As the COVID-19 health crisis impacted the economy and thrust many people into financial hardships, lenders used mortgage forbearance to help borrowers remain in their homes. This was a very successful strategy that made mortgage delinquencies less common than they previously had been. But the deadline for COVID-related mortgage forbearance is drawing near. If you are one of the many homeowners who have been relying on this help and still haven’t achieved the security to afford your mortgage, you may be wondering what happens now.
What Mortgage Forbearance Is and Is Not
Mortgage Forbearance is a means to help both the borrower and the lender. By making an arrangement to help the borrower remain in good standing with their mortgage during hardships, the lender keeps a customer rather than having to foreclose.
Forbearance can include a temporary pause in payments or a reduction in payment. It is not loan forgiveness. The payments are excused missed payments. The entire debt is still owed and will have to be paid when the period ends. How that debt is to be paid depends on the forbearance program used.
How Lenders Recoup Missed Payments
Several methods are used to account for the missing payments, and which one is used depends on the lender. Below are the most common methods.
Repayment
At the end of the forbearance period, the borrower is expected to pay an additional amount for their mortgage each month to pay off the debt.
Deferral (Partial Claim)
The mortgage payment per month remains the same, and the missing amount is either added on to the end of the mortgage period or a subordinate lien is used to factor in the missing amount when you sell your home, refinance, or end your mortgage.
Modifications
With the modifications method, you may end the period with lower monthly payments, but the mortgage period will be extended to make up for the missing amount and the lower monthly payments.
Reinstatements
Some lenders expect the borrower to pay the full amount of missed payments in a lump sum when the forbearance period is over.
Different methods may work best for different borrowers depending on their long-term goals, their financial situation at the end of the forbearance period, and whether they were able to plan for the repayment.
What to Do If You Still Can’t Pay
If you are still not able to afford your mortgage payments or will be in financial hardship because of the terms at the end of the forbearance period, there are some things you can do.
Discuss the situation with your lender. It is better to be upfront about problems and see if something can be arranged rather than let yourself become delinquent and ignore the issue. They may work with you or suggest assistance from a third party to help you remain in good standing. Remember, it’s usually in their best interest to retain a customer rather than foreclose. If you appear to want to pay your mortgage and take responsibility for it, they will probably work with you.
MENTOR, OH BANKRUPTCY ATTORNEY
If suitable arrangements can not be made with your lender, you may need to file for bankruptcy to regain your financial health. This is not a failure, but a path to a sounder future. Make your appointment with Moseman Law today to help you determine if bankruptcy is your best option and which chapter to file for the best outcome.