Here’s what to do if your mortgage forbearance is ending

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If your mortgage has been in forbearance and the window for that protection is ending, don’t panic.

Whether your loan is serviced by a private lender or owned by one of the government-backed mortgage giants, there are options for how to proceed, even if you’re still in a tough financial spot.

The most important thing is to communicate with your mortgage servicer. Being upfront about your situation allows them to work with you to find the best solution. You’re much more likely to face an unpleasant situation — possibly even foreclosure — if you try to dodge the lender.

If you requested forbearance near the start of the coronavirus pandemic, it may be time to start thinking about what comes next as your payments come due again. Here’s a rundown of some popular options for borrowers whose forbearance period is coming to an end.

Request a forbearance extension

If you’re in your first forbearance period, you likely qualify for at least one extension, but you won’t automatically get one unless you speak to your loan servicer, so it’s important to be in touch.

“We’re here to support you, don’t let it impact your credit negatively,” said Jennifer Kouchis, senior vice president of real estate lending at VyStar Credit Union in Jacksonville, Florida. “If we don’t hear back from you, we don’t have a choice in the next step of the process.”

VyStar is offering 90-day forbearance plans, and some of its borrowers are already on their second extension.

If you don’t respond to your lender and are taken out of forbearance, but fail to make payments, it will likely have a strong negative impact on your credit. So, keep the lines of communication open.

I can’t pay my mortgage but I want to stay in my home

Most mortgage borrowers aim to weather the storm of financial difficulties and stay in their homes. In such cases, there are a number of options for addressing short-term cash issues with your borrower and figuring out how to stay in place.

Keep in mind that forbearance is not loan forgiveness, it’s just a pause in payments, so you’ll need to make up the missed balance eventually. Your repayment plan is a big part of coming out of forbearance and remaining in your home.

According to Kouchis, there are three primary methods for wrapping up your forbearance:

  • A lump sum payment, which means paying the entire amount you missed all at once
  • A short-term repayment plan or a loan modification, which is usually an additional monthly charge on top of your regular mortgage payment to make up that difference
  • A loan modification, which can mean changing the terms in any number of ways, including extending the repayment period, lowering the interest rate or even reducing the principal loan balance

“We wanted to make sure, especially during the pandemic, that we’re sympathetic to each situation,” Kouchis said.

Marina Walsh, vice president of industry analysis at Mortgage Bankers Association, said lenders are much more flexible with forbearance these days than they were during the last financial crisis.

“There’s a whole lot of tools in the toolkit of servicers, but they need to be able to contact the borrower,” she said.

Forbearance is ending, but I can’t afford to stay in my home

Your lender or servicer may be able to help you on the road to your next living situation and probably wants to avoid foreclosing on your home almost as much as you do.

“If you’re not wedded to your home and you’re willing to move somewhere else, there are a variety of options that are not foreclosure,” Walsh said.

Unlike during the Great Recession, the real estate market has remained strong during the coronavirus pandemic, which is an extra safety net for current homeowners.

“Given where we are with the borrower demand for housing, that really creates additional loss mitigation options for distressed borrowers,” Walsh said. “A lot of these borrowers have equity in their homes,” so they can sell their current houses and use that equity to help pay off their existing mortgage and possibly fund a down payment on a cheaper house, or at least put some money into savings after the sale.

“Another option if they don’t want to proceed with the foreclosure route and they’re willing to move, there are programs like Cash for Keys,” in which the lender assumes the title of the home, but may provide the borrower with some relocation assistance to help them settle in a new, more affordable housing situation, Walsh said.

She added that borrowers can also consider a short sale. That’s when you sell your home, and even though the proceeds are not enough to pay off the full mortgage, the difference is essentially forgiven.

The state of forbearance

Forbearance has been an option for homeowners in distress for a long time, but its availability has expanded since the start of the coronavirus pandemic thanks to broader eligibility requirements.

Forbearance allows borrowers to temporarily stop making payments on their mortgage. Under the CARES Act passed by Congress this spring, any borrower whose mortgage is owned by government-backed mortgage servicers like Fannie Mae and Freddie Mac can request forbearance for 180 days plus one 180-day extension. Minimal documentation is required to secure forbearance under the CARES Act, but borrowers must affirm that they’re requesting the relief because of financial hardship caused by the coronavirus pandemic.

Many private lenders have also extended forbearance protection to their mortgage holders, even though they’re not required to by law. However, each institution not covered by the CARES Act may have its own terms for payment relief, so it’s just another reason that being in touch with your loan servicer is so important.

Since March, the unemployment rate in the U.S. skyrocketed and then began its journey back down. Joblessness rates are still far above their pre-pandemic levels, but are back in the single digits — well below the pandemic peak.

As a result, record numbers of people have taken advantage of forbearance or are otherwise behind on their mortgage payments.

On Tuesday, the Mortgage Bankers Association said 7.65 percent of mortgages were delinquent in the third quarter, 3.68 percentage points higher than the delinquency rate in Q3 2019. MBA includes mortgages in forbearance in their delinquency rates, but forborne mortgages do not affect the borrower’s credit as delinquent mortgages not in forbearance do.

It’s likely that lenders will remain more flexible with forbearance availability even after the pandemic subsides than they have been historically.

Bottom line

If your forbearance period is ending, that doesn’t mean you’re about to lose your house, even if you still can’t afford your mortgage payments. Stay in touch with your lender and see what options are available to you.

“It’s better to call and think through options instead of hiding under a rock,” Walsh said.

“Don’t be afraid or embarrassed to ask for help if you need it,” Kouchis added.

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