Annapolis Homeowners are joining other cities asking for breaks on mortgage payments, as millions of Americans face unemployment or reduced income because of coronanvirus pandemic. But requesting a temporary postponement of payments for your mortgage does require special attention to detail.
Federally-backed mortgage’s require loan servicers to offer forbearance
The CARES Act stimulus package requires loan servicers to provide forbearance in some form to any homeowner with a federally-backed mortgage. Americans with other mortgages may also be able to receive forbearance at their servicers’ discretion.
Requests for forbearance in Annapolis and greater Maryland have increased steadily over the past few weeks. Nationwide, Forbearance requests grew by 1,896% between March 16 and March 30, according to a Mortgage Bankers Association report. And before that, forbearance requests increased 1,270% between March 2 and March 16. Consumers are rushing to call their servicer in search of assistance and now call centers have been overwhelmed, leading to longer wait times.
Forbearance is not forgiveness – nothing is Free
To be very clear, mortgage borrowers are required to pay off their loan eventually if they receive any form of forbearance. Forbearance is not forgiveness. You still owe the money that you were paying, it’s just that there’s a temporary pause on making your monthly payments. Read into that a bit further and you may find out that Forbearance is not what you thought. Those payments that you defer are collected at a future date and then are due. So, for example you defer payments for 60 days. In July you would owe May, June and July’s mortgage payments. A tough pill to swallow.
Under a forbearance agreement, you can pause payments entirely or make reduced payments on their mortgage. Those with federally-backed mortgages are eligible for up to 180 days of forbearance initially according to the CARES Act. If you are still facing financial difficulty, you can request an extension of up to another 180 days.
Another addition from CARES is that mortgage servicers cannot make negative reports about the borrower in question to credit bureaus, including the three main ones, Experian, Equifax and TransUnion. Borrowers also will not owe any late fees or penalties if they are granted forbearance.
Dig out your Closing Documents
Struggling homeowners won’t automatically receive forbearance. You need to request it from your mortgage servicer – the companies who receive your monthly payments. A homeowner’s mortgage servicer isn’t necessarily the same as their lender — many lenders sell the servicing rights for mortgages to other companies. The first step to figure out who your servicer is would be to check your mortgage statement. If for some reason the information isn’t there, you can look it up by searching Mortgage Electronic Registration Systems website. Alternatively, you can check with Fannie Mae and Freddie Mac, if your loan is backed by one of them.
To qualify for forbearance, a borrower must have a mortgage backed by Fannie Mae, Freddie Mac, The Federal Housing Administration (FHA), The U.S. Department of Veterans Affairs (VA) or The U.S. Department of Agriculture (USDA).
Borrowers should avoid calling their servicers to find out if they’re eligible because they are all overwhelmed with volume right now. To find out if your loan is backed by the FHA, check the original closing documents or a recent statement. If you pay for FHA Insurance, then that agency is backing your loan. Alternatively, your closing documents should include a HUD statement with a 13-digit HUD number. Because the VA and USDA loan programs target specific borrowers, those borrowers should already know if they have loans backed by those agencies. In the event you are still unsure, you can call your servicer.
Be prepared to answer some questions
You don’t need to provide documentation to prove your financial hardship at this time, but your servicer may have some questions to determine how much assistance they will offer you. Think about these questions and be prepared to answer them. Why you can’t make your payments? Is the problem you are facing temporary or permanent? What is the current state of your income, expenses and other assets, including money in the bank? Are you a service member with permanent change of station orders?
It is important for you to indicate the exact nature of the hardship due to COVID-19 and ask about your forbearance options with the company servicing the mortgage loan. Ask how long of a forbearance you can qualify for as well as what their options are at the end of that forbearance period.
After a forbearance agreement is given to you from a servicer, you should discuss repayment options. You don’t want a surprise like finding out that six months of deferred loan payments are all due immediately upon the end of the forbearance. Most people simply won’t have six months’ worth of mortgage payments available.
Some servicers may offer to extend the term of the mortgage and tack on the missed payments at the end, so a 30-year mortgage would be extended by 4 months if that’s how much forbearance a borrower received. There is no mandate that a borrower must repay what they owe in missed payments in one balloon payment after forbearance.
Borrowers may also be offered the option to amortize the balance they owe over the life of the loan. This means they would repay a portion of the balance owed in addition to their usual monthly payments.
What if I am still struggling after receiving forbearance?
If you’re still in financial trouble after forbearance, consider a loan modification It’s too soon to tell whether 12 months of forbearance will be enough assistance for those who are among the millions of Americans who have lost their jobs in recent weeks. Financial experts agree that the most beneficial option for borrower out of work or impacted for an extended period is to request to modify the loan at the end of forbearance.
Unlike forbearance, a loan modification involves a permanent change to the details of the mortgage. This can include adjusting the interest rate, extending the duration of the loan or deferring the amount owed until the end of the loan as a separate lien. A servicer will determine whether or not a borrower qualifies for the modification.
Homeowners: You have options for your mortgage – but you might not get the full story
Most jobless homeowners are frightened by the thought of suspending their mortgage payments. Regardless of what a mortgage servicer says, the 70% of borrowers with federally backed loans won’t be on the hook to repay those missed payments all at once at the end.
But that’s not what many are being told when they call to get help with their monthly payments.
Many loan service companies are telling borrowers they can stop making payments for only up to three months and will have to repay it in a lump sum on the fourth month. Borrowers have many repayment options even though mortgage servicers aren’t discussing them up front.
Options to Consider
Extend the forbearance
Mortgage servicers are instructed to allow you to miss payments for three months at a time for one year. This requires you to make up to four separate requests and delays their ability to secure a repayment plan from one of the next four options. Always required to repay all of the missed payments in one lump sum. Most mortgage servicers know that anyone who skipped payments because they lost their income will be unable to do this.
Extend the loan by the number of missed months
This sends those missed payments to the end of the loan. This is called a deferral or extension – banks know this will be requested by most borrowers who emerge from forbearance with their previous incomes more or less intact. If they can’t afford to resume the same payments they were making before entering forbearance, they must be offered the ability to modify their loan.
Modify their loan
This is the reworking of the entire loan, including its length and interest rate to help affordability. The problem for you is that mortgage servicers have been instructed by loan guarantors – Fannie Mae and Freddie Mac – not to offer the repayment options when the customer first calls to request a forbearance. Servicers are told to follow a process where those options emerge only as the process moves forward.
Keep in mind now the options have really been expanded and improved. Unfortunately, that message — that you have options — is still not clear. It’s worth a call to your Lender to see what help is available – but you need to ask the right questions.