Understanding Mortgage Forbearance During Coronavirus Pandemic

This ARTICLE On Understanding Mortgage Forbearance During Coronavirus Pandemic Crisis Was PUBLISHED On April 12th, 2020

Understanding Mortgage Forbearance
Gustan Cho Associates

Phase three of the coronavirus pandemic economic stimulus package included assistance for homeowners to be eligible for forbearance.

  • Homeowners who have been financially affected by the economic meltdown due to the pandemic can defer their mortgage payments for six months
  • After six months, homeowners can request another six months if things do not improve with them
  • So the bottom line, homeowners can skip up to 12 months of mortgage payments
  • Understanding Mortgage Forbearance is very important
  • If homeowners are able to make their mortgage payments, it is highly recommended they make it
  • Forbearance is not monthly payment forgiveness
  • The missed payments need to be paid when the forbearance period expires
  • Lenders will want the missed payments all at once
  • However, lenders will entertain a short-term payment plan such as six to twelve months
  • There are no changes to mortgage rates and/or terms of the original loan

In this article, we will discuss and cover Understanding Mortgage Forbearance During Coronavirus Pandemic.

Understanding Mortgage Forbearance Versus Loan Modification

Understanding Mortgage Forbearance During Coronavirus Pandemic is a must prior to agreeing to it with the mortgage servicer.

  • Many people often confuse forbearance versus loan modification
  • With forbearance, the whole amount due from the forbearance period comes due once the forbearance period expires
  • This includes interest and other charges such as missed escrow payments
  • The lender will NOT roll the missed payments on the back of the loan balance
  • The loan balance and all other terms of the loan including the rate remain the same
  • Once the forbearance period is over, the mortgage servicer may give borrowers a payment plan such as six to 12 months to spread the missed payments

Going with forbearance during the COVID-19 crisis may also backfire on you when it comes to refinancing at a later date and/or qualifying for another mortgage. However, if you are financially impacted during the coronavirus pandemic, forbearance is an option.

Understanding Mortgage Forbearance During Coronavirus Pandemic Is Not A Grant

The team at GCA Mortgage Group strongly recommends homeowners to pay their mortgage payments during the coronavirus pandemic economic crisis if they can unless they are financially impacted due to long-term unemployment. The forbearance mortgage program under the CARES Act is intended for homeowners who have been severely impacted due to the pandemic. There have been over 16 million Americans who have filed unemployment claims in the past three weeks. Numbers are expected to increase in the coming weeks. The government is allowing mandatory mortgage forbearance to homeowners to avoid a flood of foreclosures in the coming weeks to months.

Michael Gracz of Gustan Cho Associates has been following the coronavirus pandemic on the housing and mortgage markets. Mike Gracz said the following:

The forbearance programs you have been hearing about under the CARES Act are intended for those financially impacted as a direct result of the Coronavirus crisis. If you have exhausted all options and cannot pay your mortgage, this is your last resort and is available. This, however, is NOT a stimulus “perk” or “benefit” giving all Americans a reprieve on their mortgage. For those that have no other choice but to go into forbearance, some lenders will not refinance that mortgage in the future. Depending on your lender, this could be contingent on paying the full amount of the forbearance period. Additionally, your ability to sell your home may be impacted. With current economic forecasts, it is highly likely mortgage rates will drop to historic lows starting as early as 2 months from now, but may take longer. When that drop occurs, those in forbearance may not be able to refinance at those historic lows.

Mortgage rates are at historic lows. However, lenders keep on increasing rates due to liquidity issues in the secondary mortgage bond market. Many experts and analysts expect mortgage rates to plummet once the secondary mortgage bond market stabilizes in a few months. Borrowers who had a forbearance may be impacted on refinancing once the refinance boom starts in a few months. We do not know this yet. However, we will keep our viewers posted on any updates.

Understanding Mortgage Forbearance And Its Benefits

Taking up for a mortgage forbearance offers many benefits for homeowners who have been laid off from work due to the pandemic.

