For many people, the month of February 2021 will mark the end of their mortgage forbearance under the CARES Act. This leaves many questions about how to manage missed payments and what will happen if someone cannot pay those accumulated amounts. This article will help explain the choices people have to manage their mortgages.
Before we dive deeper into the options, it is important to understand the difference between the loan servicer and the loan guarantor. The servicer is the company who manages the loan and performs other services in connection with the mortgage. It is the business to whom the homeowner makes payments.
The loan guarantor, in these cases, is the government agency insuring the mortgage. These are called Government Sponsored Enterprise (GSE) backed mortgages (FHA, VA, USDA, Fannie Mae, Freddie Mac). Essentially, they make the rules about how the mortgages they insure should be handled. Loans backed by these GSE’s have special protections under the CARES Act.
Skipped or Missed Payments
As a homeowner, it is important to reach out to the servicer before the forbearance period ends. In most cases, the loan servicer (the company that payments are made to) will also reach out at least 30 days before the end of the forbearance. The goal is to help people decide on the best method of resolving the missed payments.
Homeowners, who received a forbearance under the CARES Act and have mortgages backed by a GSE, are not required to repay their skipped payments in a lump sum once the forbearance period ends.
Typically, there are a few ways borrowers can make up their missed payments and those depend on the type of loan that they have. In general, there are four options: a repayment plan, a deferral or partial claim, a modification, or a reinstatement.
A repayment plan can be helpful for someone who can make extra payments. If the mortgage payment is normally $1,000 and the person missed two months of payments, they would owe a past amount of $2,000. A repayment plan may have them make payments of $1,500 for four months and then the payments will return to normal.
A deferral or partial claim may be an option for someone who can resume regular payments but cannot afford to increase their payments. These options will either move the missed payments to the end of the loan or put them into a junior lien repayable when the owner refinances, sells, or terminates their mortgage.
A modification might be right for someone who can no longer afford to make their regular mortgage payment. The payment can be reduced to an affordable amount and the missed payments will be added to the amount owed. While this can make the loan more affordable it will, most likely, extend the length of the loan.
Finally, a reinstatement (lump sum) payment might be an option for someone who can repay the missed payments all at once. For most loans, servicers cannot require a borrower to pay a lump sum. If that is the only option offered, press the servicer for alternatives.
Just as forbearance may differ between the federally backed agencies or entities, so does the repayment of the forbearances. The following information, from the Consumer Financial Protection Bureau, provides some of the specific repayment options offered by each agency.
Click on your GSE to see options for those loans.
Non-Federally Backed Loans
Check with your loan servicer for the forbearance repayment options offered. You may be able to find information about forbearance programs by checking the websites of your lender and servicer for more detailed information. Be sure to inquire about what limitations, options, and fees may apply to repayment of your loan because it is not federally-backed.
For more information and assistance in working with a mortgage servicer, contact a U.S. Department of Housing and Urban Development (HUD)-approved housing counselor. Counselors will discuss the forbearance process, repayment options, and homeowner rights. In Washington State, contact American Financial Solutions. Outside of Washington visit the HUD Housing Counseling Website to locate a counselor.