We previously talked about Forbearance as an option for anyone negatively impacted because of COVID-19. Forbearance is one of the most common options for those who cannot make their mortgage payments on time. Typically, once a loan is out of the agreed timeframe of forbearance, the borrower is expected to pay a “balloon payment,” or the total of all the payments missed plus the current payment. Fannie Mae and Freddie Mac have released their payment deferral plans to assist homeowners in forbearance.
Who is Eligible for Forbearance?
Freddie Mac states,
COVID-19 Payment Deferral will be available to homeowners with Freddie Mac loans starting July 1, 2020, at which time your servicer will begin evaluating your eligibility. Your servicer will contact you about 30 days before the initial forbearance plan is scheduled to end to determine which Freddie Mac assistance program is best or if additional forbearance is needed.
Fannie Mae offers three different options for borrowers who have entered forbearance:
- Homeowners who are experiencing a financial hardship caused by COVID-19 may request a forbearance plan through their mortgage servicer (the company listed on their mortgage statement). Homeowners must contact their mortgage company to request assistance. Under a forbearance plan, a homeowner may be able to temporarily reduce or suspend their mortgage payment while they regain their financial footing. Forbearance does not mean a homeowner’s payments are forgiven. Homeowners are still required to eventually fully repay their forbearance, but they won’t have to repay it all at once — unless they choose to do so.
- Homeowners have several options to pay back unpaid amounts accrued during their forbearance period. Mortgage servicers will attempt to contact homeowners 30 days before their forbearance plan is scheduled to end to determine which assistance program is best for them at that time.
- Full repayment: Homeowners have the option of immediately reinstating their loan, which means catching up on all the missed payments in a single payment if they can afford it. If a homeowner chooses to reinstate their loan, they can continue to pay their mortgage under the terms originally agreed to before they received forbearance.
- Short-term repayment plans: Homeowners can gradually catch-up on the past-due amount over an agreed-upon time frame (for example, 3, 6, 9, 12 months). A portion of the past due amounts must be paid in addition to their existing monthly mortgage payments. Upon completion of their repayment plan, they can continue paying their mortgage under the terms originally agreed to before they received forbearance.
- COVID-19 payment deferral: Homeowners can resume their regular monthly payments and the amount of their missed payments moves to the end of the loan term. Note: Mortgage servicers will begin offering the payment deferral repayment option starting July 1, 2020.
- Loan modification: The original terms of the loan are changed in order to make the borrower’s monthly payments more manageable and address their ongoing hardship.
Now that there is more explanation regarding ways to enter and come out of forbearance, we still want to caution borrowers to only enter in forbearance if a true economical hardship due to COVID-19 has occurred and you can no longer make your mortgage payments. Mortgage forbearance will go on your credit history, and it is still unclear if a mortgage forbearance will impact a person’s credit score, or by how much if it does.