Most of us have seen those orders come over on our phones for a signing that is listed as a Loan Modification. And if we have taken those orders, we have found the packages to be pretty small and the whole signing process to be quick and easy. And then there is the Forbearance question that we run into on other loan signings and maybe we don't quite understand what that's all about. Let's take a quick look at it here.
A mortgage forbearance is a temporary pause in mortgage payments approved by the lender. The lender agrees in advance to allow you to stop making payments or make a reduced payment monthly. The Pandemic gave rise to this and it came onto our radar when we started hearing about businesses that were unable to operate and mass amounts of people were unable to work and pay their household expenses. Borrowers with federally backed loans were given the option of requesting a Forbearance through the government program known as the CARES ACT. This allows for a 180-day forbearance followed by one 180-day extension if needed. During this time the foreclosure process is halted and re-payment doesn't begin until the forbearance period is over. So, yes it is only temporary relief from payments.
How is this amount re-paid?
Lump-Sum; A lump sum is due for the missed payments at the end of the forbearance period or the lender may agree to add that amount to the outstanding balance of the original mortgage loan agreement. Original loan terms remain the same.
Partial Payment Plan; If you were able to pay a portion during that forbearance period, the lender may agree to raise your regular monthly payments temporarily until the missed payment balance is paid off.
Payment Deferral; Some lenders may offer to place the entire amount of missed payments under a new and separate loan that doesn't have to be re-paid until the homeowner refinances or sells the home.
Loan Modification; If you can't afford your original mortgage payment after the forbearance period ends, maybe because of a change in job or number of hours you are given work, you may be able to modify your current mortgage with your lender. That is when the loan is re-written and a smaller monthly payment is offered to cover all outstanding loan balances.
Even though we have seen some loan modification orders come through on our apps, we should expect to see that number increase in the coming months. As of July 1, 2022 lenders will begin offering Loan Modifications to homeowner's with Fannie Mae or Freddie Mac owned loans. And we probably will be getting random calls from homeowners (Lender typically have them find their own notary) to help them sign their payment deferral loans as those will need notarization as well.