for the CARES Act forbearance relief and how forbearance may impact you. If you are in a situation where forbearance cannot be avoided, it is extremely important to contact your lender/servicer BEFORE you skip or miss any payments to discuss what options are available to you and satisfy the CARES Act requirements for forbearance.
Is forbearance the right option for me?
If you are eligible for a forbearance under the CARES Act, forbearance may be right for you if:
- You have lost work due to the pandemic.
- You are sick and can’t work.
- You are caring for a sick family member and therefore can’t work.
- You have experienced a significant decline in income due to the pandemic.
Does forbearance excuse all payments?
No. While forbearance may be a great option to help you through this crisis, once your forbearance is over, any paused or reduced payments will need to be paid in full. You will need to work with your mortgage lender/servicer to find a payment solution that works for you, but it’s likely best to save this
option until you need it most. If your payment is due at the beginning of the month, you have time to decide what you are going to do. You can begin the process by contacting your lender/servicer via phone or online (if they offer that option).
Will I be charged late fees or interest for pausing my mortgage payments during forbearance?
No. During your forbearance, all late fees will be waived, and no additional “default” interest will be charged. Only your regular principal and interest payments will be due at the end of the forbearance, as well as any outstanding escrow payments.
I am on forbearance, why did my lender send me a notice of delinquency?
Since you are not making payments during a forbearance, your loan is technically delinquent. Lenders are legally required to send you certain notices about your delinquent status. Keep in mind, you will not be charged late fees and your lender will not report your delinquency to credit agencies during the forbearance period, nor will your lender begin any foreclosure proceeding while the forbearance plan is in place.
Note: Please don’t stop making your mortgage payments until you’ve been approved for a forbearance plan. These programs are not payment forgiveness programs. They’ll require any paused payments to be repaid, so save these options for when you need them most.
Look Out for Scams
Criminals often take advantage of situations like these to impersonate companies, charities or government agencies. Keep an eye out for suspicious looking or sounding emails, text messages, or phone calls.
I hope you found this summary and the FAQs helpful. As an industry, there are a lot of individuals working diligently together with our agency partners, and other federal authorities, to urge them to make the best programs available for homeowners like you. Please check back regularly for updates. I wish my clients, friends, and family the very best during these difficult times.
All information provided in this publication is for informational and educational purposes only, and in no way is any of the content contained herein to be construed as financial, investment, or legal advice or instruction. Guaranteed Rate, Inc. its affiliates and subsidiaries disclaim all warranties and do not assume any liability for the information contained herein, be it direct, indirect, consequential, special, or exemplary, or other damages whatsoever and howsoever caused, arising out of or in connection with the use of this publication or in reliance on the information, including any personal or pecuniary loss, whether the action is in contract, tort (including negligence) or other tortious action.
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