If you've been impacted financially by Covid-19 and the stay-at-home mandate, you're not alone.
As the headlines clearly show, millions of hard-working Americans who previously had stable jobs are now facing unemployment.
While the state and federal governments are making direct, monetary assistance available in various forms (unemployment payments, Payroll Protection Loans, Economic Impact Disaster Loans, etc.), homeowners who have difficulty making their monthly mortgage payment should explore the option of forbearance.
Forbearance, or better known as loss mitigation, is a program that has been available to distressed homeowners that currently have federally-backed mortgage, but one that few borrowers explore.
This option saw an increase up to 6.4% of homeowners as of April 24th, from a 0.25% participation rate back on March 2nd. This amounts to approximately 3.4 million homeowners who are taking advantage of this relief option at this time*.
We wanted to share what we know about this option to help you figure out if this is the right option for you and your family.
And listen. We totally get it if you're not wanting to think about this right now. No problem. Bookmark our page and we'll update it as more information is available.
But just like it can be intimidating to get on the scale the first morning back after vacation, we don't want you to fear what may be a scary first-of-the-month reality check with reduced or threatened income.
So here are a few questions and answers that we're hoping may help you understand the forbearance process. If after reviewing this and watching the video, you have any unanswered questions, please reach out. We will do our best to help you navigate this new reality. We may not know the answer but we know lots of smart people who probably do. ;)
You can text, call, email or message us any time, and please know this is a 100% judgement-free zone, ok?
So let's get to the most frequently asked questions.
Q: What IS mortgage forbearance?
A: Mortgage forbearance, or loss mitigation, is a temporary pause of mortgage payments to the lender or mortgage servicer.
Q: How do I know if I qualify?
A: The best way to see if you qualify is to call your servicer directly to discuss their process regarding forbearance or lost mitigation. Not all service providers are created equal.
However, if you have been impacted by the Covid-19 outbreak and the subsequent economic downturn and your loan is financed with government support (about 70% of home loans are), you qualify.
Servicers are not requiring any documentation to prove your impact at this time. You are basically on the "honor system".
If you need to know who "owns" your loan, you can ask your servicer. If your mortgage docs indicate your loan was issued or insured by USDA, FHA or VA, that's a good sign. You can also look it up on Fannie Mae or Freddie Mac's website to see if your loan was purchased on the securities market after your closed on your home or refinance (hint: it probably was). If your loan is held privately by a bank, you will want to contact the bank directly.
Q: So is this like "free money"?
A: No, no, no! Please don't get confused or be scammed by someone offering to get you a free pass from your mortgage in exchange for a fee. The money that is not paid during the forbearance period will have to be repaid in some way. And from what our lender colleagues are saying, they strongly advise only seeking out this option as a last resort.
Q: What are my repayment options?
A: Options will vary by lender and mortgage servicer. But here are some options that may be offered to you:
- Lump sum payment due at the end of the forbearance period.
- Repayment plan based on your situation after the initial 3 month period.
- A loan modification plan.
- A possible extension of the forbearance plan after the initial 3 month period.
Per the Consumer Financial Protection Bureau (CFPB), "if and when your income is restored, reach out to your servicer and resume making payments as soon as you can so your future obligation is limited."
Q: What might some other options be for paying my mortgage while my income is off?
A: If you have savings, an emergency fund, or money saved in an IRA or 401-K, you may be able to withdraw those funds with reduced penalties and use them to pay your mortgage. If you have an equity line of credit, you could consider tapping that or speak with a relative about a short-term personal loan. Is there something you can sell that would help cover the cost for another month or more? Of course, a financial advisor will be able to help you brainstorm and compare the consequences of these possibilities.
Q: Does this hurt my credit?
A: The servicers are not going to report your payments as delinquent to the credit bureaus. A forbearance agreement could impact your ability to refinance in the future, so be sure to speak with a lender if you're thinking of refinancing or purchasing in the coming months. The CARES Act also created a moratorium on foreclosures. (Consult your servicer on this as the length of time may vary.)
Q: I think forbearance is probably the best option for me at this time? Whom do I call? What's my next step?
A: You're going to need to reach out to your mortgage servicer as soon as possible. This is the company to whom you send your payment every month. It is also likely the name on the top of your monthly mortgage statement. Check your printed statement or online account for information, or reference our list on our Covid-19 blog for the local and top national lender's and servicer's current mortgage assistance programs in light of the pandemic and economic crisis.
You will want to have your account or loan number, plus your social security number, and zip code on the account handy. You should not have to supply any other documents to demonstrate the financial hardship.
We want to reiterate from what we have heard on various real estate industry calls and learned from our friends in the lending community, that it is in your best interest to keep paying your mortgage if you can. Even if you can only afford a portion at this time, reach out to your lender and pay what you can, as this will minimize what you have to repay at the end. And if you can pay for 1-2 months now, but are worried about month 3, then wait until then to ask for the forbearance agreement.
Lastly, we wanted to share this informative 4-minute video produced by the CFPB. It explains the basics of a typical forbearance option and what to expect. We also want to share a link to the very detailed CFPB webpage with more valuable information.
We are here for you and wishing you all safety and blessings during this trying time.
*According to date by Black Knight, Inc. forbearance tracking data.