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What Is a Mortgage Forbearance Agreement?
Let me explain directly: a mortgage forbearance agreement is a deal you make with your lender when you're behind on payments. In it, the lender promises not to foreclose on your home, and you agree to a plan that gets you caught up over time. This came into sharp focus during the coronavirus outbreak starting March 18, 2020, with laws providing relief for homeowners hit hard by the economic fallout.
Key Takeaways
You need to know that this agreement is a structured plan to help you meet your mortgage obligations without losing your home, typically by reducing or suspending payments temporarily while the lender holds off on foreclosure. It's aimed at short-term issues, not long-term fixes, and sometimes lenders will extend it if your situation doesn't improve as expected.
How a Mortgage Forbearance Agreement Works
When you're having trouble making payments, you enter this agreement where the lender cuts or stops your payments for a set period and won't start foreclosure proceedings. At the end, you resume full payments plus extra to cover what you missed, including principal, interest, taxes, and insurance. Terms vary by lender, but interest keeps accruing even if payments are paused. Remember, discrimination in lending is illegal—report it to the CFPB or HUD if you suspect it. This isn't for ongoing problems like unaffordable rate resets; it's for temporary setbacks like job loss or illness. If needed, the lender might extend the period.
Mortgage Forbearance Agreement vs. Loan Modification
Understand the difference: forbearance gives you short-term breathing room, but loan modification is a permanent rework of your mortgage terms to make payments affordable long-term. With modification, the lender might lower your interest rate, switch to a fixed rate, or extend the loan term. To qualify, you prove hardship, complete a trial period, and submit docs like income proof and tax returns. It's renegotiation, not just a pause.
Mortgage Forbearance Agreements and COVID-19
For COVID-19, special rules apply to federally backed loans like those from FHA, VA, USDA, Fannie Mae, or Freddie Mac—if you've faced hardship from the pandemic, you qualify without proving it. Private loans might offer similar help, but it's up to your servicer; they must discuss options with you regardless.
Eligibility and Deadlines
You're eligible if your loan is federally backed and the pandemic caused your hardship. For FHA, USDA, or VA loans, the initial forbearance application deadline was extended to September 30, 2021. Fannie Mae and Freddie Mac have no deadline for initial requests. Private loans depend on your lender's terms. This is for initial periods of 3-6 months, extendable to a year or more.
Length of Forbearance
Initial agreements last 3-6 months, renewable up to 12 months, and in some cases up to 18 months depending on your loan type and start date. If you were in forbearance by February 28, 2021, for Fannie or Freddie, or before June 30, 2020, for others, you can get the full 18 months.
Other Provisions and Assistance
Under COVID rules, payments can be deferred or reduced, interest accrues without capitalization, and no extra fees apply. The Homeowner Assistance Fund from the 2021 American Rescue Plan provides billions to states to help with delinquencies, utilities, and more to prevent foreclosure or eviction.
When Forbearance Ends
At the end, you can't be forced into a lump-sum repayment. Options include adding missed amounts to regular payments, deferring them to the loan's end, modifying the loan to lower payments and extend the term, or other plans. Not every option fits every borrower, so check with your agency.
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