The term Mortgage Forbearance has been in the news a lot lately. The most recent news is that President Biden recently extended the government’s mortgage forbearance program. Basically, this program was created to keep people in their homes during the COVID-19 crisis. So, what is mortgage forbearance?
The mortgage forbearance program allows mortgage holders to postpone payments. It does not eliminate monthly payments. Again, it merely postpones them. You will need to eventually make up the payments. However, until then, you will not be charged with late fees. Also, your credit score will not suffer any negative consequences.
Pre or Post Pandemic
Please let me clarify something. Because of all the recent press regarding mortgage forbearance, many think it is a new program. Indeed, mortgage forbearance was included in the original CARES Act. It was included to protect homeowners with government-backed mortgages – about 70% of home loans in the United States. President Biden has extended this program for another 3 months. In this program, borrowers only need to call their lender and ask to be entered into forbearance. Hardship is not a requirement.
Before the coronavirus pandemic, forbearance was still a thing. Nobody wants to lose their home through foreclosure – not the homeowner, not the bank. Therefore, forbearance was designed to help people with financial hardship get through a rough period. It is a tool to keep them from defaulting on their loan. Again, it is a deferral of payments, not a forgiveness program. Anyway, borrowers have to show financial hardship. Most commonly, hardship is caused by:
- Job Loss
- Medical Issue or Death
- Bad Luck (Ex. Flood or Fire)
I hope the above answers the question; what is mortgage forbearance? It can be a confusing concept. People confuse it with loan modification programs or mortgage refinancing. Regardless, if you are having trouble making home payments, give me a call. We can figure out the best solution for you and your family.