Mortgage delinquency rates are steadily on the rise, and so is the volume of forbearance plans.
The Mortgage Bankers Association shows that 8% of loans (almost 4 million homeowners) are now in forbearance programs.
The unemployment rate has reached its highest peak since the Great Depression, and according to data, the economy has shed approximately 20 million jobs in April alone.
Due to the current state of our economy, many homeowners have either stopped paying their mortgages altogether or sought out forbearance options for some financial relief.
What is Forbearance?
Forbearance programs allow the borrower to postpone their payments due to financial hardship.
In many cases, forbearance is sought out as a last resort for financial relief. Although helpful, it is crucial to understand that forbearance does not mean your payments are erased. The borrower will still be responsible for making any missed payments in the future.
It is also vital that borrowers fully understand the agreement.
Although many lenders offer “options,” not all define forbearance in quite the same way… because of this, many borrowers have a hard time understanding when and how repayment is due and the guidelines of their agreement.
Knowing if You are a Good Candidate for Forbearance
First, do a little digging to find out whether you have a federally backed mortgage loan or not. A mortgage that is backed by (FHA), (VA), or (USDA), will likely already have the information you need because of the way you initially qualified for your mortgage loan.
Under the Cares Act, lenders must make forbearance plans available to homeowners that are backed by a federal mortgage.
If you do not have a federal mortgage, you may still qualify for forbearance, depending on your lender.
Determining Who Services Your Mortgage
Find your servicer by searching the Mortgage Electronic Registration System.
Throughout this process, it is crucial to understand that mortgage servicers are, in fact, “loan collectors.” Their goal is to collect the highest amount possible on the return of your mortgage- meaning they aren’t likely to showcase all of your best options.
To avoid getting pigeonholed into a harsh agreement, seek out a certified housing counselor first for assistance.
The Department of Housing and Urban Development offers a list of approved housing counselors.
In instances like loan forbearance, it is in your best interest as the borrower to seek out experienced assistance. It is important to note that there are counseling agencies that will advise you at no charge and are not paid by the lender.
Information to Have Before Contacting a Housing Counselor About a Mortgage Forbearance
Income and expenses are an essential part of achieving the best forbearance agreement possible. The income and expense documentation needed will likely include pay stubs and bank statements.
Although some homeowners may become nervous at the thought of providing income and expenses, in reality, this information works in your favor by ensuring that you do not get stuck in a plan you cannot afford.
Such documentation also helps you present a file that the lenders cannot deny.
Will a Mortgage Forbearance Affect Your Credit?
Whether or not your mortgage forbearance will affect your credit score, really all depends on the type of forbearance you have.
Credit relation to mortgage loan forbearance is something that you want to get worked out before entering into a forbearance agreement.
The Cares Act clearly states that mortgage servicers of federally backed mortgage loans cannot make negative reports on the borrower to credit bureaus.
Final Advice on Mortgage Forbearance
The best advice we can give is not to hold back from taking charge of the hardship you are faced with. Act now!
As soon as you realize you have a problem, partner with professionals, and work towards a smart solution that works in your best interest.
