CARES Act: What is Mortgage Forbearance and What Do I Need to Know About It?

In 2020, as a result of the coronavirus, the US government introduced the CARES Act for federally backed mortgages. The CARES Act is a mortgage forbearance program that allows homeowners to pause their loan payments for up to 360 days during the pandemic.

Merriam-Webster defines forbearance as a refraining from the enforcement of something (such as a debt, right, or obligation) that is due.

Originally set to expire on December 31, 2020, a January 2021 decision by the U.S. Department of Housing and Urban Development extended FHA loan forbearance eligibility to March 31^st.

This means you have until March 31, 2021 to request forbearance from your mortgage lender. And, because of COVID-19’s global impact, mortgage forbearance during the pandemic will not count against you on your credit report if your mortgage was paid on time and is in good standing before you requested forbearance.

From the Experian blog:

The law requires creditors to report any account that has a payment accommodation applied to it as current to the credit bureaus—as long as the account was current when the accommodation was made. Here are two scenarios you could experience under the CARES Act:

• If your loan is considered current (not past due) at the time you make an agreement with your creditor to modify repayment, the creditor needs to report to the credit bureaus that you are current on your loan.
• If your loan is considered delinquent (past due) when you make an agreement with your creditor, your status will continue to show as delinquent until you bring the account back into good standing. Once you bring the account current, the creditor must report your status as current to the credit bureaus.  

Forbearance assumes you’ll be back to work quickly, at a similar rate of pay, and able to resume your mortgage payments.

It’s important to note that forbearance does not take place automatically if you stop making payments! Don’t stop paying your mortgage until you discuss available options with your lender or you’ll forfeit protections you would normally receive under a correctly executed forbearance program.

Options your mortgage servicer may offer include:

• Extending your loan term, tacking any missed payments to the end of the term. In other words, for every payment you miss, your loan will be extended by one month. If you miss six payments, you’ll pay on your mortgage six months longer than you had originally planned.
• Increasing your monthly payments by a certain amount to account for the payments you missed. With this option, you’ll start paying your higher monthly mortgage payments beginning in the first month your forbearance term ends.
• Allowing you to pay the missed payments back in one lump sum (although this is not required under the CARES Act)
• Some form of loan modification

While you must repay all of your missed payments, under the CARES Act, you won’t be forced to make one huge lump sum payment like you would under a forbearance program initiated outside of the CARES Act.

Also, you won’t have to provide proof that your hardship was caused by the pandemic. Just tell your mortgage servicer that your hardship is a result of COVID-19, and they are required to accept your word on the matter.

Pros of requesting mortgage forbearance under the CARES Act:

• Can help you avoid foreclosure
• Can help you stay in your home while you sort out your financial situation
• Can help you stay afloat while your house is on the market (if you and your spouse are headed for divorce, please speak to a professional CDRE or CDLP before entering into a forbearance agreement)

Cons of requesting mortgage forbearance under the CARES Act:

• Monthly mortgage bills that are unpaid during the forbearance period will stack up and become due in some form or another at the end of the forbearance period. Forbearance is not forgiveness.
• If you can’t afford to pay back your monthly installments (on top of your regular payments), either through higher monthly payments or a longer loan period, you will still be at risk of foreclosure at the end of the forbearance term.
• You cannot refinance or transfer your mortgage while it’s in forbearance. This is important to understand if you and your spouse are considering divorce, especially if one of you had planned to keep the home.
• You cannot qualify for another mortgage while you have a property in forbearance. This is another critical point for divorcing couples to know, especially if one or both spouses had planned to buy another home after divorce.

Note: Avoid scams by contacting your mortgage servicer directly. Don’t respond to incoming phone calls, especially if the caller requests fees to provide you with a forbearance service. Never, ever give your personal information out to someone who calls you, even if they claim to be from your mortgage company.

Key Points:

• You have until March 31^st to request forbearance from your mortgage lender.
• Because of COVID-19’s global financial impact, mortgage forbearance during the pandemic will not count against you on your credit report.
• Forbearance is not automatic. You must request it from your lender.
• Through April 20, 2021, Experian, TransUnion and Equifax will offer all U.S. consumers free weekly credit reports through AnnualCreditReport.com.
• If you do not expect to earn enough to pay your mortgage after the forbearance period ends, forbearance will not help you in the long term.

If you and your spouse are considering divorce, I recommend speaking with a Certified Divorce Lender or a Certified Divorce Real Estate Expert before entering into a forbearance agreement. Getting qualified help can keep you from getting stuck in a situation you’re trying to escape.

650-550-8646

 Shannon Rose
CDRE, SRES, CDPE, CLHMS, GPS
DRE# 01422955
Los Gatos, CA
1-650-550-8646
DivorceRealtor@RoseGroupRE.com