The mortgage F-word of the day is Forbearance

Forbearance is that mortgage F-word of the day. It’s simply a fancy legal term for the agreement between a borrower and their mortgage servicer/lender that allows a homeowner to make less than the required monthly payment or possibly no payment for an agreed-upon period of time.

As part of the recent Coronavirus Aid, Relief, and Economic Security (CARES) Act, borrowers who have “Federally backed mortgage loans” now have the right to get approved to make reduced mortgage payments or no mortgage payments for up to 180 days if they are experiencing a financial hardship due to the COVID-19 emergency.

An additional 180 days of forbearance can be requested and approved after the initial 180 days if the financial hardship continues.

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No mortgage payments for up to 12 months. Sounds great, right?

Well, before you say the new F-word to your mortgage service, consider the following important details:

  • The total amount of any delayed or partially-delayed payments under an approved forbearance plan must still be paid back.  How fast? As quickly as possible as determined by the borrower’s loan servicer, typically in addition to resumed regular mortgage payments once the forbearance period has ended.

  • Unlike federal student loans, the reduced or delayed mortgage payments DO NOT automatically get added to the end of the mortgage loan. Mortgage forbearance is not FREE or painless, but it can be an essential short-term solution.

  • What is a “Federally backed mortgage loan”?  It’s a mortgage loan purchased, securitized, insured, or guaranteed by certain federal agencies, including FHA/HUD, USDA, Veterans Affairs, Fannie Mae or Freddie Mac.

  • If you have a jumbo loan (a loan amount that was too large at the time you closed to qualify for sale to Fannie Mae or Freddie Mac) or a loan that your mortgage lender has kept in their portfolio, your loan is not eligible for the forbearance relief offered by the CARES Act. But your lender may still offer other forbearance options if you have a financial hardship.

  • Not sure what kind of loan you have?  Take a close look at your monthly mortgage statement or to see if Fannie Mae or Freddie Mac actually own your loan even though you’re making payments to XYZ company, you can lookup your loan at:

  • If you are in the process of getting a new loan to either refinance an existing loan or buy a home, the new loan you close will not be a federally-backed mortgage loan until such time as it is purchased, securitized, insured, or guaranteed FHA/HUD, USDA, Veterans Affairs, Fannie Mae or Freddie Mac. It typically takes several weeks before a newly closed loan becomes federally-backed and therefore eligible for the special forbearance rights provided by the CARES Act.

  • Currently, Fannie Mae and Freddie Mac will not purchase a new loan from an originating lender if the borrower has requested forbearance prior to Fannie Mae or Freddie Mac’s purchase of the new loan. So for that time period between your closing date and the date your loan actually becomes federally-backed, asking for forbearance could actually back-fire because your new loan would never become federally backed and therefore not covered by the CARES Act.

  • If you are already in a forbearance plan, request forbearance or enter into a new forbearance plan on any mortgage while you’re applying for a new mortgage, that new mortgage loan will almost certainly be denied. That’s because you’re claiming a financial hardship to some other mortgage lender that keeps you from making the full payment on that loan.

The federal government’s Consumer Finance Protection Bureau’s (CFPB) web site on this topic advises: “If you can pay your mortgage, pay your mortgage.” More information from the CFPB on forbearance is available at:

https://www.consumerfinance.gov/about-us/blog/guide-coronavirus-mortgage-relief-options/

As helpful or confusing as this blog post has been, Accunet Mortgage LLC cannot give any homeowner advice on how to navigate any forbearance request or decision. So please don’t ask.