Your Mortgage Forbearance Is Over. Now What?
I hope you are doing as well as possible during these challenging times. For this week’s newsletter, I want to focus on COVID-19 forbearances for federally-backed home mortgages and how to make sure you protect yourself when the total forbearance amount comes due.
About 75 percent of all home mortgages in the United States are backed by the federal government. This includes Fannie Mae and Freddie Mac loans as well as loans backed by the Veterans Administration (“VA”) and the Federal Housing Administration (“FHA”).
Wandering if your home loan is federally-backed? CLICK HERE to find out if your home loan is federally-backed by typing in your property address.
If your home loan is federally-backed, under the CARES Act, you are entitled to postpone your mortgage payments for up to 360 days if you have been impacted financially by the COVID-19 pandemic. This is called a forbearance. You would contact your mortgage company to apply for the federal forbearance program.
Remember, a forbearance simply means the payments are being postponed, not forgiven. You will eventually have to make the payments, which is where I turn next. What are your options when your forbearance comes due?
Option 1: Request Forbearance Extension
If your home mortgage is federally-backed and you have been impacted by the COVID-19 virus, you have the right to a 180 day mortgage forbearance and to request an extension of another 180 days for a total of 360 days.
Option 2: Make All Payments At Once
When your forbearance plan comes to an end, you have the right to pay all of the past due payments at one time. For most folks, this will not be a realistic option. If it is possible for you, consider this option as it can save you money on accrued interest and will catch you up on your mortgage right away.
Option 3: Loan Modification
You can also see if your lender can re-work your loan through a mortgage modification where you would pay a little more each month to slowly repay those postponed payments. Sometimes with a mortgage modification you can qualify for a lower interest rate than what you have now. You would need to contact your mortgage company to apply for a modification.
Option 4: Put Postponed Payments At End of Loan
Important: if your home loan is federally-backed, the lender cannot force you to pay the postponed payments all at once when your forbearance expires. At a minimum, the lender must agree to place the postponed payments to the end of your loan. Remember: if you sell your property one day, these payments, which have now been placed to the end of your loan, would need to be paid.
When you receive notice that your forbearance is ending, remember you need to take action. You will either need the bank to agree to place the postponed payments at the end of the loan, apply for an extension of your forbearance, make all the payments at once, or apply for a modification of your loan. If you do nothing, the mortgage company will eventually declare you in default and file a foreclosure lawsuit against you.
Here's a few tips if you have applied for a mortgage forbearance:
Tip No. 1: Keep Written Documentation
Demand that your mortgage company mail or fax you written confirmation of your forbearance plan. If your mortgage company fails to update your account to reflect the forbearance plan, you may need to use these written records later.
Tip No. 2: Keep An Eye On Your Mortgage Statements
I am afraid the large mortgage servicers may not have systems in place to quickly update homeowners’ mortgage accounts to reflect these forbearances, so keep an eye on your monthly mortgage statements. If the statements do not reflect that your account is under forbearance, call your mortgage and make sure your forbearance plan has been put into place.
Tip No. 3: Stop Auto-Payments for Your Mortgage
If your mortgage payments were deducted automatically from your checking account prior to the forbearance, make sure to remove yourself from auto-debit or the mortgage company will keep debiting your checking account.
Tip No. 4: Make Sure Taxes and Insurance Are Paid
If you pay your taxes and insurance separate from your mortgage payment, make sure to keep up with your taxes and insurance, if this is possible for you. If you do not, the lender most likely will pay for them and the expenses to your loan. Often the force-placed insurance policy the lender will put on your home is much more expensive than the policy you would get on your own.
Tip No. 5: Make Sure To Keep Your Homeowners Association Paid
Even if you are on a mortgage forbearance, please do everything in your power to keep your homeowner’s association or condominium association assessments paid. They can foreclose on you for past due assessments and these can be much more difficult to defend against than mortgage foreclosure cases.
Tip No. 6: Keep An Eye On Your Credit
Head over to www.annualcreditreport.com and pull your free credit reports. Due to the pandemic, you can now pull free credit reports (one from each bureau – Equifax, Experian, and Trans Union) once a week. If you were current on your mortgage before the pandemic and you are now on a mortgage forbearance, the mortgage company must continue to report you as current.
If you were already falling behind on your payments prior to the pandemic and you are now on a mortgage forbearance, your mortgage company is permitted to report that you are on a forbearance. If you were current on your mortgage payments prior to the pandemic and you are now on a mortgage forbearance, the mortgage company is required to report the covered payments as current and is not permitted to report the payments as late or delinquent.
If your mortgage company is illegally reporting you as delinquent while you are on a forbearance agreement, CLICK HERE for helpful information from the Consumer Financial Protection Bureau (“CFPB”) on how to properly dispute this information on your credit reports.
I hope the information in this newsletter may be helpful to you and your family. Thank you for reading! Have a wonderful Sunday evening.
Ryan C. Torrens
Consumer litigation attorney