Forbearance Update - May 2020

As many communities are starting the journey out of 'stay a home' and return to opening the economy, we understand many of our clients, friends, and neighbors are struggling financially either through layoffs, furloughs, or reduced income. Here's an overview of where we stand with economic support for homeowners today:

Forbearance - the vast majority of all mortgages in the US are eligible for 3 to 12 months of forbearance simply by contacting your mortgage company/servicer and informing them you are experiencing distress. This will pause your payments without incurring fees or penalties, and avoiding negative reporting on your credit*.

Getting Out of Forbearance - Fannie & Freddie (the underwriters of the majority of conventional mortgages) directed their servicers to offer borrowers alternatives to the balloon/lump-sum payments due at the end of forbearance. As borrowers approach their final month of forbearance, they are directed to call and update their servicer on their situation to determine the next steps. It is likely, the servicer will ask for verification of financial circumstances including income and asset documentation as they explore these several options:

Extension - if the borrower is still in financial distress and has not exceeded 12 months of forbearance, they may be offered an extension of the forbearance.

Payment Plan - if the borrower is able to pay their mortgage at the end of the forbearance period, and is able and/or willing to expedite making up the missed payments during forbearance they may be offered a payment plan which would allow them an extended period of time to pay back the missed payments while still maintain the 'current' status of their loan and avoiding fees and penalties.

Deferral - if the borrower is able to pay their mortgage but unable to expedite the payback of the missed payments, they may be offered deferral of the payments to the end of the mortgage period.

Modification - if the borrower is unable to pay their full mortgage due to reduction in income and they do not expect to see an increase in income in the near future, the servicer may offer loan modification which may reduce the borrowers' payment so the borrower can avoid foreclosure and/or credit damage.

Balloon Payment - if none of the other options are applicable to the borrowers' circumstances, they may be faced with needing to make a balloon payment at the end of the forbearance. However, all the information we are reading and hearing at the moment is indicating servicers will try to avoid this for borrowers who are unable to make such a payment.

Forbearance Is An Emergency Tool Only
It should be noted, forbearance should only be used as an emergency tool as it can increase the risk of credit damage and foreclosure for borrowers who build up a substantial sum of missed payments. If you are experiencing financial distress, this can provide you many extra months of postponing the need to deal with the issue with your mortgage company. This may buy you time to restore income, in which case working out terms with your mortgage company is likely. However, if financial distress persists you could face the need to sell, short sale, or work through foreclosure.

While this tool might be used tactically to preserve cash and cash flow, the risks are substantial and not advisable.

Questions? Help?
If you are experiencing financial distress, and have questions or need help, please give us a call. We'll answer your questions in confidence and provide you with strategies to make the best of your situation.

*Credit Issues - while mortgage companies may not report negative information to credit bureaus about borrowers in forbearance, they may report no payment being made or due. While this is not negative information, it may be seen by credit bureaus and credit underwriters for lenders, banks, and other financial institution as a concern which could affect credit scoring or availability.