With unemployment on the rise, businesses shuttering, and social distancing changing how people live and work, it’s not surprising that many Americans are feeling increasingly uncertain about their ability to make their mortgage payments.
Nobody wants a sudden glut of defaults, foreclosures, and evictions. Nobody is looking to put Americans out on the street, especially when we’re all being told to “stay at home” for the good of our nation. That’s why, to help coronavirus-impacted homeowners who are unable to make mortgage payments, the Department of Housing and Urban Development (HUD), the Federal Housing Finance Agency (FHFA, which regulates Fannie Mae and Freddie Mac), and the Housing Policy Council (HPC) have announced forbearance programs to give affected homeowners financial flexibility and time to get back on their feet. The FHFA has also announced forbearance programs for qualifying landlords. Suddenly, forbearance programs are everywhere in the news.
The only problem? Most people don’t understand what forbearance is or how it works. Let’s fix that.
What Is Forbearance?
First, let’s get straight on what we’re talking about. What is forbearance? According to our old friend Merriam-Webster, it’s “a refraining from the enforcement of something (such as a debt, right, or obligation) that is due.” No matter the context, forbearance is always a temporary condition. It implies that enforcement will resume in the future.
Mortgage forbearance, then, is designed as a temporary solution to help homeowners or landlords deal with temporary financial hardship. It means your lender has worked with you to create a special agreement that temporarily allows you to delay or reduce your mortgage payments without risk of foreclosure.
Without forbearance, your mortgage agreement allows your lender to foreclose in the event of non-payment, seizing and selling your property to recover their financial loss. With forbearance, they’re temporarily giving up their right to foreclose.
What Is a Forbearance Period?
Onto our next unfamiliar concept: What is a forbearance period? A forbearance period is the specific duration of time your lender grants for mortgage forbearance. Remember, forbearance is a temporary condition. Lenders may have the discretion to extend forbearance periods.
What ISN’T Forbearance?
- Forbearance isn’t free money or debt forgiveness. You still owe your debt in full. You remain legally bound to the terms of your original mortgage agreement.
- Forbearance isn’t permission to miss mortgage payments without talking to your lender. Forbearance only happens when you and your lender create a special forbearance agreement.
- Typically, forbearance isn’t a solution for people whose financial hardship isn’t temporary. If your circumstances require a longer-term solution, consider loan modification.
- Forbearance isn’t a solution for people who CAN continue making mortgage payments. If your finances have been impacted by coronavirus but you’re still in a position to make your mortgage payments, please, please, please continue to do so. The health of the entire mortgage industry may hang in the balance.
- Forbearance isn’t applicable to your escrow account. Your escrow account holds money in reserve so that your lender can pay your homeowners insurance and property taxes on your behalf. A portion of your monthly mortgage payment goes toward escrow. Check with your mortgage service regarding escrow reconciliation. Any escrow shortfall may be added to your monthly mortgage payment, or you could be hit with a lump-sum catch-up payment for taxes and insurance at the end of your forbearance period.
So what are your forbearance options as a homeowner? Read here!
Or are you a landlord trying to understand your forbearance options? Read here!
Covered wants to help!
From our family to yours, let’s get through this together.
- Covered is teaming with mortgage servicers to help homeowners proactively lower their homeowners insurance costs. This goal is to help minimize the potential budget jolt of increased monthly mortgage payments (caused by the need to “catch up” on escrow payments toward taxes and insurance). But there’s no need to wait to get started! Let our Digital Insurance Marketplace do the homework, or have one of our expert insurance advisors do a free policy review. Bundling, increasing deductibles, or adjusting your coverages or limits may help you find the best value for your budget.
- With interest rates at an all-time low, refinancing your mortgage may help you reduce your monthly mortgage payments for the longer term. Learn how refinancing works.
- Understanding your mortgage agreement can feel daunting. Check out Covered’s Mortgage 101 series for A Guide to Understanding Basic Mortgage Terms and How Does a Mortgage Work?