What to do when your mortgage forbearance period ends

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Many borrowers whose mortgages went into forbearance when the CARES Act passed are now seeing that protection expire. According to Black Knight, about 1.14 million borrowers were still in forbearance at the start of November. That’s down from a pandemic peak of 1.7 million homeowners.

If you’re soon to be required to start making mortgage payments again, it’s important to know what your options are. 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.

Here are some possibilities of what can happen when your forbearance period ends. Keep in mind there HUD-certified counselors or other housing advocacy groups in your area can help you figure out what post-forbearance plan is best for you.

Request a forbearance extension

If you’re still 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. Borrowers who applied forbearance right after the CARES Act was passed will not qualify, but more recent applicants might.

“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.”

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, any borrower whose mortgage is backed by Fannie Mae and Freddie Mac can request forbearance for up to 18 months. 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.

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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