April 8th, 2020 12:39 PM by Jackie A. Graves, President
Homeowners across the country are seeking mortgage forbearance as
unemployment numbers continue to rise amid the coronavirus pandemic.
Mortgage forbearance requests have poured in, increasing by a
staggering 1,896 percent between March 16 and March 30, according to the Mortgage Bankers Association‘s Forbearance
and Call Volume Survey. Forbearance simply means the lender allows
you to pause payments due to financial hardship.
While this relief is immediate and necessary, many worry about
repaying what they owe once the forbearance period ends. It’s important to keep
in mind that borrowers are responsible for repaying the full forbearance amount
as well as interest on the payments that were put on hold. However, there are
no penalties and forbearance will not affect your credit
If forbearance is the best route, the good news is that there
are several repayment options, but that depend on who owns your loan.
Here we’ll go through the basics about repaying what you owe
after the mortgage forbearance period ends:
The first step in knowing what your mortgage forbearance
repayment choices are is to know who owns your loan.
There is a difference between who services your
loan and who owns it. A mortgage servicer is in charge of the
administrative aspects of your loan, such as receiving your monthly payment,
handling escrow accounts, getting copies of your statement and other similar
tasks. You might have a loan serviced by Wells Fargo, but owned by Fannie Mae.
One easy way to find out who owns your loan, as well as what options are
available to you, is to ask your service provider.
The loan owner is in charge of forbearance options, which is why
it’s so important to know who that is.
As of now, borrowers with government-backed mortgages are
allowed a maximum 12 months of mortgage forbearance under the Coronavirus Aid,
Relief, and Economic Security (CARES) Act. These are home loans owned by Fannie
Mae or Freddie Mac (which make up about half of all mortgages in the U.S.); or
insured by HUD, the VA, or the USDA.
You can find out if Fannie Mae or Freddie Mac own your mortgage
For borrowers whose mortgages are backed by private entities,
the forbearance plan varies depending on the lender. Bank of America, for
example, is automatically offering deferrals until the coronavirus is over,
says a Bank of America spokesperson.
There are many states that have implemented relief plans, which
include help for homeowners. So, be sure to check your state government’s
website to get current information on homeowner relief.
Repayment options also differ depending on whether you have a
government-backed mortgage or a mortgage owned by a private lender, such as
Bank of America or Quicken Loans.
For borrowers with Fannie Mae- or Freddie Mac-owned loans; or
insured by HUD, the VA, or the USDA, there are several ways you can handle
paying back what you owe.
If you take the full forbearance allowed, you can defer mortgage
payments up to a year, which means you’ll have to repay one year’s worth of
mortgage and interest. Here are the different types of repayment plans
A lump-sum payment means that you would pay back the entire
amount you owe in one lump sum. This is an option, but certainly not mandatory.
And it may be impossible for folks who have come off of a spell of unemployment
to come up with the cash, which could be tens of thousands of dollars.
Short-term repayment plan
A short-term repayment allows you to repay your forbearance
amount over the course of six months. For example, if you postpone mortgage
payments for five months and your monthly mortgage payment (including interest)
is $1,000, then you owe $5,000. That amount would be divide by six, which is
$833.33. So, when you resume making monthly mortgage payments of $1,000, you
would also pay $833.33 for six months until your mortgage is current again.
This repayment plan extends your mortgage term by taking the
amount you owe and tacking it on to the back of your loan. For instance, if
before your forbearance you had 15 years left on your loan and you postponed
payments for five months, your new term would be 15 years and five months. This
option changes no part of your loan except for the term.
A flex modification is designed for borrowers who can’t afford
the mortgage at their current interest rate and/or term. If this is
the case, your lender will work with you to modify your loan so that it’s
affordable for you. The possibilities for this are many, and so are the
implications, so tread carefully here and consider seeking professional advice.
For borrowers who can’t afford insurance or taxes (which are
often paid through escrow accounts funded by borrowers), the
lender will make these payments on your behalf during the forbearance. After
the forbearance period is over, the amount the lender paid would be applied to
your principal balance and the term would be extended. In this instance, if a
lender paid $5,000 in escrow payments and your balance is $100,000 over 30
years, your new balance would be $105,000 with a new term of 30 years and six
Borrowers with privately-owned mortgages are not covered under
the CARES Act. However, government entities are encouraging lenders to work
with their customers on manageable repayment plans.
And most lenders are motivated to offer consumers repayment
options that they can afford. Some lenders, like Bank of America, are
automatically tacking the amount owed to the back of the loan. This way borrowers
can resume paying their mortgage without having to worry about extra charges or
larger monthly payments. That said, borrowers still have the option to make a
lump sum payment to bring the mortgage current.
Since each lender is different, borrowers should talk to their
lender as soon as possible about the types of repayment programs available to
them. Knowing what your options are can help you come up with a plan of action
It’s doubtful, according to many mortgage experts, that private
lenders will only offer lump-sum options. Borrowers can expect to have some
kind of long-term repayment solution available to them.