What Is Mortgage Forbearance?
Forbearance is when your mortgage servicer or lender allows you to pause or reduce your mortgage payments for a limited period of time. Forbearance doesn’t erase what you owe – you’ll have to repay any missed or reduced payments in the future. If your income is restored, we strongly suggest reaching out to your servicer and resume making payments as soon as you can.
Important Things To Know First
For many homeowners with mortgages, there’s help, but first assess your situation:
If you CAN pay your mortgage, pay your mortgage. Please do not call your mortgage servicer if you aren’t facing an immediate issue. Mortgage servicers are getting a lot of calls and need to first help those who need it the most. Check your servicer’s website first for possible options. Once again, a forbearance is not debt forgiveness – you still have to pay back any and all missed payments.
If you CAN’T pay your mortgage, or can only pay a portion, contact your mortgage servicer immediately. It may take a while to get a loan servicer on the phone, as loan servicers are experiencing very high call volumes and are impacted by the coronavirus pandemic as well. We recommend reading this CFPB article carefully so you are prepared for your conversation with your servicer.
Mortgage Forbearance: CARES Act
A new federal law, the Coronavirus Aid, Relief, and Economic Security (CARES) Act, puts in place two protections for homeowners with federally backed mortgages:
- A foreclosure moratorium
- A right to forbearance for homeowners who are experiencing a financial hardship due to the COVID-19 emergency
If you’re among those financially impacted by the coronavirus pandemic, you might be concerned about how to pay your mortgage. Federal and state governments have announced plans to help struggling homeowners during this time. We recommend watching the CFPB video below to get additional information on what to do now, and what your options are for mortgage relief.
CARES Act Mortgage Forbearance – What You Need to Know From the CFPB:
Forbearance Impact On Credit Scores
Below is what FICO® has said in regard to how a forbearance during the COVID-19 pandemic will affect credit scores:
It is important to note that the CARES Act governs how furnishers [like FICO] must report to the credit reporting agencies (CRAs) only in circumstances where they have reached an accommodation with the borrower. In those cases, furnishers must continue to report the account status as “current”, provided the account was not already in a delinquent status prior to the accommodation.
This reporting approach– placing borrowers in a temporary deferred payment plan or in forbearance, along with reporting an account status as “current”– will permanently ensure that a borrower’s FICO® Score will not be impacted by late payments related to the effects of the COVID-19 pandemic.
To summarize, only your lender is in a position to assess how you’ve been impacted by the COVID-19 pandemic, and to report all key credit data fields in a manner that best reflects your situation. As they are reported to the CRAs, payment status, amounts past due (if any), and balance information will continue to be important and considered in the calculation of the FICO® Score. You should not stop making loan payments until you’ve reached an accommodation plan with your lender.
Per the CARES Act credit reporting guidelines, when the forbearance program begins, if your mortgage account is:
- Current & In Good Standing: It will stay that way during the forbearance period and the status should remain as “current account” and “as agreed”.
- Past Due: It will remain at that status but will not accrue further delinquency during the forbearance period.
Example: 30-day delinquency prior to the period remains a 30-day delinquency throughout the accommodation period.
We strongly suggest reviewing the complete details on credit reporting during the COVID-19 crisis on the FICO® website.
Note: Here is a link to another Credit Provider (Vantage) or “furnisher” that also sets out its guidelines related to Forbearances.
Important Note: On April 18th, David Stevens, former President of the Mortgage Bankers Association and the current CEO of Mountain Lake Consulting, reported that some creditors and credit bureaus are in fact showing mortgages in forbearance as “late” and “in forbearance” on credit reports. According to Mr. Stevens, this may be because Fannie Mae and Freddie Mac have not provided specific direction to lenders, servicers and credit bureaus. In any case, when this happens, borrowers in forbearance will see their credit adversely impacted even though the CARES Act stated that forbearances will not impact credit. Hence, we strongly advise borrowers seeking forbearances to discuss the potential impact on their credit with their servicer, and to get a promise in writing from their servicer that their credit will not be impacted.
What To Do Once You Are In Forbearance
According to the Consumer Financial Protection Bureau, while you’re in the forbearance period or working under another mortgage relief option, there are a number of things to do to continue to protect yourself. This advice applies to both a CARES Act forbearance and other mortgage relief that you might receive.
- Keep written documentation on hand. You want to make sure that you have this documentation available in case there are any errors on your monthly mortgage statements to ensure that your statement reflects the assistance provided.
