Many Americans took a hit financially when COVID-19 pandemic gained momentum and shut down states. From layoffs to losing employer backed health insurance, the uncertainties of tomorrow kept piling up. If you’re one of the many Americans that took a huge financial hit, you must be wondering how you’re going to pay your next mortgage payment in the midst of lost income due to the pandemic. When the CARES Act passed and was signed into law on March 27th, as part of the relief package, homeowners would have the ability to ask their lenders for a mortgage forbearance.
You have probably heard the term ‘mortgage forbearance’ being thrown around in the media. So what is it exactly? Basically, if you’re unable to pay for your mortgage as a result of the pandemic, you can notify your lender letting them know that you are unable to pay your mortgage. At that point, the lenders are required to offer homeowners a forbearance (a pause in payments) of up to 180 days under the CARES Act. The homeowners also have an option to request an extension for an additional 180 days if they are still facing financial difficulties. This gives the homeowners a mortgage forbearance of up to one year. Now, there is one caveat. Under the CARES Act, your mortgage must be federally owned or backed by a federal agency such as Fannie Mae, Freddie Mac, FHA, VA, and USDA loan. You can check who your mortgage is serviced by going to the Mortgage Electronic Registration Systems (MERS) website. If your mortgage is not federally backed, you should still contact your servicer to see what options you have as there are many programs out there.
If you are going to ask your lender for a mortgage forbearance, here are some things to keep in mind:
- Forbearance does not mean that your missed payments are forgiven. You still have to pay back what was missed. At the end of your forbearance, you will have the option to pay it back in one lump sum, spread out the payments over a period of time, add it as additional payments (starting where you left off, extending the loan), or adding the lump sum at the end of your mortgage. Either way, you will have to pay back what it owed.
- You do not need documentation or proof of hardship as long as you let your lender know that you are having financial hardship due to COVID-19 emergency.
- You have the right to halt forbearance at any time.
- Under the CARES Act, lenders will not report your mortgage forbearance to the credit bureaus through July 25, 2020 or 120 days after the emergency period ends. Instead, you should see ‘pay as agreed’ on your report. Your credit rating will not be affected.
- During the forbearance period, lenders cannot charge extra fees, penalties, or interests beyond what would have normally accrued. You should look at your statements to see if anything is added beyond what you would normally see, and if you do, make sure you speak with your lender. The CARES Act forbids lenders to tack on anything extra at this time.
“Your Loan – including the skipped or lowered payments – will still accrue interest during forbearance.”