Forbearance was an easy fix, but what happens now?
Just a few months ago, a mortgage forbearance plan was the best option for many homeowners.
Forbearance protected millions of people from losing their homes even when unable to make monthly payments.
Now we see cracks in the system for the first time. We have several major problems ahead of us.
How will the homeowner repay "skipped" payments? With millions of forbearances, lenders could mistakenly view payments as late, trigger additional fees, or even foreclosure proceedings. Credit agencies could hand out late payment status on mortgages that are actually lenient. Property tax and homeowner insurance may not be paid as they are usually included in the mortgage payment.
Most importantly, how do your lender's actions during Forbearance (and their possible mistakes) affect you?
Nobody knows all the answers. But here we're going to examine what we know and what to ask your lender now if your mortgage is lenient.
The Forbearance Plan – Easy to Enter, Difficult to Leave
It was easy enough to create a forbearance plan during the coronavirus pandemic.
Under the CARES Act, all a homeowner has to do is call their mortgage company (the company that processes payments), mention that they have been financially affected by COVID-19, and ask for payment facilitation.
As of July, there were more than 4.1 million forbearance plans in place, according to Black Knight research.
But the big question with Forbearance is not whether you can get it; Most borrowers can. That’s what happens next.
How do you pay the money back? And are borrowers in forbearance plans really protected from criminal markings and loan defaults as promised?
What happens when forbearance plans end?
There are several ways to deal with forbearance when it ends.
Loan modification – Borrowers and lenders can agree to change the loan. This can mean lowering the interest rate or adding unpaid months to the end of the mortgage term. This is not the same as refinancing. The original loan remains in place; It's just that the terms have changed for the remainder of the repayment periodPayment plans – With a payment plan, the lender and borrower agree to repay the indulgence over time. For example, your recurring payment for principal and interest is $ 1,100 per month. You owe $ 5,500. You agree to restart your regular mortgage payments at $ 1,100 per month plus an additional $ 150 to repay the indulgence. It takes about 37 months to repay the debtCombined plans – A loan modification and a payment plan are combined. The lender lowers the interest rate and the borrower agrees to pay extra money each month to repay the forbearance savings. Is that new interest The interest rate is significantly lower than the original interest rate. The borrower may be able to keep their payments (including the additional forbearance amount) the same as or lower than they were before the lump sum payment – The borrower chooses to repay the entire forbearance amount from savings, investments, a pension fund, etc. While a borrower can choose a lump sum, a lump sum cannot be needed under government rules
Not all repayment options are available to all borrowers.
Talk to your loan servicer about options before the grace period ends so you know what the repayment plan will be and be ready to resume payments if necessary.
Misunderstandings result in a bill of $ 4,700
While forbearance repayment options look neat and simple, they don't always do so.
The borrowers may not have found employment by the end of the grace period. You may not be making that much income. And Loan servants may not be able to lower interest rates without the investor's permission.
Worse, with a flood of new papers, the likelihood of lender failure increases.
With a deluge of new documents, the likelihood of lender error increases.
CNN reports that a borrower accepted a three month grace period and saved $ 900 per month. She believed she owed $ 2,700 at the end of the grace period. The bank thought differently. It was said she owed $ 4,700.
According to CNN, the borrower's mortgage was not among the mortgages protected by CARES law.
It doesn't seem hard to assume that many more of these woodworking mistakes and misunderstandings will emerge as more homeowners abandon their leniency plans.
Because of this, it is important to resolve potential problems before they arise.
3 Questions You Must Ask Before Your Forbearance Ends
Be proactive. Ask now about your mortgage and creditworthiness so mistakes can be identified and corrected early on.
Here are some things to check out:
1. How is my balance?
With millions of borrowers failing to make required payments, the potential for credit problems is enormous.
Missed payments shouldn't affect your score during the forbearance. However, if your forbearance plan is reported incorrectly (or not), you want to know and fix the problem immediately.
The good news is that consumers can get free credit reports on AnnualCreditReport.com every week through April 21, 2021. Experian, Equifax, and TransUnion reports are available.
Look for factual errors, outdated items, and new entries that seem strange or unusual.
2. What is the status of my mortgage loan?
You probably only have contact with your loan servicer when sending a monthly payment.
Today homeowners need to be proactive. M.Set your calendar so you can call your loan servant well in advance of your grace period.
Make sure you are clear about the terms of your forbearance plan (start and end dates, repayment expectations, etc.). Ask about the status of your account, including the current balanceMake sure you are not marked as "late" or "delinquent" on payments that have been deferred under your forbearance plan
Unfortunately, it can be difficult to find loan service providers at the moment. You are dealing with millions of people in a similar situation.
Starting early can ensure that you don't start looking for a solution until you find out that there is a problem with your mortgage.
3. How are my property taxes and homeowner insurance paid?
Taxes and insurance bills are usually paid by credit service providers.
Most homeowners make a single monthly mortgage payment this covers all housing costs (except HOA fees, which are usually paid separately to the homeowners association).
The borrower's loan service provider will split the payment and distribute the funds to the insurance company and property tax authority, usually the county.
But what if you don't make mortgage payments?
When you call your servicer, be sure to ask if these other payments are being made. You can also:
Check your current property tax status. You can usually do this online through a city or county website. Check for late or missing payments. Print out the results for your recordsCall your insurance company or agent. Ask about your property insurance coverage. Has the loan server made the required payments? Were you on time? Is your coverage still in effect?
Why take these steps? Failure to pay taxes can result in a huge debt debt in just a few months. In addition, your county may impose late fees. In extreme cases, the tax authority has the right to seize the house for failure to pay taxes.
Just as badly, unpaid homeowner insurance can lead to zero compensation if your home is damaged or destroyed.
Yes, these additional checks are not routine or normal. But our financial system has changed. It works in the COVID-19 economy and that means many old standards no longer apply.
The final result
Forbearance plans have helped millions of homeowners free up their budgets and avoid foreclosure during the pandemic.
However, this is an unprecedented time for lenders and banks – just as it is for borrowers.
Unfortunately, this means that typographical errors can occur. Things can slip through the cracks. And one small administrative mistake for a lender can become a big problem for a borrower.
So go ahead of potential problems. Call your servicer well in advance of your grace period. Make sure the repayment terms are clear. And keep an eye on your balance. These small steps can go a long way.