What to Do When You're Coming Off Forbearance



The forbearance protections in the CARES Act are coming to an end. The forbearance program's expansion was a lifeline for many homeowners during the uncertain economic times created by the COVID-19 pandemic. However, forbearance is a tool used by lenders before the pandemic and will be an option for homeowners in the future. When your forbearance period is nearing its end, homeowners must be prepared to make up the delayed payments and resume their regular mortgage payments.

What is Forbearance?

Forbearance enables homeowners with a mortgage to pause their loan payments for a specific time frame. The payments are not forgiven and will still need to be repaid. However, since the homeowner and lender have mutually agreed to the repayment pause, homeowners are not reported as delinquent for failing to make their loan payments. The lender will not initiate foreclosure procedures during the forbearance period.

More homeowners sought forbearance than ever before during 2020 due to the public health crisis. The CARES Act passed in March 2020 made it easier for some homeowners experiencing hardships to qualify for a forbearance. The CARES Act also enabled owners taking advantage of forbearance to not be required to pay the delayed monthly mortgage payments in a lump sum immediately upon the forbearance period ending. 

Instead, loan servicers can allow forbearance repayment in a few different ways:

• Owners repay the past due amount within 6 to 12 months of the forbearance period ending.
• The mortgage term can be extended. The excused payments are on the back end of the mortgage. 
• Extend the mortgage term to 30 years and recalculate the monthly mortgage payment to be the same or lower than before the forbearance. 

The Federal Housing Finance Agency announced that borrowers could be eligible for an additional three-month extension of their forbearance period. The deadline to request a forbearance extension under the CARES Act provisions is now June 30, 2021.

How Do You Prepare for Forbearance Coming to an End?

Eventually, your forbearance will reach its end date, and you will need to resume monthly mortgage payments. Even if your terms don't require you to make a lump sum payment immediately, be prepared by taking these steps. 

1 - Save funds.

If you find yourself with some extra funds after paying all your bills at the end of each month, put the money into a savings account. It may be challenging once your forbearance is over to adjust to repaying your mortgage again. Having a savings cushion can make the transition into making mortgage payments easier. 

2 - Pay funds while in forbearance.

If your personal financial and employment situation is better, start paying your mortgage again. The more you pay into the forbearance, the less you will owe later. Keep track of your payments and how it impacts the total forbearance amount you'll owe when the time ends. Make sure you are still saving the funds necessary to make your repayment.

What if You Are Still Struggling?

Not everyone recovers smoothly from the financial changes that caused the owner to ask for forbearance. Currently, many industries are still struggling to regain lost jobs and wages. 

That means saving extra money or starting to make repayments early may not be in the cards for you. What can you do if your forbearance is coming to an end and you're worried you still can't make your mortgage commitment? 

1 - Sell your home.

Many real estate markets across the nation are experiencing a strong seller's market. If this applies to you, you may be able to sell your home and pay the mortgage in full, including the amount owed on the forbearance. 

Selling may not be ideal, but it would enable you to stop making payments without impacting your credit report or having to declare bankruptcy. The repayment of funds from the sale will make sure you meet your mortgage obligations. Before you decide to sell, make sure you have a place to go that fits your budget. Finding housing in a highly competitive seller's market can be a challenge. 

2 - Will an extension help? 

The Federal Mortgage Relief Amendment says that homeowners can request a forbearance extension by an additional 180 days for a total of 18 months of forbearance. That means you could be eligible for an additional three-month extension if a government agency backs your loan. Investigate this option if you think an extension will help you save the funds necessary for forbearance.

3 - Talk to your lender.

Do not assume you are about to lose your home. Whenever your personal financial situation is not as strong as it was, talk to your lender. Mortgage lenders want to keep you in your home!

We see foreclosure as a last resort for you and us because it is an expensive process. Your mortgage lender may be willing to do an extension, loan modification, or mortgage refinancing that would make your payments more affordable. Note: do not wait until the last minute to have this conversation. The earlier you bring up your situation, the more help we can offer.

Preparing for Forbearance to End

Take these steps to be ready when your forbearance period ends. Remember, you are not the only one going through this situation. We want to be of service and to help you maintain the American dream of homeownership. If you can, start saving funds and resume payments early. If not, you have options available as long as you are transparent with your lender as your situation ends.