What Homeowners Need to Know About the COVID-19 Mortgage Forbearance Extensions
September 30, 2021 is the current deadline for requesting an initial mortgage forbearance extension. Here’s what you need to know.
Homeowners who have been financially impacted by the pandemic have been able to take advantage of federal mortgage forbearance since March 1, 2020. To continue helping homeowners, officials have made recent announcements extending mortgage forbearance. This protects struggling homeowners from foreclosures and evictions for federally backed mortgages for up to 180 days. These include FHA, VA, and USDA loans.
A few updates to know about both the federal eviction moratorium and mortgage forbearance:
- The Biden administration’s extension of a previous federal eviction moratorium has been overturned by the Supreme Court. Renters looking to postpone eviction will need to look to local laws or seek state-funded emergency rental assistance. New York, for instance, extended its eviction moratorium through the end of 2021.
- The request for mortgage forbearance has been extended from June 30 to Sept. 30, 2021 with the first forbearance period lasting for up to six months.
- These measures extend special programs designed to help homeowners reduce their mortgage payments by 25% or more.
What is mortgage forbearance?
A forbearance agreement, sometimes referred to as a deferred payment agreement, provides some relief for homeowners by allowing a pause or reduction — without penalty — on your monthly mortgage payment.
Under forbearance protection, once you tell your lender that you are experiencing a pandemic-related financial hardship and need forbearance, your mortgage servicer is not allowed to charge you interest or fees while your monthly payments are on hold. You can repay the missed payments if you decide to refinance or sell. Also, lenders can’t force you to catch up on these missed payments in a single lump sum, per the CARES Act.
Who is eligible for forbearance?
Homeowners may be eligible for COVID hardship forbearance if they have been directly or indirectly impacted financially due to the coronavirus pandemic and have a federally backed mortgage, such as HUD/FHA, VA, USDA, Fannie Mae, and Freddie Mac loans. Non-federally backed loans may also be eligible.
What is the deadline for requesting forbearance?
September 30, 2021, is the current deadline for requesting an initial forbearance.
How long does forbearance last?
There is no specific, blanket time frame for how long forbearance lasts nor is there a particular federal guideline for terms. It really depends on your lender or creditor as well as your particular situation. However, under the CARES Act, the following extensions apply for forbearance periods:
|Forbearance Dates||First forbearance time frame||Second forbearance time frame||Third forbearance time frame||Maximum forbearance|
|Oct. 1, 2020 to June 30, 2021||Up to 6 months||Up to 6 months||None||Up to 12 months|
|July 1, 2021 to Sept. 30, 2021||Up to 6 months||None||None||Up to 6 months|
Requesting or extending your existing forbearance
If you haven’t requested forbearance, you have until Sept. 30, 2021.
If you’ve already been in forbearance, this extension will not automatically apply. This means you must call your bank and request it again. Speak to a housing counselor at HUD if you have questions about whether you qualify.
What to do when forbearance ends
When your forbearance term is over, you need to start repaying the amount that was paused. There are several pathways, but here is what will likely happen at this time:
- Within 30 days, your lender will reach out to you for next steps.
- If you need more time, you may request an extension.
- If you have exhausted your options for forbearance, your lender may walk you through next steps for repayment (see the table below).
It is best to speak with your lender to discuss what makes the most sense for your situation. Because this is such an uncertain time, lenders may be more open to adjusting your repayment to help set you up for success.
For example, if you still can’t make the full payments, your lender may provide you with an option to make partial payments instead.
The following are examples of possible situations and available options.
Forbearance Extension Possible Situations and Available Options
|You can afford to pay more than the normal monthly mortgage payment||Repayment plan||A portion of the amount that was owed from forbearance may be added to your monthly mortgage payment.|
|You’re only able to pay the regular monthly mortgage amount||Deferral||The amount that was in forbearance may be added to the end of your loan and repaid when you refinance, sell, or when the mortgage term is over.|
|You’re only able to pay the regular monthly mortgage amount||Partial claim||Another option may be to move your forbearance amount into an interest-free second mortgage (COVID-19 Standalone Partial Claim). This amount needs to be repaid when you refinance, sell, or when the mortgage term is over.|
|You can’t afford to pay your mortgage||Modification||The mortgage amount and the paused payments may be calculated together. The amount may then reduced to an affordable monthly payment.|
|You’re able to pay all of your forbearance payments in one lump sum payment||Lump-sum reinstatement||This may be an option if you have the funds available. However, loan servicers aren’t allowed to make you pay a lump sum.|
Does forbearance hurt your credit score?
The point of forbearance is to not penalize homeowners for their inability to make payments. Accepting forbearance should not hurt your credit score.
However, keep in mind that missed or reduced mortgage payments, even if they have a forbearance arrangement, are technically considered delinquent. Lenders can report them to the credit bureaus but are not required to, which is why it’s important to speak to your lender so you know what to expect. A foreclosure stays on your credit report for seven years and negatively impacts your credit score.
The most important thing to understand is that under forbearance, lenders are not allowed to foreclose your property.
Know the rules of forbearance
Under federal law, a servicer cannot foreclose on your home unless your mortgage is more than 120 days past due. There can be exceptions depending on your forbearance terms and the rules vary by state.
Remember, if you can’t resume making payments on your loan, call your lender immediately so you understand what options you have to modify your loan.