Forbearance, Relief, or Trap?

Forbearance Relief.

Forbearance is an agreement between a lender and a borrower to temporarily suspend debt payments while dealing with a short-term crisis. 

In the case of a mortgage, the loan servicer agrees that the homeowner can temporarily reduce or stop their monthly payments. The lender agrees not to pursue foreclosure proceedings during this time

The CARES act:

The CARES Act provides fast and direct economic assistance for American workers and families, small businesses, and preserves jobs for American industries.”  U.S. Department of Treasury.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed by Congress and signed into law by President Trump on March 27th, 2020. 

The Government’s commitment to protecting the American people from the public health and economic impacts of COVID-19.

Under the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act, homeowners with federally backed mortgage loans, (FHA, Freddie Mac, Fannie Mae) regardless of delinquency status, can get a forbearance by simply asking and affirming a financial hardship caused directly or indirectly by COVID-19. The forbearance period will last up to 180 days and can be extended up to 180 additional days.

The missed payments will have to be paid back by the borrower after the forbearance ends. The FHFA and the Enterprises do not require lump sum repayment at the end of the forbearance. 

There are options available to you due to hardships caused by the new coronavirus (COVID-19) 

  1. Pay the total missed amount all at once. With this option, you can get back to your regular monthly mortgage payments right away. Or
  1. Repay a portion of the missed amount each month if you can afford the regular monthly payments plus an additional amount. The missed amount is repaid over a period of time and must be made with the regular monthly loan payment. Your monthly mortgage payment will be higher during the repayment plan and return to the regular monthly payment after the plan.

You have options after a forbearance plan or resolved COVID-19 hardship. About 30 days before your plan is set to end, your servicer will attempt to get in touch to work with you to determine an approach to repay the amount you owe.

Those with mortgages owned by private lenders, such as banks, are not included in this relief. About 30%, or roughly 14.5 million U.S. mortgages, are privately owned and not backed by any federal agency, according to the National Housing Law Project. Just under 11% of these privately-held mortgages remain in some type of forbearance or deferment program, a higher level than that of Americans with government-backed loans.

Is Forbearance A Trap?

Not all borrowers will be eligible for all options. Ask your servicer how forbearance repayments programs work, and what you can expect in terms of repaying the missed amounts.

Mortgage industry experts and consumer watchdogs admit that they are unsure about possible consequences for borrowers who seek help promised by the government.

Some borrowers say they’re worried about signing up for the relief, mindful of how victims of the 2008 housing crash were exploited when they sought promised modifications and refinancing.

The CARES act and lenders talk about the benefit of forbearance plans. It seems that forbearance is the lifesaver you need to keep floating in the middle of a raging ocean caused by COVID-19.

But the catch is banks want your home equity. Rules to qualify for a loan modification are determined by lenders, they have the power to grant a forbearance and to deny a second loan or modification just because a borrower has a forbearance on his credit history. It sounds crazy but it is what is happening today.

At The Forbearance End.

The missed Mortgage payments, let’s say 3 months, 6 months, or 12 months, must be paid-back at the end of the Forbearance Agreement, either by a lump sum or in payments over the next 12 months, plus the regular mortgage payment. If for instance, still, you can not meet these requirements, another option is to refinance the loan or a loan modification 

But what no lender says, when you get into forbearance it doesn’t affect your credit right now, but what it does do is to prevent you from getting a loan, It is just like being in foreclosure. Meaning that for some time, four years or more you’re not going to get approved for any mortgage loan. 

Most lenders would want to see you having made up the forbearance,” says Rocke Andrews, president of the National Association of Mortgage Brokers. Also, Andrews observes, “Lenders will probably want to see 12 months’ worth of on-time payments following the forbearance.

The CARES act does not talk about what happens at the end of forbearance, It only says that you have the right to ask for forbearance, does not direct the banks to do anything for you at the end. 

A loan modification is a process that is voluntary at the bank part, you need to show income and proof you are available to pay the loan. So, if you can’t make a lump sum payment, nor you can afford the adjusted monthly payment, what are you going to do?.

The Score Credit after Forbearance.

While a late payment may not be reported (yet), what is being reported is the fact that your loan is in forbearance.

Many lenders and creditors report your payment performance to credit reporting agencies. Some lenders are also saying they will not report late payments to credit reporting agencies or are waiving late fees for borrowers due to COVID-19. Under the CARES Act, in certain situations, lenders are required to report your accounts as current.

Due to the high equity on properties today. Many people in the real estate market believe banks are taking advantage of the COVID-19 crisis. A big number of homeowners will not be able to recover from this economic situation.

“Mortgage companies, known as loan servicers, have call center representatives working from home amid a pandemic and trying to deal with a complex set of rules for different types of loans. Clearly, many are making mistakes and giving borrowers bad information. Add to that bad incentives: Some housing advocates think some companies are intentionally trying to scare away borrowers because if too many skip mortgage payments, that creates cash flow problems for the mortgage servicers. It costs the servicers money and could even drive some out of business. The industry has been lobbying for financing help from the federal government.” Says NPR on it’s April 27/2020 publication.

Better Off Home Buyer, Recommendations.

At this time you may be a “forbearance beneficiary” or you may have in mind to sign in into the plan. Our recommendation for you is if you can do your mortgage monthly payments, to do it. Do not get a forbearance plan at least that it is extremely necessary.

If you need to talk to your bank because you can’t make payments, make sure that any agreement is in writing, homeowners have informed us banks verbally approved them to stop mortgage payments for 3 months, and afterward, they were required to pay at once the missed payments. 

The health authorities have announced that a COVID-19 vaccine would be possible in no less than 18 months. That could be translated into more people out of jobs and a slow economic recovery. We believe more homeowners will be at risk of losing their homes and their credit, so for them, it will be difficult to get a mortgage loan soon. 

Every time the economy is suffering a recession, the ones who get the strongest impact are the middle class. Banks play a big role in an economic crisis getting out with full hands, or being government bailed out.

Having a home is a sweet dream but it could end being a bitter nightmare. If this crisis is taking you to an uncertain path if you have a forbearance plan and do you think you will face difficulties to comply with your mortgage obligations. Don’t wait until the last moment to react.

Don’t let your lender quick you out from your home. Even if you have a forbearance plan, or you are behind payments, you can sell your house, take your equity, keep your credit score in better numbers than a foreclosure in your credit history, and start all over again getting another house. We understand that you are sentimentally attached to your house, so if you can keep it, it is just fine, but if you are in difficulties tray to get out of the situation hurtless possible.

Better Off Home Buyers buys your house, we can make a fair no-obligation offer for your property, You can check our offer out and take the time you need to consider other offers.

After you accept our proposal, It all takes about 7 days to finish the sale paperwork, after that time you will have the cash on your hands.

Do your search, contact your lender ask them what is the options they have for their clients, be aware of all good and bad possibilities. Don’t lengthen the foreclosure list.

The real estate market in Portland and across the nation has big equity. Banks and lenders want your home equity, they will do their best to put you in foreclosure.

Contact us if you have any question filling out the info form in this page or dial directly (503) 212-9641

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