Example of Forbearance Process

Mortgage Forbearance is NOT Forgiveness

There's a lot of news out there about Mortgage Forbearance causing A LOT of confusion to homeowners. Many think their monthly mortgage payment will be forgiven if they do not pay. Is it true?

Here's some information courtesy of the Association of Independent Mortgage Brokers (AIME).

What is Forbearance?

The Consumer Financial Protection Bureau defines FORBEARANCE as a temporary suspension of payment on a loan, like a credit card, student loan or mortgage. Loan forbearance for homeowners in the age of Coronavirus is one of the tactics the federal government has proposed to ease the mounting economic pressures facing everyday Americans. However, it is important to note that a mortgage forbearance is not granted to all homeowners. Rather, it must be applied for through the loan servicer and evaluated on a case-by-case basis; and guidelines for federally-backed mortgages and privately-secured mortgages vary.

It is also important to note that loan forbearance, while it may sound helpful to consumers in the very short-term, can actually be financially challenging shortly thereafter. Forbearance is only a temporary pause on monthly mortgage payments and unless homeowners make individual arrangements with their servicer for loan modifications or repayment plans, the payments will all be owed at once when the forbearance period ends.

How a Forbearance Agreement Works

A forbearance agreement can vary from servicer to servicer, depending on if the loan is federally backed or not. Generally speaking, a typical forbearance agreement can look like this:

Example of Forbearance Process
Example of Forbearance Process

One of the difficulties with forbearance is the strain it can cause a homeowner once the forbearance period ends. Since this is a temporary option, it will only delay the monthly mortgage payments to a later date, causing a balloon payment to be due once the forbearance period is over, if the homeowner has not made other loan payment arrangements with the servicer. A homeowner in forbearance should only be utilizing that option because of financial hardship, so trying to pay a large sum that equates to multiple monthly payments at one time could be difficult or impossible.


Jon Lam

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