The phrase “forbearance” has been mentioned a lot lately because of the Coronavirus Aid, Relief and Economic Security Act, which was crafted by the federal government without much explanation of how it works.
I will break down the mortgage forbearance requirements in the CARES Act and how you might be affected by doing a forbearance before you sign on the dotted line for the payment relief. This affects Federal Housing Administration, Veterans Affairs and conventional loans backed by Fannie Mae and Freddie Mac.
A forbearance is a temporary measure in which a mortgage servicer makes an agreement with the homeowner to suspend payments for a specific period of time. Because it is an agreement solidified in writing, there are no late fees or penalties assessed during the forbearance period.
During a forbearance the loan terms, such as interest rate and payment due date, are not changed. The forbearance agreement allows you to make up the payments and accrued interest at a future date.
Typically, doing such an agreement would affect the homeowner’s credit rating because the payments would not be made on time, but the federal government has made it part of the CARES Act that if the owner has a certain loan type, he or she will not be penalized on a credit report for a forbearance.
As part of CARES Act, which is intended to help Americans recover from the effects of COVID-19 outbreaks on the economy, loan servicers were asked to provide the following to the mortgage consumers:
■ Borrowers be eligible for the forbearance regardless if the home is a vacation property, investment property or primary residence.
■ Waive or suspend assessment of penalties or late fees.
■ Suspend foreclosures, evictions of borrowers (dates vary).
■ Offer loan modifications.
■ Offer payment relief by providing forbearance for up to 12 months.
All of those offerings are a phenomenal way to gain relief during this unprecedented time. But there are things you should be aware of before you sign. The CARES Act did not provide a universal method how forbearances must be done, and your forbearance might be different than someone else’s depending on who services your loan.
A forbearance putting May and June’s payments off until you are back at work in July might mean that in July you owe payments in a lump sum for those months plus July at once. Some companies may give you until the end of the year to make up missed payments, and some may add them to the end of the loan. There is no required universal method for mortgage servicers to follow, so you must be diligent in understanding what you are offered before you accept.
Please be aware of what you are signing so it doesn’t turn into something that causes you more harm than good. Everyone who has the ability to pay your current payments should do so.
If you do a forbearance, please read the terms to be sure you can resume the payments as agreed. If you are not sure what the terms are, have your Realtor or someone close to you to review it with you to be sure you understand before you sign. To everyone during these times: Stay healthy, safe and Vegas Strong.
Mosi Gatling is a sales manager at LoanDepot, 2590 Nature Park Drive Suite 125, North Las Vegas, 725-605-7402, MGatling@loandepot.com, NMLS No. 557166.