  • Millions of small businesses in the hospitality and restaurant business have closed their doors laying off millions of workers until further notice
  • Many businesses will be closed permanently
  • The federal government is doing everything possible to help small business owners retain employees until the economy reopens
  • Many Americans will not return to the same employer
  • The US economy was booming prior to the pandemic
  • How long will it take for the economy to be back after the pandemic yet remains to be seen
  • Mortgage servicers are not allowed to report borrowers who are under forbearance on their credit reports
  • The CARES Act forbearance program greatly benefits homeowners who have exhausted every possible option in paying their mortgage payment
  • However, homeowners need to realize it is not free money and needs to be repaid under the same terms and rates
  • After the mortgage forbearance term is over, many servicers require a lump sum payment to be paid with accrued interest
  • Mortgage servicers may allow borrowers to split up the lump sum and pay it over a certain timeframe
  • This will increase the monthly payment each month until the missed payments are caught up

Please go over the terms of repayment with your mortgage servicer before agreeing to any agreement.

Types Of Mortgage Loan Programs That Is Eligible

All government-backed loans qualify under the CARES Act. This means all mortgages backed by FHA, VA, USDA, Fannie Mae, and Freddie Mac qualify under the CARES Act Forbearance Program. Mortgages not backed by the federal government such as portfolio loans may be eligible depending on the lender. It is best to contact the mortgage servicer as soon as possible and see what the terms are in getting a mortgage forbearance.

Other Options In Surviving The Coronavirus Economic Crisis

What are other options for surviving the coronavirus economic crisis

The pandemic will stabilize and the economy will reopen again. However, the economic impact during the coronavirus crisis is the issue with most Americans. The whole US economy is shut down. Literally, we are in a standby mode. The Trump Administration is doing everything in its power to stabilize the financial damage. President Trump is seriously thinking of reopening the economy in the coming weeks. In the meantime, the Trump Administration has pumped trillions of dollars via making the stimulus bill into law. The Federal Reserve Board has cut interest rates to zero and is pumping trillions of dollars in the stock market to do damage control. Every American worker making up to $99,000 per year will be receiving a stimulus check. The CARES Act allows Americans affected with the economic crisis access to their 401k accounts up to $100,000 without the 10% penalty.

Piotr Bieda of GCA Mortgage Group who follows the economic crisis due to the pandemic said the following:

The CARES ACT doubles the amount 401(k) participants can take in loans from an account for the next six months to the lower of $100,000 or 100% of the account balance. Taxes will still apply. Speak to your retirement plan company for specifics on your account. No one truly knows what the next 12 to 18 months will hold as this crisis and economic impact unfolds. If you are concerned about making ends meet or having cushion in case your employment is affected, it would be wise to look at scaling back some non-essential services like cable, monthly memberships, subscriptions that hit your account relentlessly, etc. There are multiple mobile apps that will help you identify recurring subscriptions in your account and will cancel them for you with your permission. TrueBill.com is one of our favorites. If you’ve exhausted all options and you are still unable to make your mortgage payment as a direct impact of the pandemic, YOU MUST CALL your mortgage company that you make payments to and obtain an APPROVED AGREEMENT. You can not simply skip your mortgage payments and expect you’ll be covered by forbearance. You could be foreclosed on, your credit could be impacted and you may not be able to obtain a new loan any time in the near future. A high volume of forbearance and/or mortgage defaults will create an extreme hardship on the entire housing industry. If you are old enough to remember the housing crash of 2008 – the impact was not insulated to the housing industry and resulted in the Great Recession, which hit all industries across the board. It all started in housing.

The good news is fewer people are getting positive results and fewer Americans are dying. The pandemic is not over. However, we can see the light a the end of the tunnel. As mentioned earlier, the Trump Administration is looking hard at reopening the economy as soon as possible. How long will it take for Americans to return to normal? Nobody has a crystal ball. However, President Trump and his administration no doubt set the recovery as an utmost priority. Many Americans have confidence in our President and see optimism in the near future.

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