- Pay attention to your monthly mortgage statement. Continue monitoring your monthly mortgage statements to make sure you don’t see any errors.
- Stop or change auto-payments for your mortgage. If you are having your mortgage payment deducted automatically from your bank account, make sure you make any necessary adjustments to avoid any fees or charges.
- Keep an eye on your credit. It’s a good idea to routinely check your credit reports in order to make sure there are no errors or inaccuracies. If you stop making mortgage payments without a forbearance agreement, the servicer will report this information to the credit reporting companies, and it can have a lasting negative impact on your credit history. If an error has been made, however, you can work to dispute it.
- Once your income is restored, contact your servicer and resume your payments. With forbearance, you still owe the payments that you missed, but fewer missed payments mean you’ll owe less down the road.
- If you’re continuing to receive some income that turns out to be more than you need for your bills and expenses (including anything you keep paying on your mortgage), consider putting the extra money away so you can use it to pay off what’s needed later. If you can save any money now, it’ll be helpful when payments are due later.
- Your property taxes and insurance should continue to be paid if your mortgage has an escrow account, but you may want to confirm with your servicer. If your mortgage does not have an escrow account, you will be responsible for these payments.
COVID-19 Forbearance FAQs
What is the difference between a forbearance plan and payment deferral?
A forbearance provides temporary relief by reducing or suspending your payments for a brief period of time, depending on your individual situation. Toward the end of your forbearance period, your servicer will reevaluate your situation to determine the best program to repay those missed payments.
A payment deferral is an agreement to pay the past due amounts at a different time. This may be an option for you at the end of your forbearance period based on your unique circumstances and loan program. However, it may not be the best solution if you need a more permanent payment reduction or have an extended need for forbearance.
What if I need even more time to resume my mortgage payments?
If you still aren’t ready to resume making monthly payments at the end of your forbearance plan, you can request an extension of your plan for another three months. Extensions will be available through a maximum 12-month forbearance term upon a showing of continued hardship.
Will my credit score be affected if I skip a mortgage payment?
You should not skip a mortgage payment unless you’ve entered into a forbearance plan with your loan servicer. If you skip a payment without a forbearance plan in place, your payment will be marked and reported as late.
Will I have to pay extra fees?
While in forbearance, homeowners do not incur late fees or other penalties. However, the terms of the mortgage are unchanged, and arrangements will need to be made with the servicer to make up missed payments.
What happens at the end of the forbearance?
At the end of the forbearance period, the homeowner will work with their servicer to repay all past due amounts and accrued interest. Homeowners unable to resolve past due amounts, or who need a lower mortgage payment, are evaluated for longer-term borrower assistance options such as a loan modification.
NOTE: Be sure to discuss repayment options with your servicer when you request your forbearance approval. This is because different servicers can demand very different repayment plans. Some may demand your entire arrearage to be paid in the first month after the forbearance ends, and some may be much more flexible and allow the repayment period to extend over multiple months. It is important that no one is caught off guard by a very large payment demand after the forbearance period ends.
Will I qualify for a refinance if I enter into a forbearance plan?
It depends.
On May 19, 2020, the FHFA came out with new guidelines for “conforming loans” or loans backed by Fannie Mae and Freddie Mac.
If a borrower has had her forbearance authorized by her servicer but is still making timely mortgage payments, she will still be allowed to refinance (or finance a new purchase) even though she is technically “in forbearance.”
If a borrower is formally in forbearance and not making payments, she will not be able to refinance (or finance a new purchase) until her forbearance has ended and she has made at least three timely payments in accordance with her repayment plan.
In other words, to quote FHFA Director Mark Calabria, “Homeowners who are in COVID-19 forbearance but continue to make their mortgage payment will not be penalized.”
For jumbo loans and other loans that fall outside of “conforming” or Fannie Mae and Freddie Mac guidelines, the repercussions of forbearance will be more severe.
These borrowers will likely not be able to refinance until they are out of forbearance and their deferred balances have been repaid.
A major risk of forbearance, particularly if payments are actually missed, is the possibility of missing out on a refinance opportunity while rates are very low.
Will I qualify for a forbearance if my mortgage loan only recently closed?
In many cases you will not qualify for a forbearance if you miss your first payment. We encourage borrowers with recently funded loans to reach out to the lender that funded their loan for additional information.
