So you decide to ask your mortgage company for payment forbearance.
But what does that mean?
The idea is that borrowers who have been temporarily furloughed from their jobs or laid off or can’t work because of sickness from COVID-19 can take a break from their mortgage payments.
The programs are designed to halt mortgage payments for as long as six months and might be extended if the pandemic and economic hardships continue, according to guidelines from the Federal Housing Finance Agency.
If you take the payment forbearance, that doesn’t mean you don’t owe the money.
“The definition of forbearance is delay — not forgive,” said Robert Broeksmit, president and CEO of the Mortgage Bankers Association. “The idea there is that it would last until the dislocation ends.”
If you contact your mortgage servicer and get the forbearance, the arrangement will include a plan for making up the lost monthly payments.
The options include paying back in one lump sum, spreading out the money owed over multiple payments, or modifying the home mortgage.
“This could include several options, including a loan recast, where payments remain the same but the term is extended, which may be the easiest for borrowers to grasp,” said Jim Clapp, vice president of the Texas Mortgage Bankers Association and president of Plano, Texas-based Certainty Home Loans.
There is a lot of confusion about how making up the repayments works.
Forbearance programs are typically used in areas where there have been natural disasters, such as hurricanes, earthquakes, and forest fires. Explaining the options to millions of Americans affected by the coronavirus pandemic is a challenge.
“Do I think borrowers understand? Probably not, to the point, several probably think it’s a complete payment holiday,” Clapp said. “The advice is first and foremost to communicate with your servicer, who ultimately will be the one to help work out a workable repayment option.”
At the same time, there’s a moratorium on home foreclosures and evictions to give borrowers time to work this all out.
And the mortgage forbearance won’t affect your credit ratings, industry leaders insist.