The numbers are bad, but they could be worse. The U.S. economy shed 20 million jobs in April and the unemployment rate spiked to its highest level since the Great Depression. And yet not as many homeowners as expected have stopped paying their mortgages or sought forbearance.
“We are not getting enough hysterical calls [from homeowners saying] that ‘I can’t pay my mortgage,’ ” said Marian Siegel of Housing Counseling Services, a Washington-based nonprofit organization that helps homeowners prevent foreclosure in the District, Maryland and Virginia. “We believe that people think that there’s all these programs, so it’s not really a problem. We’re trying to change that message. … This is not the time to sit back and wait. This is really a period to act quickly when you know you are not going to be able to pay your mortgage.”
Part of the problem could be that few homeowners understand what forbearance is, so they are reluctant to ask for it.
“Applying for some of these programs can take 30 to 60 days,” Siegel said. “Waiting to see what happens is not the best advice because we — all the housing counselors in the universe — will be inundated. … We have to flatten the curve of people seeking forbearance.”
What is forbearance?
Forbearance allows a borrower to suspend their mortgage payments temporarily because of a financial hardship. It does not mean those payments are erased. The borrower is required to repay any missed payments in the future. Siegel said too often borrowers are “confusing forgiveness and forbearance. They’re not understanding that [the payment] doesn’t go away.”
Another thing people may not know: “They might understand they have to make payments, but then they don’t understand when they have to make those payments,” said Darren Snell of Housing Counseling Services. “There’s tons of lenders out there, and everybody doesn’t always use the same definition of forbearance either. You might think you are talking about forbearance, and the person on the phone is talking about a modification or a repayment plan.”
How do you know if you qualify for forbearance?
You first have to figure out whether you have a federally backed mortgage. If you have a mortgage backed by the Federal Housing Administration (FHA), Veterans Affairs (VA) or Agriculture Department (USDA), you probably already have that information because of the way you originally qualified for the loan. To find out if your loan is backed by Fannie Mae or Freddie Mac, use the tools on their websites. You can find Fannie Mae here and Freddie Mac here.
Under the Cares Act, loan servicers must make available a forbearance plan to any homeowner with a federally backed mortgage. Homeowners with federally backed mortgages are eligible for up to 180 days of forbearance.
If you don’t have a federally backed mortgage, you still may be eligible for forbearance.
“It depends on your lender and the type of mortgage you have,” Snell said. “For the most part, almost everybody out there is offering some sort of a forbearance program. But all forbearance programs are not the same.”
Next, determine who services your mortgage.
Mortgage servicers are the companies that receive your monthly payments. A homeowner’s mortgage servicer isn’t necessarily the same as their lender. Many lenders sell the servicing rights for mortgages to other companies. You can find your servicer by searching the Mortgage Electronic Registration Systems website.
“The thing to remember is for the most part when you are talking to a mortgage servicer, they are a loan collector,” Siegel said. “Their goal is to collect the greatest amount of return on your mortgage, so they are not necessarily going to present you with all the options that are best for you.”
“Our suggestion is that you reach out and speak to a certified housing counselor first and then have them assist you with contacting your lender,” Snell said. “A lot of people reach out to their lender and agree to something, and the lender is talking oranges and the borrower is talking apples. A lot of times people get into a bad situation. … A forbearance is not negotiable. Your lender is already going to have set what their program is. It’s not necessarily something you can negotiate, but you want to know exactly what you’re getting into.”
The Department of Housing and Urban Development has a list of approved housing counselors. Siegel recommends homeowners seek a counseling agency that provides advice at no charge and is not paid by a lender.
What information should you have before calling a housing counselor?
Be prepared to tell the counselor about your income and expenses and the type of loan you have.
“Income and expenses are key, and not just saying you have income and expenses,” Snell said. “We actually need documentation of your income and expenses, meaning your pay stubs, your bank statements. What we’re trying to figure out is affordability. The last thing we want to do is have you agree to something that you can’t afford to do.”
Siegel said gathering this information “is not to torture homeowners. It’s really to present a file that a lender can’t deny.”
Make sure the servicer provides you with written documentation of the forbearance plan and your agreement.
Snell encouraged borrowers to go beyond the first person who picks up the phone and seek a manager with the power to set the forbearance agreement. “That person you’re speaking with on the telephone — they don’t necessarily have the authority to give you a modification or a forbearance plan,” Snell said.
What about condo fees, property taxes and homeowners insurance?
“Being behind in condo fees in D.C. is much more dangerous in some ways than being behind in your mortgage,” Siegel said. “There is no requirement that the condo association accept a payment plan or any forbearance.”
“If [property taxes and insurance] are escrowed, that’s all going to be factored into your forbearance,” Snell said. “If you individually are responsible for making those payments directly to the insurance company and the [tax] departments, then you are responsible. The forbearance program is not going to cover those items.”
Will forbearance affect your credit?
The Cares Act stipulates that during the forbearance period, mortgage servicers of federally backed mortgages such as Fannie Mae and Freddie Mac cannot make negative reports about the borrower to credit bureaus.
“It really depends on the type of forbearance that you have,” Snell said. “That’s something you want to get ironed out prior to entering into your forbearance program.”
Watch out for scam artists.
“If somebody is reaching out to you about forbearance and saying, ‘Pay this amount of money, and I can get you this or I can get you that,’ that’s definitely a scam,” Snell said.
Any last advice?
“Don’t hide your head in the sand,” Siegel said. “Act as soon as you know you have a problem, and don’t go it alone. Do it with professionals. We know how to speak to the lenders. We know how to present your situation in a way that will give you a better outcome.”
To learn more about forbearance, visit the Consumer Financial Protection Bureau’s mortgage and housing assistance website.