By Sarah Szczypinski, CNET
In addition to its vast human toll, the pandemic has ravaged the financial resources of millions of US homeowners. Since the Coronavirus Aid, Relief, and Economic Security Act passed last year, more than 9 million Americans hit pause on making monthly mortgage payments, entering what’s technically referred to as a “forbearance.”
But there are hundreds of thousands of additional homeowners who may qualify for relief. A 2020 Urban Institute survey found that approximately 530,000 delinquent homeowners had not requested forbearance relief — despite being eligible.
Why? A National Housing Resource Center survey from last year suggested that homeowners may have feared having to make a significant lump-sum payment at the end of forbearance — it’s actually just one of many options — or simply not known about the program. Others may have had difficulty connecting with their loan servicer.
The CARES Act’s homeowner protections were set to expire at the end of June 2021. But the US Federal Housing Administration has announced additional measures for struggling homeowners. Highlights include:
- A moratorium on single-family foreclosure and eviction extended from June 30 to July 31, 2021
- An extension of the deadline to request mortgage forbearance from June 30 to Sept. 30, 2021
- The extension of a program to help homeowners reduce monthly mortgage payments by 25% or more
Whether you’ve already resumed making mortgage payments, are still in forbearance or are in danger of defaulting on your loan, there are new protections for homeowners like you. Read on to learn everything you need to know about mortgage forbearance and the new extensions.
What is forbearance protection?
Entering into forbearance allows you to hit pause on making your monthly mortgage payment. The missed payments go into a separate loan bucket if you have a federally backed loan or move to the end of your mortgage with Fannie Mae or Freddie Mac. In both cases, forbearance has a 0% interest rate, no fees and is repayable when you refinance, sell or when the mortgage term ends. A few other important things to know:
- Accepting forbearance assistance won’t hurt your credit score. If your account is current when you enter forbearance, your loan servicer cannot report a pause in payments as “delinquent” to the credit reporting agencies. If you’re behind on your mortgage when you enter forbearance, your loan servicer cannot report your account as more delinquent while your forbearance period is active. You can find additional information about this from the Consumer Financial Protection Bureau.
- You will not be required to repay your missed payments in a lump sum.
- Legal proceedings like foreclosure are suspended.
The US Department of Housing and Urban Development offers resources to help you navigate the process. “HUD has a website to help you find a housing counselor near you for people who need that resource individually,” said Alanna McCargo, a HUD Senior Advisor for Housing Finance. “If they don’t feel like they have enough information, a local housing counselor will work with them and the servicer to get them into the right space.”
What are my options?
On June 25, the US Federal Housing Administration announced the latest relief options. If you’re struggling to pay your mortgage, here’s an updated overview of what you can do.
Request forbearance
The new guidelines have extended the deadline for first-time COVID-19 forbearance requests. Homeowners who have not previously been in forbearance can now request assistance until Sept. 30, 2021. The table below summarizes your options based on the forbearance period start date. (If you aren’t sure who owns your loan, you can look it up using the Mortgage Electronic Registration Systems website.)
FHA COVID-19 FORBEARANCE PERIODS (UPDATED JUNE 25, 2021)
| Initial forbearance date | First forbearance period | Second forbearance period | Third forbearance period | Maximum forbearance period |
|---|---|---|---|---|
| March 1, 2020 to June 30, 2020 | Up to 6 months | Up to 6 months | Up to 6 months (in 3-month increments) | Up to 18 months |
| July 1, 2020 to Sept. 30, 2020 | Up to 6 months | Up to 6 months | Up to 3 months | Up to 15 months |
| Oct. 1, 2020 to June 30, 2021 | Up to 6 months | Up to 6 months | None | Up to 12 months |
| July 1, 2021 to Sept. 30, 2021 | Up to 6 months | None | None | Up to 6 months |
Extend existing forbearance
Depending on your loan servicer and how long you’ve been in forbearance, you may qualify for an extension to help you get back on your feet. The table above lists your choices, and if you don’t see an option that works for your situation, McCargo urges homeowners to reach out to HUD or a housing counselor.
“The nature of the pandemic, because it’s impacted people in so many different ways, has streamlined opportunities for people that are delinquent on their FHA mortgages,” she said. “This administration has been really focused on making sure that we can do everything in our power to keep people in their homes, especially since people have a lot of home equity and, therefore, their wealth tied up in property. It’s their livelihoods, and so it’s really important to try to do what we can to work with folks.”
Request a reduced monthly mortgage payment amount
If you are ready to exit forbearance but your monthly payment is still too high, modifying your loan term could help you find an affordable solution.
