If you’re skipping your mortgage payments, beware of this costly mistake

How will I pay my mortgage?

This is the question facing millions of Americans, as stay-at-home orders have cost many people their jobs or their income. Lawmakers have stepped in to provide homeowners with a lifeline by requiring lenders to grant forbearance – a way to defer mortgage payments – to any mortgage borrower with a federally guaranteed home loan.

So far, 3.5 million mortgage borrowers have requested forbearance, which represents nearly 7% of all mortgages nationwide, according to the latest data released Monday by the Mortgage Bankers Association, a industry group. This means that millions of homeowners can now ignore or make low monthly mortgage payments for up to a year.

“As the pace of job losses has slowed from astronomical highs just a few weeks ago, millions of people continue to file for unemployment,” said Mike Fratantoni, chief economist of the Mortgage Bankers Association. “We expect forbearance requests to resume as payment due dates approach in May.”

Calling your lender and asking for forbearance is just the first step in the process. “Tolerance is not forgiveness,” Karan Kaul, associate researcher at the Urban Institute, a nonprofit political group, told MarketWatch earlier this month. “You still owe the money you paid, it’s just that there is a temporary break from making your monthly payments.”

Ultimately, borrowers will need to work out a repayment plan with their lender. And borrowers should be careful not to agree to a repayment plan they can’t afford.

Fannie Mae FNMA,
and Freddie Mac FMCC,
on Monday issued guidelines reminding homeowners that they do not have to make a lump sum payment at the end of their forbearance period.

“We want all homeowners struggling with this pandemic to know that they have mortgage options,” Fannie CEO Hugh Frater said in a statement Monday. “We don’t require an owner to repay missed payments all at once at the end of the forbearance plan, unless they choose to do so. “

Freddie Mac CEO David Brickman also encouraged “homeowners who are having difficulty working with their service agent to identify the right plan for their unique situation.”

“We do not require an owner to repay missed payments all at once at the end of the forbearance plan, unless they choose to do so.”

– Fannie Mae CEO Hugh Frater

With a lump sum payment, also known as reinstatement or lump sum payment, a borrower would repay the full amount they owed in one go during the forbearance period.

“It really doesn’t help someone if they have a four month deferral but have to make a lump sum payment and have been out of work for four months,” said Rick Sharga, a mortgage industry veteran and founder of CJ. Patrick Company, real estate consulting firm. “It’s just about postponing failure rather than helping someone succeed. “

As the Americans asked for forbearance, some complained that their mortgage agent was offering them a lump sum payment option as a repayment option. But that’s not the only way to pay back the money you owe.

“It really doesn’t help someone if they get a four month deferral but have to make a lump sum payment and have been out of work for four months. It’s just postponing failure rather than helping someone succeed.

– Rick Sharga, a mortgage industry veteran and founder of CJ Patrick Company

Here are the options for reimbursing consumers after forbearance

To get started, borrowers can request a deferral change. With this, the balance that they did not pay during the forbearance period would be added at the end of the loan. The loan term would be extended – thus, a person who received a six-month forbearance on a 30-year mortgage would now be debt-free after 30.5 years.

Alternatively, a consumer can opt for a repayment plan where they gradually pay off the money they owe on top of their monthly mortgage payments. With this option, the loan term would not be extended, but the monthly payments would increase.

For those who are still facing financial problems at the end of the forbearance, they can contact their mortgage lender to request a loan modification. This would reduce the amount of the monthly loan payment.

“All of these terms are negotiable,” Sharga said. “Be diligent, be steadfast, and try to hold on.”

In most cases, the service agent will attempt to contact owners 30 days before the scheduled end of the forbearance plan to determine which refund option is best for them at that time. Borrowers can also proactively request this information from their service agent.

Borrowers can also ask their service agent who owns their mortgage, as home loans are often sold to investors. “Knowing who owns the loan will provide the borrower with information to research the options available from that entity,” said Andrea Bopp Stark, an attorney at the National Consumer Law Center. Duty officers must respond to those requests within 10 days, she said.

“If the server agent does not respond, the borrower should send another letter and seek legal assistance,” said Bopp Stark. “The duty officer could be held liable for actual damages and up to $ 2,000 in statutory damages for failure to respond.”

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