Mortgage forbearance is an option available for U.S. homeowners who temporarily could not pay their monthly mortgage. Homeowners in the U.S. who are experiencing financial hardships as a result of the pandemic coronavirus disease, or COVID-19, were recently encouraged to get in touch with their respective mortgage servicers to possibly prevent losing their homes.
In a recent Housing Wire article, the two Government Sponsored Enterprises (GSE), namely, Fannie Mae and Freddie Mac had reminded mortgage servicers to make hardship forbearance an option for struggling borrowers impacted by COVID-19. Federal Housing Finance Agency Director Mark Calabria thereafter issued a statement encouraging homeowners who are currently experiencing hardships to reach out to their mortgage servicer.
To alleviate the pandemic’s effect on homeowners, the U.S. government decided to suspend foreclosures and evictions for borrowers who will miss their payments for 60 days. Calabria said the policy will allow people to stay in their homes.
Forbearance allows homeowners to have flexible repayment options
Struggling homeowners immediately need to notify their servicer and ask what type of forbearance options are available to them. Depending on their situation, homeowners who are under forbearance could temporarily pause their mortgage payments for a few months until they recover their finances. Borrowers whose income has been greatly affected by the COVID-19 may consider forbearance if they will likely miss their monthly payments for the coming months. Through forbearance, some servicers may allow borrowers to pause their payments from 6 months to 1 year, or have their payments reduced for 3 months.
The factors that affect the type of forbearance include the type of loan, the investor’s requirements in the homeowner’s mortgage loan, and the mortgage servicer.
Other loss mitigation options available for struggling homeowners
Aside from forbearance, borrowers who do not want to give up their homes may try other options to possibly help them keep up with their mortgage payments. It’s important for borrowers to immediately notify their servicer so that they could learn what other mortgage options are available to them.
A repayment plan could be an option for homeowners who have started to miss a number of small payments. Homeowners are given a fixed schedule to repay the missed payments by adding small portions of it to the regular payment.
A reinstatement is an option for homeowners who think that their financial hardship is temporary, and they could determine a time frame of when they can recover. Once a homeowner agrees on a date for reinstatement, he or she needs to pay the entire past dues including late fees or penalties that the servicer imposed.
Before contacting their servicers, homeowners may find it ideal to have a good sense of their current finances, budget, and home equity. Homeowners also need to explain to their servicer the reasons why they fell or will fall, behind with their payments and for how long they expect to experience such a problem.
Struggling homeowners should be aware of predatory scams
Scammers lure struggling homeowners who are at risk of losing their homes. These scammers could offer “too good to be true” options that could result in homeowners losing more money.
Struggling homeowners could lose more money or they could even lose their homes when scammers are able to take advantage of them. Homeowners should avoid making transactions with people who claim to be a “foreclosure prevention specialist” who gives false hope to borrowers who want to save their homes. These scammers often charge high fees and don’t bring in the results.
Moreover, struggling homeowners could lose their homes if they fall victim to scammers who offer to “rescue” them through a buy-back arrangement. This is where homeowners become tenants in their own homes until they get evicted.
It’s important for struggling homeowners to know that most legitimate housing and credit counselors offer free services or charge very minimal fees. Homeowners who think that they’re going to start missing payments should call the local office of the U.S. Department of Housing and Urban Development (HUD) or the Homeownership Preservation Foundation.
The ongoing COVID-19 pandemic could make many homeowners miss their monthly mortgage payments. Homeowners who think that they will likely miss making these payments should call their mortgage servicer and discuss what forbearance option best suits their situation. Struggling homeowners should be aware that scammers could take advantage of their situation.