For FHA loans, the COVID-19 Advance Loan Modification (aka COVID-19 ALM) program is available to reduce monthly mortgage principal and interest payments by up to 25%. ALM requires loan servicers to review eligible borrowers’ accounts within 30 days of the expiration of the forbearance period. Better still, you aren’t required to contact your servicer to begin this process, but you will need to sign a modification offer from them to officially change your mortgage terms. You can find more details about COVID-19 ALM process here.
If Fannie Mae or Freddie Mac services your loan, there are also ways to lower your monthly payment. “Since every lender and servicer is different, the best way to find out what options exist is to reach out to your bank and ask,” said Brandon Howland, a loan officer at 1st Security Bank in Everett, Washington. “For clients in forbearance who are looking to refinance, I advise them to start making on-time payments as soon as possible if that is their goal.”
For clients who don’t qualify for loan refinancing, Howland recommends loan deferral. “[The bank] essentially takes the delinquent amount and moves it to a second mortgage lump sum and attaches it to the original mortgage,” he said. “It would bring the loan current, and then when the client sells or refinances, they would just have to add this amount to be paid, just like if it was a cash-out refinance to pay off a car loan, for example.”
New foreclosure protections for homeowners
In addition to extending forbearance provisions, the Biden administration has also extended the moratoria on foreclosures and evictions to July 31, 2021. Mortgages covered under the extended protections include:
- All FHA-insured single-family mortgages and home equity conversion (reverse) mortgages. Vacant or abandoned properties do not qualify.
Multifamily FHA mortgages that have been current on payments as of Feb. 1, 2020 - All Fannie Mae and Freddie Mac-owned single-family mortgages
- FHA, Fannie Mae or Freddie Mac-owned real estate owned properties acquired by private mortgage lenders through foreclosure or deed-in-lieu of foreclosure transactions
- USDA Multifamily Housing Communities
Under federal law, a servicer can’t foreclose your home unless your mortgage is more than 120 days past due. There can be exceptions depending on your forbearance terms or if you enrolled in a “loss mitigation program.” Although the rules vary by state, a servicer usually must notify a borrower before they begin foreclosure proceedings.
If you’re facing foreclosure, contact your housing counselor to help you work with your loan servicer. You can also contact the CFPB, which can help you find an affordable or no-cost attorney in your area.
What happens when my forbearance period ends?
At least 30 days before your final forbearance period ends, your loan servicer will contact you to discuss next steps. If you have additional forbearance periods available, you will need to reach out to your servicer to request an extension. If you have exhausted your forbearance options, your servicer will help you choose an exit strategy.
Note: Don’t forget to request everything in writing to make sure you understand the new terms of your mortgage. You may also want to review the agreement with your housing counselor or attorney.
What are my repayment options?
Your options for exiting forbearance depend on the type of mortgage you have and your financial stability. Options across all loan types are below.
OPTION FOR EXITING COVID-19 FORBEARANCE
| Option | Situation | How it works |
|---|---|---|
| Repayment plan | You can afford to pay more than your regular mortgage amount. | A portion of the forbearance amount you owe is paid monthly with your mortgage. |
| Deferral | You can pay your regular monthly mortgage amount but can’t afford to increase it. | The unpaid forbearance amount is moved to the end of your loan and repaid when you refinance, sell or the mortgage term ends. |
| Partial claim | You can pay your regular monthly mortgage amount but can’t afford to increase it. | This will either move your missed payments to the end of your loan or put them into an interest-free second mortgage called a COVID-19 Standalone Partial Claim, repayable only when you refinance, sell or the mortgage term ends. |
| Modification | You can’t afford to pay your regular monthly mortgage amount. | Your mortgage and missed payments are combined and reduced to an affordable monthly amount. Lower payments mean it will take longer to pay off your loan. |
| Lump-sum reinstatement | You want to pay back all of your missed payments at once. | Most loan servicers can’t require you to make a lump-sum payment, but it’s an option if you choose to do so. |
Special provisions for federally backed loans
Note that the FHA, USDA and the Department of Veterans Affairs do not require a lump sum repayment when forbearance ends. In addition, homeowners with VA loans may qualify for further COVID-19 assistance as the Biden administration conducts ongoing evaluations of veterans’ vulnerability. Here’s a partial list of loan service agencies that may provide more information:
- HUD’s information for homeowners (800-225-5342)
- USDA Rural Development COVID-19 Response
- VA home loans
- VA Regional Loan Center (877-827-3702)
- Fannie Mae (800-232-6643)
- Freddie Mac (800-373-3343)
If your loan isn’t backed by a federal agency, call your servicer directly to learn about your options. Be sure to ask about loan terms, fees and interest rates — and, as always, request written copies to review before signing a new mortgage agreement or modification.