How will a forbearance affect my credit? Will it prevent me from obtaining mortgage financing in the future?
A forbearance plan properly authorized by your servicer should not adversely impact your credit. Borrowers who simply stop making payments, however, without obtaining a formal approval for a forbearance plan will most likely see an adverse impact to their credit. Borrowers with a formally authorized forbearance plan should be able to obtain mortgage financing in the future as well, but only after they make up or pay all of their missed payments. For more information, please see the section above titled “Forbearance Impact on Credit Scores” and the related links in that section.
Important Note: On April 18th, David Stevens, former President of the Mortgage Bankers Association and the current CEO of Mountain Lake Consulting, reported that some creditors and credit bureaus are in fact showing mortgages in forbearance as “late” and “in forbearance” on credit reports. According to Mr. Stevens, this may be because Fannie Mae and Freddie Mac have not provided specific direction to lenders, servicers and credit bureaus. In any case, when this happens, borrowers in forbearance will see their credit adversely impacted even though the CARES Act stated that forbearances will not impact credit. Hence, we strongly advise borrowers seeking forbearances to discuss the potential impact on their credit with their servicer, and to get a promise in writing from their servicer that their credit will not be impacted.
Will I be required to repay my missed payments in one lump sum after my forbearance plan ends?
On April 27th, the Federal Housing Finance Agency (FHFA) reiterated that borrowers in forbearance with a Fannie Mae or Freddie Mac (the Enterprises)-backed mortgage are not required to repay the missed payments in one lump sum. We advise reading this news release from Freddie Mac in regard to lump-sum payments.
FHFA’s Director Mark Calabria released a statement saying, “No lump sum is required at the end of a borrower’s forbearance plan for Enterprise-backed mortgages (i.e. conforming loans). To help homeowners navigate the forbearance process, FHFA partnered with CFPB on the Borrower Protection Program to provide homeowners accurate information about forbearance and address concerns noted in some consumer complaints. While today’s statement only covers Fannie Mae and Freddie Mac mortgages, I encourage all mortgage lenders to adopt a similar approach.”
If your mortgage is not Enterprise-backed (i.e. jumbo loans), we recommend speaking with your servicer about the specific options available to you for repayment.
JVM Forbearance Updates
Below is the latest forbearance news and updates from JVM Lending. We will continue to post the latest news in regard to forbearances on this page.
- May 20, 2020 – Why Are Refi Rates Higher Than Purchase Rates? Can Borrowers In Forbearance Refi – Yes & No
- May 8, 2020 – Obtaining Mortgage Financing After A Forbearance
- April 24, 2020 – Interest Rates/Mortgage Industry Update; When NOT to File Taxes
- April 23, 2020 – Qualifying After Returning to Work
- April 20, 2020 – Borrowers In Forbearance See Credit Whacked! Purchase Market Lives: Texas Re-opens
- April 13, 2020 – Jumbo Market Lives; Inflation = Windfall; Why Lenders Are Terrified of Forbearances
- April 3, 2020 – Jumbo Market Gets Even Tighter as Wells Fargo Pulls Out; Forbearances Again
- April 2, 2020 – Forbearance Confusion; Refis Dominate Market; Purchases Still; Mortgage Industry Remains Alive
- March 27, 2020 – Forbearances Explained; ≠ Free Lunch; Mortgage Industry In Panic Mode
We recommend checking the Centers for Disease Control (CDC) website for the latest news and advice in regard to COVID-19. Your health and safety are what’s most important.
If you have questions about forbearances, please contact us here.
Content Sources & Other Helpful Information:
- Consumer Financial Protection Bureau – Guide to Coronavirus Mortgage Relief Options
- CARES Act Mortgage Forbearance: What You Need to Know— consumerfinance.gov
- PennyMac COVID-19 Resource Center
- Fannie Mae – Know Your Options – Get Relief From The Financial Impacts of Coronavirus
- Freddie Mac’s COVID-19 Response
- FICO® Credit Reporting In The U.S. During The COVID-19 Pandemic
- VantageScore statement advising on scoring options for those impacted by COVID-19
- FHFA’s Webpage on Coronavirus Actions
- FHFA and CFPB Borrower Protection Program Announcement
- Advantage Credit – Credit Reporting Services
Past Updates
CLICK HERE to view all updates JVM has posted in regard to COVID-19 and its effects on the mortgage lending and real estate industries.
The information on this page was last updated on 5/28/2020.
