Forbearance

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1. WHAT IS “FORBEARANCE”? WHAT IS “MORTGAGE FORBEARANCE?”
   Mortgage forbearance is a relief option where a mortgage lender may allow a borrower to temporarily pause or reduce their mortgage payments while the borrower deals with a temporary, extreme hardship such as a health, economic and/or family crisis. This option, which is discretionary and not normally mandated, may allow a lender to give a borrower a “pass’ on making timely payments while the borrower is struggling with a difficult situation. However, forbearance does not permanently forgive what is owed. The borrower will need to makeup missed or reduced payments at a later time, pursuant to a forbearance agreement. Interest will continue to accrue on the paused payments, until they are paid. Often, lenders do not put forbearance agreements into a formal, written signed agreement and extend time for a forbearance in a disjointed manner, depending on the borrower’s situation and the lender’s policies.
   
2. THE GOAL OF FORBEARANCE
   The goal of forbearance is to avoid foreclosure where the mortgage arrears are caused by events outside of the borrower’s control.
   
3. ADVANTAGES VS DISADVANTAGES
   Mortgage forbearance usually does not negatively affect a borrowers credit report.The lender will report the borrower current, although the borrower missed payments, as allowed by the lender under the forbearance agreement with the borrower. However, if the borrower deviates from what the lender agreed to, the lender may report the payments late when they are not in accord withe the forbearance agreement.
   
4. WHAT ARE THE TERMS OF A FORBEARANCE?
   Typically forbearance agreements are for a limited time initially, three (3) – six (6) months. Most forbearance can be extended by agreement to twelve (12) months, and sometimes up to eighteen (18) months depending on each lender’s policies.There is no clear method for repaying the amounts temporarily not paid under the forbearance agreement. A lender may demand full reinstatement at the end of the forbearance agreement or spread the arrears out over time to be repaid along with regular mortgage payments. The lender, at their discretion, may also agree to put all the amounts not paid during the forbearance in the back of the loan. Because lenders policies are not always clear as to the repayment of the forborne amounts, borrowers in forbearance agreements have to be careful not to over rely on the lender’s understanding of their situation.
   
5. STATUTORY MANDATES SUPPORTING FORBEARANCE DURING THE COVID-19 PANDEMIC
   Under the CARES ACT, which was passed by Congress at the end of March 2020, millions of borrowers received forbearance for their residential mortgages. The terms to get the relief were relatively broad. The borrower needed to be directly or indirectly suffering an economic hardship due to the Covid-19 pandemic and the borrower needed to have a federally backed mortgage, which included, Fannie Mac and Freddie Mac loans, HUD/FHA loans, VA loans and USD loans. Often, non-federally backed loans also received similar forbearance terms during the pandemic.
   
6. DIFFERENCE BETWEEN A FORBEARANCE AND A MODIFICATION OR OTHER MEANS OF SETTLING A DEFAULTED MORTGAGE