Forbearance – Don’t Skip That Payment

Thousands in Hawaii, and millions across the country are now unemployed and unable to make their mortgage payments. There are also those that own investment property where the tenant is in the same situation and can no longer pay rent.

The Feds have come to the rescue and are telling millions of Americans to skip paying their mortgage. Frankly, they have done a terrible job on communicating to the public, and as always, there’s always going to be good and bad with any decision. Before you do decide to not pay your mortgage this month, there’s some very important information you need to know (especially with what happens after – see below).

What is Forbearance?
Forbearance is not payment forgiveness! Forbearance is your lender allowing to make that payment at a later date – it doesn’t eliminate the payment you skipped.

How Long is the Forbearance Period?
If your loan was sold to Fannie Mae, Freddie Mac, or is a government loan such as FHA, VA or USDA, you can request to delay the payments you owe for up to 6 months. There is also a provision to then possibly extend the forbearance period for another 6 months after that.

What Happens AFTER the Forbearance Period?
At the end of the forbearance period you are expected to make a payment for all the past months of payments missed. That’s right, if you skipped 6 months of payments, you’ll owe all 6 months plus your current 7th month payment as well. If you extend for a year, then you’ll need to come up with the 12 payments, plus your current month’s payment for a total of 13.

What Happens if I can’t pay the balance owed at the end of the forbearance period?
The guidance given to the loan servicers so far is to try and work out a modification of your loan. That could resemble paying the back amounts over a specific time period or tacking it onto the end of your loan. One thing it does not mean is forgiving you of the amount you owe during the forbearance.

As with the housing meltdown in 2008 and the years of loan modification applications submitted, the servicer does hold the ultimate right to accept or reject a modification request. If they deem you are financially unable to continue making on time payments, they can force you into foreclosure

What Happens to my Credit Score if I choose Forbearance?
Your loan servicer is not supposed to report any negative information (late payments) during the forbearance period. By law, your servicer must report your loan is currently in forbearance. They also must report $0.00 payment received for each month you don’t make a payment. Be mindful that while forbearance will not alter your credit score, creditors will know you are not paying your mortgage.

I know in these extraordinary times one must do what is best for their current financial situation. But if you are one of the lucky that is still employed and able to meet your financial obligations, do not take advantage of the system thinking you’re going to get something for nothing. Accepting a forbearance has serious consequences.

If you cannot make your mortgage payment, PLEASE contact your loan servicer to arrange a plan. DO NOT simply stop paying your mortgage payment!

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