What to Do When Your CARES Act Mortgage Forbearance Ends?

Is Your Mortgage Currently In Forbearance?

Mortgage forbearance has been a lifeline for millions of homeowners during the troubled months of the pandemic.

However, as the six month end date is fast approaching for many forbearance plans, homeowners need to decide how to move forward.

Do you need to extend your COVID Forbearance Plan for another six months?

Or are you ready to quit? If so, what are your options?

Here's what you need to know if your mortgage forbearance plan is about to end.

Millions of COVID forbearance plans are near the end

The CARES Act provided US homeowners with much-needed mortgage relief.

The law allows you to pause your mortgage payments for up to six months with no penalty if you have a federal government-secured mortgage – including conventional, FHA, VA, and USDA loans.

As the graph below shows, millions of homeowners turned to mortgage leniency under the CARES Act in March and April when the economy took its first hard blow.

Graph showing the number of new forbearance plans over time. New forbearance plans were introduced in March and April and flattened from May to August. Source: Black Knight

To date, the majority of homeowners who have chosen mortgage relief are still on their forbearance plans.

But as the first six-month period begins, many will be nearing their forbearance periods in September and October.

Graph showing the number of active US mortgage forbearance plans, which has barely decreased since the first surge in March and April. Source: Black Knight

So what should you do when your forbearance plan ends?

You are free to end the indulgence when you can resume making mortgage payments. If not, you may be able to extend your forbearance plan.

We'll walk you through your optinos below.

Most forbearance plans can be extended for an additional 6 months

Six months of indulgence may have given you some welcome slack to get back on a solid financial footing.

However, if you continue to have money problems due to a lack of employment, medical bills, or any other reason, you are likely concerned about how you are going to pay the mortgage.

The good news? You can extend your Loan Forbearance by six months.

This means that your government-secured loan has a total mortgage grace period of 12 months if necessary.

Conventional borrowers, FHA, VA, and USDA borrowers can opt for an additional 6 months of Mortgage Forbearance if needed for a total of 12 months of mortgage relief

"Your Forbearance is eligible for up to one year from the date you seek Forbearance, with an extension after the first six months of Your Forbearance," said David Shapiro, President and CEO of EquiFi Corporation.

“Forbearance plans are based on when you requested them. So if a homeowner asked for indulgence at the start of the pandemic in March or April, September or October would be the end of the first 180 days. "

How do you apply for an extension?

Dongshin Kim, Assistant Professor of Finance and Real Estate at Pepperdine Graziadio Business School, says your loan servicer should offer you the option to extend the forbearance for an additional 180 days if necessary.

"Loan servants should reach out to borrowers 30 days prior to the scheduled end of the forbearance plan to understand their options for repayment," Kim says.

Your loan servant should reach out to you 30 days prior to the end of your forbearance plan to discuss your options

However, you shouldn't necessarily wait for your lender or servicer to contact you about this option.

"If you need to continue your forbearance, contact your mortgage servicer well in advance of your forbearance ends," recommends Jackie Boies, Senior Director Housing Services at Money Management International.

“You need to prepare for the relief to end now. Don't wait to get your explanation to ask a lender for help. Instead, contact them now, let them know your financial situation and see how they can help. "

Ending Mortgage Forbearance Strategies

If you are ready to end your indulgence in time after six months, you should be prepared for the next steps.

“Forbearance is not lending. Borrowers continue to owe the principal and interest they failed to pay during the grace period, ”notes Kim.

"Borrowers must make regular mortgage payments as well as any payments they missed when the loan was forbearable."

After the forbearance has expired, you usually have several options for repayment:

Full repayment, one lump sum payment. It is possible to repay all missed payments at once. But lenders are NOT allowed to ask for it. "If you can't pay the lump sum, you have other options," says BoiesTemporary payments where you agree to repay with your servicer over a period of three, six, nine or 12 months – whatever makes the most sense – in addition to your regular paymentsExtend your repayment term and pay off the missed amount at the end of the extended loan period with additional mortgage paymentsPostpone your repayment. This option allows you to repay the missed amount at the time of sale, refinancing, or the end of the mortgage termTrack a loan modification. "This helps borrowers who are at risk of default to change their mortgage terms – usually including a lower interest rate, shorter repayment term or lower monthly payment," adds Boies

The right option for you will depend on your current finances, employment status, and your ability to resume mortgage payments.

When your credit servicer contacts you, discuss each option in detail so you know exactly what to expect with the repayment plan you have chosen.

The experts warn you that after the indulgence, expect some potential mistakes and setbacks, especially when it is time to reach out to your loan servicer.

"Borrowers should expect very long delays and potential inconsistencies with customer service agents," warns Shapiro.

"Credit service companies are not all adequately staffed for the expected volume of forbearance and cannot train support staff quickly enough to meet their needs.

"Also," Shapiro continues, "be prepared for process changes as regulators respond to the crisis in real time, creating new rules or changing existing rules."

Even if you can't get through the first few attempts at contact, don't give up.

“Be patient, but be persistent. Mortgage service providers struggled to keep up with the calls during the COVID crisis, but many simplified online options and added staff, ”Boies says.

Keep track of your credit report and your score

If your mortgage is lenient, double-check your credit report.

Under the rules of the CARES Act, with forbearance, mortgages should not be reported late or neglected. And the forbearance plan shouldn't hurt your creditworthiness.

However, this is another area where errors can occur.

"Sometimes there can be mistakes and credit score issues that can surface if you are safe," says Kim.

Remember, lenders and service providers have never dealt with mortgage waivers on this scale before. So it is up to the borrower to be extra vigilant and make sure nothing slips through the cracks.

Check your credit statements every month and keep track of your credit report.

Remember, you will receive one free credit report per week through April 2021. So you can keep an eye on them more closely than usual.

What if You Still Can't Afford Your Forbearance Mortgage Payments?

Worst scenario: forbearance ends and you still can't pay your monthly mortgage. What can you do?

"You probably need to think about disposition options," says Boies.

“This can involve selling your home when you can no longer afford it. Foreclosure, short sale, and deed are other ways to dispose of a home that you cannot afford. "

Boies warns, "These options can be damaging to your bankroll and should be reserved until you have exhausted all other solutions."

You can also end the forbearance early

You don't have to wait for a six or twelve month grace period to end. Instead, you can end the indulgence earlier than expected.

Just be ready to repay the amount you couldn't pay while you were indulgent, warns Kim.

"The best time to end the forbearance is when the borrower is comfortable and ready to make payments, including the extra cash for the repayments they owe," Kim added.

When you're ready to end the forbearance, reach out to your loan servicer and request it.

"But make sure you have enough financial footing, which means that you have some sort of emergency fund in place to secure your ability to pay your mortgage," suggests Shapiro.

Low interest rates can make mortgage payments more affordable

For those stepping out of mortgage forbearance in the next few months, there may be an opportunity to bring your mortgage payments below pre-pandemic levels.

Interest rates hit nine record lows in 2020 and are expected to stay low for months, if not years, to come.

Some mortgage forbearance exit options would allow homeowners to secure a new, lower interest rate and make their monthly payments more manageable.

Ask your servicer about loan modifications and refinances.

With these options available to you, you can potentially end the forbearance much more confidently knowing that you, on the other hand, have a cheaper mortgage payment.

Check your new plan (September 24, 2020)

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