Forbearance allows homeowners to suspend their monthly payments when they experience a hardship or interruption in their ability to make payments.
Photo: Sam Hall/Bloomberg NewsIf your mortgage is federally backed, lenders are supposed to allow forbearance for those experiencing a financial hardship caused by the coronavirus pandemic. Here are answers to commonly asked questions:
What is forbearance?
Forbearance allows homeowners to suspend their monthly payments when they experience a hardship or interruption in their ability to make payments.
It is not payment forgiveness or even deferment. Instead, all the missed payments, plus interest, are often due when the forbearance period ends.
As part of the $2 trillion stimulus package passed by Congress and signed by President Trump, lawmakers provided more guidance for mortgage companies granting forbearance to those affected by the crisis. If the loan is federally backed—and about 70% of mortgages in the U.S. are backed or insured by a federal agency—then the mortgage servicer is supposed to grant it.
Is it only those who have tested positive for Covid-19?
Borrowers qualify if they are experiencing a financial hardship caused directly or indirectly to the Covid-19 emergency, according to the stimulus package.
This definition is intentionally broad, said John Hastings, a senior loan officer at Movement Mortgage in Minneapolis. It is causing some confusion among lenders and borrowers.
“Servicers are going to be in a tough spot, and there are a lot of unknowns,” he said. “Don’t make any assumptions about what your options are.”
For example, Fannie Mae and Freddie Mac have said this applies “whether you’re facing job loss, reduced income, illness or other issues that impact your ability to make your monthly mortgage payment.”
Bob Broeksmit, chief executive officer of the Mortgage Bankers Association, said this should also apply if a hardship with a co-borrower or family member has similarly affected someone’s ability to make payments.
Even those who lose work hours or are considered underemployed may qualify, said Mr. Hastings. He said the wide swath of people affected by this crisis means there will be lots of room for interpretation, for both servicers and those seeking forbearance.
“If the loan is federally backed, those mortgages are going to have some protection, and the servicers will have more leeway,” he said. “But the privately held mortgages, the brokered-out loans, the type of mortgages where people had the stated income or bank-statement-type loan programs to show incomes, those servicers are scrambling, trying to figure out what they’re going to do.”
There has been a resurgence in unconventional nonagency mortgages, but as the mortgage market continues to break down in the wake of the pandemic, those might be the ones most negatively affected.
Should I do it?
It depends. Forbearances are usually granted after personal hardship such as death, divorce or a natural disaster. They are expected to be used widely as millions of Americans lose their jobs and struggle to cover living costs.
“I always stress: if you’re not affected and able to make your payments, please keep doing so,” said Mr. Broeksmit.
How can I do it?
Many mortgage companies have posted options available to customers who have been affected by the coronavirus pandemic. If you can’t find the information you’re looking for there, try calling your company directly. But be warned: You likely won’t be the only one trying to get through.
“We’ve been hearing from our members who service mortgages that the call volume has gone up exponentially and the hold times are 45 minutes or an hour in a lot of cases,” said Mr. Broeksmit.
Do I have to get in touch with my company by a certain date?
Wall Street Journal reporting shows some servicers are taking days or weeks to respond to forbearance requests. These long wait times could mean some borrowers might not be approved until both their payment date and grace period have passed.
But Mr. Broeksmit also points out that while many people may stress about putting in a request before their payment date, they should take advantage of the grace period in place if needed.
“Another thing I think is helpful to point out: while the mortgage payment is due on April 1, there’s a grace period, so it’s not delinquent until April 15,” Mr. Broeksmit said. “People shouldn’t think, ‘If I don’t get in touch with my servicer by April 1, I’m going to have some sort of negative consequence.’”
What happens if I’m not able to get in touch with my company until after my payment date and grace period have ended?
If the forbearance plan hasn’t been approved by the last day to make that month’s payment, the loan will likely be considered delinquent.
Will this affect my credit score?
It shouldn’t, but it might.
Freddie Mac has instructed mortgage servicers not to report borrowers on forbearance plans as delinquent to the credit bureaus.
In the past, natural-disaster victims granted the same relief have been reported late, making their recovery more difficult. And the record number of forbearances expected will challenge servicers’ capabilities, including the suspension of negative credit reporting.
Homeowners who accept a forbearance plan should regularly check their credit reports to make sure they haven’t been reported past due.
The Consumer Financial Protection Bureau has said it would give lenders more time to respond to credit-reporting complaints from consumers during the pandemic. That means homeowners might wait longer to have inaccurate information removed from their credit reports.
Will this affect the life of my loan? What happens to interest during the time I’m not paying?
Most of the time, borrowers won’t know how they will be allowed to catch up on the missed payments until the forbearance ends.
Many servicers allow borrowers to apply for repayment plans, in which the missed payments are spread over a given time frame, or for a loan modification, which changes the terms of the loan. Additional documentation is typically required for these options, and being approved isn’t guaranteed.
Borrowers with loans insured by the Federal Housing Administration can resume their normal mortgage payments when the forbearance ends, according to the Department of Housing and Urban Development guidance issued recently. But these loans represent just a fraction of all active mortgages.
Write to Julia Carpenter at Julia.Carpenter@wsj.com and Orla McCaffrey at orla.mccaffrey@wsj.com
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