Forbearance will be ending for many next month. More than 2.5 million remained in forbearance plans as of late February. If your forbearance plan is ending soon you need to take action now.
COVID forbearance can be extended
As your initial 12-month mortgage forbearance expires, you may ask to extend it by three months. Then, if you need to, you can ask for another three-month extension. In total, your forbearance can last 18 months.
Extensions won’t be given automatically. You have to call or respond to your mortgage servicer.
The option to extend forbearance to 18 months is available for most mortgage types, depending on when the initial forbearance started:
About 70% of home loans are eligible for this extension. They are covered by government regulations designed to protect borrowers.
About 30% of mortgages don’t have to comply with these regulations. These are largely jumbo loans, which exceed conforming limits; mortgages that banks originated and kept on their books; and nonqualified mortgages, many of which are underwritten with alternative documentation or have debt-to-income ratios over 43%.
Although servicers of these loans aren’t required to offer forbearance, some do. When ready to exit forbearance, these borrowers must negotiate with their mortgage servicers.
What happens when forbearance finally ends?
When you entered forbearance last spring or summer, you might have heard that you would have to repay the past-due amount upon leaving forbearance, either in a lump sum or through additional monthly payments.
If you can’t afford to pay a big lump sum or higher payments each month, deferral means you might be able to return to the same monthly payments you had before.
Your options for exiting forbearance vary, depending on your financial situation and the type of mortgage you have.
Reinstatement If you have enough in savings to comfortably repay the past-due amount in one payment then make the payment and your loan will be reinstated and you’ll move forward as if forbearance never happened.
Repayment plan If you can afford to pay additional monies in the amount of an extra few hundred bucks each month until you’re caught up, you may agree to a repayment plan.
COVID-19 Payment Deferral Your servicer may look at your income and expenses and decide that, while a repayment plan would be unaffordable, you could resume making your pre-COVID monthly payments. In this case, you might be eligible for a COVID-19 Payment Deferral.
With the payment deferral, your past-due amount is pushed back to the end of your mortgage term and added to your last scheduled payment. You return to making your regular payments. You’ll repay the past-due amount when you sell the home, refinance the mortgage or reach the end of the mortgage term.
If a COVID-related financial hardship permanently hampers your ability to resume making the pre-pandemic payments, the servicer may offer to modify the loan to reduce the monthly payment. With a loan modification, the servicer might extend the mortgage term, reduce the interest rate, forgive some of the principal, or some combination.
Whatever you do, don’t just assume that the mortgage company will bee reaching out to you. You need to take the initiative and reach out to your lender ASAP.