COVID-19 Mortgage Forbearance

sebfreyDistressed Owners, Mortgage

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With the global COVID-19 pandemic, many people have suffered reduced income – for many, income has gone down to zero. The response from the U.S. Government has been substantial, and the CARES Act, enacted in March of 2020, provides relief for many taxpayers. The CARES Act also provides for COVID-19 mortgage forbearance for many borrowers, and we will explore how that works in this article.

Please bear in mind that this is a very fluid situation. COVID-19 mortgage forbearance is new, and it’s rapidly evolving. What is true today may not be true tomorrow.

Update May 19, 2020: the rules have changed in favor of those receiving forbearance. This article (and video) mention that conventional loan borrowers need 12 months in a row without a missed or late payment. The new guidelines say that if you have been in forbearance but have made at least 3 on-time payments since exiting forbearance, you can then refinance your mortgage or get a new one. See this article on CNBC.

COVID-19 Mortgage Forbearance Presentation Video

COVID-19 Mortgage Forbearance Zoom Meeting – May 14, 2020. Download the slides here. Thanks to Victor Romero for joining me on the presentation!

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What is Mortgage Forbearance?

Mortgage Forbearance is a temporary freeze on your mortgage payments. Your Loan Servicer Must Agree to the Forbearance. A Servicer is the Bank/Lender/Company that collects loan payments.

What does Forbearance mean under the CARES Act?

Borrowers are entitled to a temporary freeze of mortgage payments up to 180 Days – if you say have been impacted by COVID-19. No documentation is required to prove you have been impacted. Please know that many servicers will only initially offer you 90 days of forbearance.

How do I know if I Qualify for Mortgage Forbearance?

You must have been affected by COVID-19. Next, your loan must be owned by Fannie Mae, Freddie Mac, or Ginnie Mae. That covers about 90% of residential mortgages – conventional loans, FHA, VA, USDA loans. Jumbo Loans / Private Loans are NOT automatically covered. You cannot be later than 31 days on your mortgage before applying.

How do you know if your loan is owned by Fannie Mae or Freddie Mac? Please check the Making Home Affordable web site for instructions on how to check this.

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Will Mortgage Forbearance affect my Credit?

The simple answer is it shouldn’t affect credit scorebut there will be indications on a credit report. Under mortgage forbearance, your loan servicer is required NOT to report you Late. Your credit report will reflect no mortgage payment history. Currently, this impacts your ability to refinance or obtain a new mortgage

How does Mortgage Forbearance Work?

If you’ve been impacted by COVID-19, contact your loan servicer. Your loan servicer will ask you if you’ve been impacted by COVID-19. Remember:  no documentation required to prove impact. Your servicer will then provide the forbearance options available. Once you’ve selected your forbearance option, the servicer will send documentation for you to sign (usually via US Mail)

How Long does Mortgage Forbearance last?

Currently, up to 180 Days. There is “talk” of extending this an additional 180 days, but much will depend on economic impact of COVID / Shutdown.

Will Forbearance Impact my Financial Future?

According to the CARES Act, your credit score should not be Impacted – but there’s more to your credit profile than simply a score. Forbearance may impact your ability to get new mortgage credit (i.e., to refinance or buy a new property using a mortgage). On May 13th 2020, the FHFA announced an option to repay at end of loan. Servicers are to begin offering this on July 1, 2020

Missing mortgage payments should not affect your ability to obtain other consumer credit. However, current conforming home loan guidelines require that the borrower must have at least 12 months without any missing payments.

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Should I Apply for Forbearance if I Don’t Need It?

The CARES Act mortgage forbearance was intended for individuals affected by COVID-19. If you plan to refinance or obtain a new mortgage, you should NOT apply.

Do Borrowers pay Extra interest if they get a Forbearance?

This is to be determined. The CARES Act did not say how servicers are to handle missed payments. Servicers currently say entire amount is due at the end of the forbearance period. GSEs (government-sponsored enterprises, i.e. Fannie Mae, Freddie Mac, etc.) are rolling out guidance with options on repaying the forbearance. Options may include adding missed payments to the back of loan as a modification, spreading out the missed payments over time, or requiring the borrower to repay all the missed payments in one sum at the end of the forbearance period.

Can you Refinance your Mortgage during Forbearance?

No. Will have to wait for 12 months after starting mortgage payments

Are Rental Properties or Second Homes eligible for Forbearance?

Yes they are. Even if tenants are still paying rent, you can still apply for mortgage forbearance.

What if I need forbearance longer than I’m given?

Most servicers say you may be able to get another 6 months after the initial 180 days is up. After you are out of forbearance, and if you need more help you will need to do a Loan Modification. With a loan modification, you will need to negotiate directly with your Servicer to re-amortize your loan including missed payments. Please be careful to avoid scam loan modification consultants! You will want to negotiate any loan modification personally.

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