A “mortgage forbearance” is when the lender allows the borrower to defer their mortgage payments to a future date. The payments are not forgiven. They are simply postponed into the future. As required by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, many lenders are allowing homeowners to defer their monthly payments for a short while until the national emergency is over. This is specific to home loans owned by Fannie Mae and Freddie Mac, and home loans insured by the FHA.
How Forbearance Typically Works
Your mortgage “servicer” is the company to whom you make your monthly payments. Generally, you’ll need to show your servicer how you’ve lost your job or income due to the coronavirus crisis to qualify for the forbearance. In many cases, deferred payments can be added to the mortgage balance and postponed until the end of the mortgage, or until the loan is refinanced or paid off. Contact your mortgage servicer for details and specific requirements related to your home loan.
Impact on Your Future Plans
The Federal Housing Finance Agency (FHFA) issued guidance on May 19, 2020, to clarify that borrowers are eligible to refinance or buy a new home if they are current on their mortgage (i.e. in forbearance but continued to make their mortgage payments or reinstated their mortgage). Borrowers are also eligible to refinance or buy a new home three months after their forbearance ends and they have made three consecutive payments under their repayment plan. These rules are specific to loans that conform to Fannie Mae and Freddie Mac guidelines. Keep in mind that all other home loans, including FHA, VA, and USDA loans, may have different lending requirements and waiting periods. This is all great news for homebuyers and homeowners because:
- Most homeowners won’t lose their homes, and the housing market is not likely to be flooded with foreclosures. Contrast this with the 2007-2009 financial crisis where many homeowners lost their homes and home values collapsed.
- Many homebuyers will likely be able to quickly qualify for financing once their hardship is over. Compare this to 2007-2009 when borrowers were often required to wait 1-2 years, or more, after their financial hardship to qualify for new financing.
Contact us for more information or to evaluate your options!