Are You Facing End of Forbearance? Know your Options Here
Your lenders will want work with you in order to avoid you being forced out of your home, but you need to make the first move and contact them as soon as possible.
Some homeowners will be facing an end of their 18-month forbearance period, and the borrowers that have been impacted by the global health crisis will need to figure out on how to repay their lenders for back payments. Luckily, most loan servicers do not want to go through a foreclosure process, and instead wants to offer various repayment options than can help keep borrowers stay in their homes.
Who are qualified?
If your mortgage is owned either by the Federal Home Loan Mortgage Corp. (Freddie Mac) or by the Federal Mortgage Association (Fannie Mae), it may have been suspended your payments for up t0 18 months temporarily. Usually, these two own about 80 percent of all mortgages. Congress specified no deadline for applying Covid-19 Pandemic related forbearance from either Fannie Mae or Freddie Mac, although their regulator, the Federal Housing Finance Agency, has already set the deadline at end of September 2021. If your loan is insured by the Federal Housing Administration or FHA, part of the U.S. Department of Housing and Urban Development; the Department of Agriculture; of the Department of Veterans Affairs (VA), then the deadline for requesting an initial forbearance is also set on September 30th.
But before anything else, your initial step should always be, contacting your respective loan servicer and discuss things with them. For those wanting to know if their loans are owned by Freddie Mac or Fannie Mae, you can check here by clicking on the Link or URL found below.
- If you want to search for Fannie Mae, click knowyouroptions.com/loanlookup
- If you want to search for Freddie Mac, click ww3.freddiemac.com/loanlookup/
Please bear in mind that this is a loan forbearance and not a loan forgiveness. You and the loan servicer have agreed to reduce or suspend mortgage payments temporarily, and that your loan servicer agrees not to foreclose during that period. You will still owe principal and interest on all the payments that you have failed to pay previously.
If the federal government does not own or service your loan, then ask your loan servicer for any forbearance offers. At any rate, if you are having problems and issues making payments due to the current Global Health Crisis, call your loan servicer immediately and talk to them.
As reported by Black Knight, approximately 1.6 million mortgages are Covid-19 pandemic related forbearance. Black Knight is a mortgage data and technology company. The figure has slightly dipped as compared to the figures during the height of the pandemic. Still the 1.6 million troubled mortgages is still a massive number. Those homeowners who have gone into forbearance last year will soon have to think it over and have to weigh their options.
What will happen next?
From the perspective of a loan servicer, the ideal result for them would be that you hand them a check for all those missed payments or arrears when the forbearance period expires. This is strange and unusual especially if you owe them 18 months of missed mortgage payments.
Usually, loan servicers offer a range of repayment options and alternatives, based on your capacity and ability to make payments. Loan servicers are in the business of servicing loans and not managing real estate that have been foreclosed. And loan servicers will typically want to work things out with you. Here are some of the usual alternatives that your loan servicer may offer:
Repayment Plan: Your loan servicer will basically ask you if you can repay all your missed payments in forbearance within the period of three to twelve months. If you can, that would be the best scenario for them.
Back-end Payment: Here, your loan servicer will ask you if you can still continue to pay your mortgage payments as before. If you can, the servicer will tack on the payments that were in forbearance as a lump sum at the end of the loan. They will usually do this without you incurring any interest. Eventually, you can refinance your mortgage or sell your home and repay your principal. You can also repay the balance that was in forbearance.
Extended Payment Option: If you are able to make payments like you did before the Covid-19 pandemic have hit the country, the lender may offer to extend your mortgage. This would however mean additional interest and a longer payoff period, but as with the back-end payment option, you can also refinance your loan and repay the balance when you decide to sell your property.
Another option would be for the lender to offer you a new mortgage but with a 40-year term. This would mean that you would have to pay your monthly mortgage with a reduced amount. The typical mortgage has a maximum length of 30 years. However, there are lenders that are already offering a new 40 year mortgages, but this is still not common.
This longer mortgage would increase the amount of interest that you pay over the term of the loan. If for example, you have a 30 year $250,000 mortgage with a 3.125 percent interest rate and you want it refinanced to a new 40 year mortgage with the same rate, you are actually paying more with an additional $52,700 in interest over the term of the loan.
If your forbearance period expires and you cannot make any of these options work for you, then you will probably have to think it over and decide to just let go of your home and sell your property. On the brighter side though, the housing market has been positive lately despite the global health crisis, giving the value of homes a huge lift. The report from S&P Case-Schiller U.S. National Home Price Index states that the home value in the country has jumped to 16.6 percent from the past 12 months. And even if you have not been in your home for long, you will still get enough profit from the sale of your home.
If you cannot sell the loan for whatever value that you want to repay what you owe, you will still be able to give the lender what is called a “Deed In Lieu of Foreclosure.” This means that you return the house to the loan servicer in order to satisfy whatever amount that you owe to them. Usually, the loan servicer will require that your house should be in good condition and spic and span; some of these servicers will offer up to $3,000 in relocation costs. You may also recommend a short sale –meaning you sell the house on the open market but at a price lower than what you owe but is still acceptable to them. Of course, you need their approval first before you can do a short sale.
If you are in financial downturn, contact your loan servicer and discuss with them about the options that may work for you. From there, you may be able to land some agreeable ways in order to avoid foreclosure and eviction, which is the worst scenario that you could land to. Answer any notices that you get either by phone or by mail. Coming out of this forbearance can be really challenging, tough and tricky, but do not make it even harder on you by ignoring the realities.