Mortgage Forbearance Provided Temporary Relief, But What Happens Next?
For most California homeowners impacted by Covid-19, a mortgage forbearance was an excellent option to alleviate the immediate financial hardship. The forbearance on mortgage payments protected millions of people from the loss of their homes when it became nearly impossible to keep up.
California Mortgage Forbearance: Easy To Get In, But Tough To Get Out.
In order to get a forbearance, a California homeowner simply called their mortgage servicer (the company that collects payments) and explained that they were having financially impacted by COVID-19. Mortgage servicers automatically placed borrowers into a payment forbearance plan without any documentation or explanation of how the process works.
We are finding that exiting a mortgage forbearance is proving to be a challenge. California homeowners are asking:
- Do I have to repay the missed payments in one lump sum after forbearance?
- Will my mortgage payment amount change once the forbearance ends?
- What if I’m not making as much money as I did prior to Covid-19/Coronavirus?
- What if I’m not working at all because California is locking down again with stay-at-home orders?
- What happens to the property taxes and insurance that was being impounded and paid from the mortgage payments which I’ve not been making?
- Will my outstanding and missed payments be reported as “late” and will I have to pay additional fees?
Safe Exit Strategies Once Your Forbearance Ends
There are a number of exit strategies for dealing with the expiration of a mortgage forbearance:
- Lump-sum payment: The homeowner can repay the entire forbearance amount from savings, investments, a retirement fund, etc. After the lump sum payment is made, the borrower continues to pay his or her regular mortgage payments under the original terms of the loan. California homeowners should be aware that if your loan is held by a GSE, Fannie Mae or Freddie Mac, you cannot be required to make a lump-sum payment.
- Repayment plan: The homeowner resumes making his or her regular monthly payments, plus an additional portion of the missed amount each month, until the forbearance is paid off. Repayment plans can vary drastically in length and amount.
- Payment deferral/partial claim: Missed payments and, in some cases, other amounts (e.g. servicing advances paid to third parties) are deferred to the maturity date as a non-interest-bearing balance. The deferred amount is due on the maturity date (or earlier whenever the home is sold, or the loan is refinanced or otherwise paid off). Once the deferral is processed, the borrower resumes making his or her regular contractual monthly payment.
- Loan modification: If the homeowner can’t meet any option above, then a loan modification might be explored. The lender would need to add the missed payments into new modified terms with a new payment structure, by either lowering the interest rate or extending the mortgage term so that the payment amount is affordable.
- Combo plans: the homeowner and lender could agree on some combination of the above options. Maybe a small payment could be made up front, with a modification of the loan terms to lower the rate while adding a little bit to the monthly payments.
Start Early and Seek Expert Assistance
The process starts by contacting your mortgage servicer BEFORE your forbearance ends. Be patient because there are millions of homeowners in the very same situation. You might consider working with an expert to help contact your mortgage servicer and explore options.
Working with a pro-bono Homeowner Advocate at Lawyers Realty Group will give you free access to an experienced California Real Estate Attorney that will counsel you and oversee your Forbearance Exit Plan. Also, if you are already facing foreclosure in California, your Homeowner Advocate will work with your lender to determine all foreclosure avoidance options under California’s Homeowner Bill of Rights. Call us today at (949) 613-5918 or visit www.LawyersRealtyGroup.com.