Corona virus, finances, bankruptcy ... Part 3 ... "Forbearance"

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04/28/2020 - UPDATE: Federal backed mortgages will not require immediate pay back of missed payment while a mortgage was in forbearance. "... the Federal Housing Finance Agency (FHFA) reiterated that borrowers in forbearance with a Fannie Mae or Freddie Mac (the Enterprises)-backed mortgage are not required to repay the missed payments in one lump sum...

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If the hardship has not been resolved, the forbearance plan can be extended. If the hardship has been resolved, the servicer will work with the borrower to:

• Set up a repayment plan;
• Modify the loan so the borrower's payments are added to the end of the mortgage; or
• Set up a modification that reduces the borrower's monthly mortgage payment." 

VA Mortgages have similar protections. It is estimated this covers about 60% of mortgages. Many will benefit from this program but there are always people who get snagged in the bureaucracy and are left out. I still recommend this program only be used if necessary. 

04/04/2020 - Original Post

As the "Stay at Home" orders are extended and finances grow tighter, people are looking for options to lessen the economic pressures at home. One of the programs being offered is mortgage forbearance. That may be an option for people but they need to understand what that means and only use it if they need it.

Forbearance does not "forgive" that month's payment or those months' payments. It doesn't extend the payments by adding them to the end of the loan; that is a loan modification. Forbearance merely puts the payments off for a few months and then they need to be caught up, possibly all at the same time. 

For instance, if your mortgage is $1,500.00/month and you ask for 3 months forbearance that covers April, May, and June, in July, your bank will expect all four months of mortgage of payments or $6,000.00 at one time to cover April through July. You may be to work out additional terms with you bank but the initial expectation it to catch up the loan. 

For some people, this may be a suitable amount of relief and for others it may be a necessary evil. If you absolutely need this relief, use it. Just understand what the terms are. If you start a forbearance and find you don't need it, put your mortgage payments away as a safety net during this time and you may have it to pay up your mortgage after this crisis is over. If you know you will not be able to make up the payments in the short term, be ready for the next step. 

Some banks may offer a "catch up" payment plan such as a regular payment and an additional 1/2 monthly payment for 6 months. Maybe you will need to apply for a loan modification. If you believe may need a loan modification, start looking at your bank's loan modification program and its requirements now. I cannot tell you how you will need to make up your back payments; just realize you will not automatically just start up where you left off and continue until the mortgage is paid. If a people cannot work out a catch up plan with the bank, they may be able to use Chapter 13 bankruptcy protection to catch up their mortgage.  

I recommend people don't use forbearance if they do need it but forbearance on a mortgage may be a necessary evil for a family during this crisis.  People need to understand there will be more to do and what options they may have after the crisis passes. They will have additional decisions to make and steps to take.

If you want assistance, legal representation, or just want to know more about me, Mark M. Medvesky, or Wells, Hoffman, Holloway & Medvesky LLP, check out our website at www.whhmlaw.com.