Tag: Loan Forbearance

What Are Your Options When Approaching the End of Mortgage Forbearance?

As unemployment surged during the early months of the pandemic, many homeowners found themselves taking advantage of forbearance programs offered by their mortgage servicer. At the end of February, roughly 2.5 million homeowners in the U.S. were still in forbearance plans. I sat down with Jaxzann Riggs, owner of The Mortgage Network in Denver, to learn about what options are available for those who are approaching the deadline for exiting forbearance.

For homeowners who may still be experiencing financial difficulties, extending their forbearance plan may be a possibility. However, an extension will not happen automatically. If you are in a forbearance plan that is close to expiring, you should reach out to the company that services your mortgage to see if you are eligible to extend forbearance.

Whether you qualify for a forbearance extension depends largely on your loan type and when you originally entered forbearance. If your loan is backed by Fannie Mae (FNMA) or Freddie Mac (FHLMC), you must have entered into your forbearance plan by February 28, 2021. If your loan is backed by the FHA, you must have entered forbearance by June 30, 2020. Once forbearance ends, the best course of action depends largely on your personal circumstance and loan type.

Borrowers with a FNMA or FHLMC loan can opt to pay the “past-due” amount in a lump sum and have their loan reinstated if they are in a financial position to do so. For those who have loans through Fannie and Freddie but are not able to pay off their forbearance amount immediately, there are several options. If you can afford a few hundred dollars on top of your typically monthly payment amount, you should speak with your servicer about entering a repayment plan for a specified time frame.

For borrowers who have found themselves in a different financial position than they were prior to the pandemic, putting several hundred additional dollars a month towards a mortgage may not be possible. In that case, you may be able to enter payment deferral, in which you resume your typical monthly payments and the past due amount is added on to the end of the loan. You can also talk to your loan servicer about a loan modification, in which the servicer agrees to lower the interest rate, forgive a portion of the principal, or otherwise adjust the loan. Note, however, that a loan modification will negatively impact your credit history.

Borrowers with an FHA loan have several options, the most straightforward being to simply resume monthly payments. The FHA considers the past due forbearance amount as an interest free second loan, meaning that the payments are essentially deferred until the end of your loan term. If you are not in a position to resume your full monthly payments, you should speak with your servicer about a loan modification in which your interest rate will be lowered and loan term extended.

For those with a VA loan, a repayment plan or loan modification may be the best course of action. Although the VA does allow deferment as an option, it does not require that its loan servicers provide it.  For borrowers with a nonconforming loan (jumbo) there are no specific guidelines regarding forbearance. Some loan servicers may have chosen to offer forbearance, but they are not held to the same guidelines as other loan types.

Navigating your options as forbearance comes to an end can be tricky, but you do not have to face it alone. You may find it helpful to speak with a housing counselor before calling your loan servicer. The U.S. Department of Housing and Urban Development, or HUD, offers a list of approved counselors by state on their website.

And for any mortgage scenarios you may have, as always, I recommend calling Jaxzann Riggs of The Mortgage Network at 303-990-2992.

The Good, the Bad, and the Ugly About Mortgage Loan Forbearance

A record number of homeowners entered into a forbearance plan for their mortgage over the past year amidst the Covid-19 pandemic. Forbearance — an option that allows borrowers to pause payments on their mortgage for a limited amount of time due to an unforeseen hardship — served as a veritable lifeline for many people who found themselves unexpectedly out of work and unable to pay their mortgage as COVID restrictions tightened.

As more time passes, however, it is apparent that issues stemming from forbearance are starting to surface. While this is not an immediate cause for panic if your own mortgage has been in forbearance, being aware of issues that others are facing will help to keep you prepared for any trouble that arises.

For that reason, I had a Zoom meeting this week with Jaxzann Riggs, owner of The Mortgage Network in Denver, to learn more about complications that forbearance may bring about.

When the CARES Act was initially passed back in March 2020, it included a provision for mortgage forbearance, making it relatively easy for millions of borrowers with government backed mortgages to enter into such a program. Fannie Mae and Freddie Mac, the two largest servicers of government backed loans, subsequently issued an extensive list of guidelines for lenders in response to Covid-specific forbearance.

One of the most crucial guidelines involved credit score reporting. An account in for-bearance must continue to be reported as current, provided it was current prior to the forbearance plan. Due to the vast number of people who entered into forbearance in such a short time period, it is especially important to monitor your credit score — but that is not necessarily the end of the story.

Some borrowers who were previously in forbearance that are now applying for new loans are discovering that their issue does not lie with the credit reporting bureaus themselves but with the underwriting on their new loan. Underwriters, who are primarily responsible for qualifying a borrower for a loan from a specific lender, have a significant amount of discretion when it comes to approving an application. The consequence of this is that borrowers who would otherwise be well qualified to purchase — with high credit scores, steady employment, and a significant down payment — may find themselves struggling to obtain the loan they are seeking if they previously had a loan in forbearance. Although Fannie’s and Freddie’s guidelines include specifics for underwriting, the sometimes unfortunate reality is that these guidelines can be interpreted differently by different underwriters.

If you had a loan in forbearance sometime this past year and are now considering a new purchase or refinance, you should not immediately despair. Maintaining meticulous records that indicate when you initially applied for forbearance and being able to produce all communications with your current lender to the new lender are essential. If you have entered the repayment phase of the loan it is critical that the repayment agreement is followed exactly as written.

Because forbearance was originally intended to help those that had a loss of income or employment due to COVID, underwriters are scrutinizing employment history and the likelihood of it continuing for all borrowers. Borrowers that did not have any change in employment status during the pandemic but who entered into a forbearance agreement should be prepared to outline for the new lender their motivations for entering forbearance and to additionally explain how they will be able to avoid forbearance in the future. This is a bit ironic, in that lenders strongly encouraged many to utilize the options afforded them under the CARES Act. If you have questions about how forbearance may impact your future lending, I recommend, as always, that you consult Jaxzann Riggs of The Mortgage Network. You can reach her anytime on her cell phone, 303-990-2992.