What Consumers Need to Know About Mortgage Forbearances and Deferment Relief
The Mortgage Forbearance Relief enacted under The Cares Act (COVID 19) to assist millions of Americans facing an inability to make their monthly mortgage payments due to the COVID-19 emergency has expired. However, residential mortgage lenders and their servicers are still issuing many mortgage forbearances and deferments (as well as mortgage modifications, which are covered in other articles in our website) to qualifying residential Mortgage borrowers (hereinafter “borrowers” or “mortgagors”)
Following is a summary of relevant information all mortgagors should be aware if when facing the imminent default or after having already defaulted on mortgage payments:
- Obviously you should pay your mortgage if you can afford it, but if you cannot make one or more mortgage payments, relief to borrowers having either a federally backed or a private mortgage may be available.
- While not all mortgage loans qualify for relief, many borrowers will qualify for relief by way of a mortgage forbearance or mortgage deferment, whether borrowers have a federally backed or private mortgage solutions.
What Is a Deferment Agreement?
A deferment agreement is essentially an agreement by which the mortgage lender agrees to defer the borrowers obligation to pay all of the mortgage arrears (late mortgage payments, penalties and/or interest) to either the end of the mortgage term or to sometime before then in the future.
What Is a Forbearance Agreement?
A forbearance agreement is one type of short-term relief being offered by many loan mortgage lenders and their servicers. This provides a temporary period during which you do not have to make either your full or any monthly mortgage payments. In a typical forbearance borrowers benefit from one or more of the following:
- The loan servicer agrees to reduce or suspend your payments for a set amount of time.
- Many mortgage forbearance programs allow for the same or more time during which full or any mortgage payments have to be submitted than the expired forbearance programs that were available under the Cares Act.
- The payments are not waived or forgiven; you will have to pay them back.
What Happens at the End of a Forbearance Agreement?Your servicer may require you to do one of these actions or something different:
- Pay the full amount in a lump sum at the end of the forbearance period;
- Add an extra amount to your regular payments due each month until the entire amount of payments that were suspended during the forbearance period is repaid;
- Add the suspended payments as a balloon payment due at the end of your mortgage loan; or
- Apply for a loan modification whereat your mortgage lender or servicer might add the unpaid amounts to the balance of the new modified mortgage loan, increase the repayment term of your modified loan, and lower the interest rate.
When you first talk to your lender or servicer about a forbearance agreement, make sure to ask:
- What repayment options are available at the end of the forbearance period for both your principal and interest payments, and escrow payments (real estate taxes and insurance); and
- Whether late fees and interest continue to accrue during the forbearance period.
- To get answers on repayment options, immediately after requesting a forbearance from your mortgage servicer, you should send a written request for information describing all options available at the end of the forbearance period, including the procedures for obtaining such options (keep a copy for your records).
- This could be part of the same letter recommended on page 1 regarding available loss mitigation options. If you are seeking a permanent modification of your loan after the forbearance period ends, you may have to start that process shortly after your loan initially goes into forbearance.
- Your servicer must reply in writing to your inquiry within 30 business days pursuant to the applicable regulations promulgated by the Consumer Financial Protection Bureau (“the CFPB”). Mortgage lenders and servicers can be sued in Federal Court and stand to have to pay all of the borrower’s reasonable attorney’s fees incurred by borrowers if found to have violated applicable CFPB regulations in connection with their servicing of residential mortgage loans.
Federally-backed mortgage loans are loans that are owned or backed by an agency of the federal government as indicated in the list below:
- Federal Housing Administration (FHA) (includes reverse mortgages and loans under the Indian Home Loan Guarantee program)
- U.S. Department of Agriculture (USDA)
- U.S. Department of Veterans Affairs (VA)
- Fannie Mae & Freddie Mac
- How to Find Out if You Have a “Federally Backed Loan”. It is always good to know whether you have a federally backed or private mortgage,if for no other reason than to hopefully enable you to find out whether you qualify for a deferment or one or more forbearance programs. A list of federal loan agencies, their policies, and contact information can be found here. More specific information concerning Fannie Mae, Freddie Mac and FHA mortgage loans follows:
- Go to www.knowyouroptions.com/loanlookup to see if you have a Fannie Mae loan.
- Go to https://ww3.freddiemac.com/corporate to see if you have a Freddie Mac loan.
- For FHA loans, it may indicate on your mortgage statement that part of your payment goes to FHA insurance. Or, check the first page of your HUD-1 Settlement Statement from when you bought the house and if you see a 13-digit HUD case number in the upper right-hand corner, you have an FHA loan; or
You should also be able get this information directly from your mortgage lender or servicer. If you cannot get through to your loan servicer on the phone, write a letter asking for the identity of any entity that owns, insures, or guarantees your loan. A sample letter is available by clicking here. Your servicer must respond within 10 business days.
If Your Loan Is Not “Federally Backed” you still may have relief options through your mortgage lender or loan servicer: call, or to avoid long wait times by phone:
- Check the servicer’s website to contact them through an online portal, email option, or a mobile app.
- Write a letter requesting information about your “loss mitigation” foreclosure prevention options. It could take up to 30 business days for a response.
Under federal law, a servicer cannot start the foreclosure process unless your loan is more than 120 days past due.
Do You Need Assistance with a Bankruptcy Matter During This Time?
If you’re in need of legal assistance, The Law Office of Marc G. Alster can help. Mr. Alster has more than 30 years of experience helping people like you find solutions to their financial problems through bankruptcy on non-bankruptcy resolutions.