We have been getting calls and messages recently from our home owner clients that are considering applying for “forbearance” on their mortgage. Most people have found themselves unemployed or underemployed due to the Covid19 Coronavirus pandemic….but this could happen to anyone at any time. Should you do it? Maybe. However, you really need to understand the details of it all. We will cover some important points below.
During this pandemic, if you are able to manage, you should do EVERYTHING you can to continue to pay your mortgage. We WILL rebound from this. However, if that is not an option your choices would be to either begin the process of forbearance with your lender or if you don’t think forbearance is an option for you and you have some equity in your house, you may want to sell the house.
If you need help with your mortgage, the first call you should make is to your lender.
What is mortgage forbearance?
If you're facing a short-term financial hardship you might consider applying for a mortgage “forbearance”. Most lenders offer mortgage forbearance when someone needs temporary assistance with a mortgage – but forbearance is often combined with a “reinstatement” or “repayment plan”.
If you decide to move forward with mortgage forbearance, your lender will temporarily reduce (or suspend) your mortgage payments for up to 6 months while you get back on your feet.
The reinstatement or repayment plan coincide with forbearance to make arrangements to pay off the missed or reduced mortgage payments when your financial situation has stabilized.
What is mortgage reinstatement?
If you have the funds to repay missed mortgage payments, as well as any associated fees and late charges, a reinstatement can allow you to bring your loan current and avoid foreclosure. A reinstatement typically requires you to pay a lump sum by a specific date to become current.
What is a mortgage repayment plan?
If you're a few months behind on your mortgage due to a short-term financial setback, but are now financially secure, you may be eligible for a repayment plan. This option will enable you to make up your missed payments and late fees, over a fixed amount of time by adding a portion of what is past due to your regular monthly payment. By the end of the repayment period you will have paid back the amount of your mortgage that was delinquent.
“Mortgage Forbearance” math – a good example
I saw an email today from a great lender that I know - Kristy Osborne with Fairway Mortgage. It included this example which really brings this whole thing home.
Mom and Dad have a mortgage. It's currently $1,500 per month.
Dad gets laid off, calls the mortgage servicer, and asks for forbearance.
In one phone call, he gets 6 months "off" from paying.
Seven months later, Dad is finally back to work, and hasn't been able to save any money during the forbearance.
Forbearance is lifted and the mortgage servicer says, "That will be $9,000 + $1,500, which is now due". ($10,500)
Dad almost passes out and says, “WHY??"
Servicer: "That's the 6 months of forbearance plus the current month.”
(This is reinstatement, mentioned above)
Dad: "I can’t do that, can we work something out?"
Servicer: "Sure, we will spread out the $9,000 over 12 months."
Dad: "Phew....ok, good. What will that look like?"
Servicer: That will be $2250 a month for the next 12 months."
(This is the repayment plan, mentioned above)
Dad: " OH NO!!! I can't afford that."
Dad: "Can I refinance?"
Servicer: "No because the loan went into forbearance."
Dad: "What can I do?"
The answer is either reinstatement, a repayment plan, or foreclosure.
Forbearance is not forgiveness.
Use it as a last resort.
We would appreciate it if you could share this info. We need to keep putting this message out there, because we are still getting a lot of questions from home owners (and we are not the only ones getting those calls).
Please understand the seriousness of this, and if you still have questions, call your mortgage company. If you want to talk to a real estate professional in the DFW area, we are always here for you at 469-759-3899. If you decide to sell your home, we will provide a free consultation (over the phone, via video conferencing, or in person when allowed).
If you would like to read more about this topic, please view this Freddie Mac guide to avoiding foreclosure https://myhome.freddiemac.com/docs/pdf/avoiding_foreclosure.pdf
About the author:
Melissa Hailey is the Broker-Owner of North Texas Top Team, REALTORS in the Dallas-Fort Worth Metroplex. Our Team helps home buyers, sellers, landlords, and tenants move across North Texas and we connect clients to other great REALTORS across the country. She is a real estate instructor and coach who loves to see others succeed. She is a serial volunteer helping others in her community and in her industry. Connect with her at https://www.northtexastopteam.com/melissa-hailey/