Knowing the ins and outs of “Forbearance”

woman carrying boxes

Forbearance

Are you feeling the pressure of paying your bills on time? Knowing the ins and outs of Forbearance is extremely important when you are falling behind in your mortgage payments during the coronavirus pandemic.

A HUGE factor you must be in the know about is your credit score will be affected. Once you start missing payments, you better believe your mortgage servicer will begin reporting this to the credit bureau. Regardless of the arrangements you end up making with your bank, your credit score will be affected if you have already missed payments. Your bank will also report the forbearance to the credit bureau. Your mortgage servicer must report your payments as current if you called before you missed payments and made repayment arrangements.

Video

Please watch this VIDEO to learn more about your rights when considering a forbearance.

Government-Backed loans

Government-backed loans (Fannie Mae, VA, USDA, and Freddie Mac) are required to stop all court proceedings of foreclosure to include the initial beginnings of paperwork within the homes’ local court system. This is currently in effect through August 31, 2020. But, keep in mind, this does not mean no action is being taken on your loan. Rest assured, the bank has already turned your file over to their attorneys. The attorneys are to “prepare” the documentation needed to file a court hearing. When things return to some semblance of normalcy, an influx of paperwork will hit the courts from numerous attorneys and banks.

You must know that getting a forbearance period on your mortgage doesn’t mean its a forgiven debt. The portion you are delaying or reducing absolutely must be paid back. Before you sign any documentation from your mortgage provider, ensure you know all the requirements for the payback of debt. You surely do not want to have a balloon payment due, especially if you do not know when you will recover from your current situation. Please remember, your credit score will be affected.

Private bank loans

Consider this: do you know when your economic situation will get better? Do you have a time-table for a return to your previous job or obtaining a new job? Will it pay the same? How many bills are you behind in paying and how will you recover all debt? If you are collecting unemployment, how long will that last?

A man All wrapped up and cardboard boxes to his side

All wrapped up and a feeling of exhaustion setting in?

Sometimes when you purchase a house with a conventional loan and/or a private bank, you will run into difficulties when times get tough. No one can predict a worldwide pandemic or an economic disruption that causes job loss and health concerns. It is your responsibility to reach out to your mortgage servicer and determine if they are willing to help. You are NOT protected by the CARES ACT if your mortgage loan is NOT government-backed.

The consumer financial protection bureau has asked private banks to work with each forbearance request but that doesn’t mean they will. Each bank has its own requirements for repayments of loans and falling behind in payments. If you do not currently have a job and do not know when you will be going back to work, your bank may hold that against you. Your credit score and the number of bills you are behind also may be a determining factor to your lender. Your bank may also review your credit history and focus on any other recent problems in the past two years.

Refinancing

Is refinancing an option? It may be feasible to refinance your mortgage. According to the Mortgage Monitor from Black Knight, 77% of homeowners have 20% or more in home equity. Yes, mortgage rates have hit an all-time low-interest rate. But make sure you do your homework and understand the fees associated with a refinance. Most mortgage lenders will require a new appraisal to be conducted to ensure your home has equity built up. As well, tax returns, bank statements, and pay stubs may be required.

Many lenders have fees and may require you to pay down any debt that is past due or owed. What refinance costs are applicable will depend on your debt to income ratio. Some lenders are currently taking into account the coronavirus pandemic and bypassing job loss and debt buildup if you willingly pay some debt down during the refinance. Of course, in paying down debt, you may not put much money in your pocket after the refinance is said and done. To learn more pros and cons of refinancing during coronavirus, and whether it might be for you, please read my BLOG.

Foreclosures

Unfortunately, there are no guarantees with your mortgage servicer. Being proactive and speaking to your bank representatives may give you an edge. However, if you don’t act now it may be too late. If you are more than 120 days behind in your mortgage payments, more than likely your loan provider has quietly begun the foreclosure process. Of course, each state has its own rules and guidelines when dealing with foreclosures and evictions. You should review your specific states’ government website for these guidelines.

When facing foreclosure, your stress level increases, especially when you have a family to provide for. I, myself, went through this once before so I feel it is within my heart to try and help others facing the same predicament. I can tell you that finding a place to rent after a foreclosure can be difficult, especially if you have pets. With that being said, you should really make the effort to talk to your mortgage lender before its too late. That’s when you find yourself in too deep of a hole and you see no way out. Somehow, you have to find a way to make that call, and with the CARES ACT in place right now, you have an opportunity to stay in your home and work out a repayment schedule. It is in your best interest to act now before it becomes too late to stay in your home.

Click HERE to read more on your rights regarding forbearance from the consumer financial protection bureau.

About the Author

I have been a Realtor in Central Florida since 2006. I live and work in Polk County. I am a straightforward person who refuses to cut corners and places emphasis on honesty and integrity in the home buying and selling process. I firmly believe that it is my duty to serve others and to use my negotiating skills to obtain the best price for the sale of any home. I will take disciplined initiative in all aspects of any transaction, invests timeless effort to build a strong and lasting relationship with all clients, and streamline all aspects of the real estate processes with exceptional skill and diligence. I take pride in professionalism and continue to educate myself and adapt to the ever changing conditions of the real estate market.

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