Real Estate Round-Up: The truth about forbearance

On March 27, 2020, President Donald Trump signed the Coronavirus Aid, Relief and Economic Security Act (also known as the CARES Act) into law. A provision of the CARES Act allows borrowers with federally backed mortgages to request temporary loan forbearance for up to 180 days. Borrowers also have the right to apply for an extension of another 180 days of forbearance.

Borrowers who wish to take advantage of the short-term payment hiatus must provide documentation to their mortgage servicers that they are enduring financial hardship as a result of the coronavirus crisis. Once a borrower requests hardship forbearance due to the COVID-19 pandemic, the act requires the servicer to offer a CARES Act forbearance.

Millions of individuals and families across the country are facing financial hardships during the coronavirus crisis. Between March 15 and April 4, nearly 17 million U.S. citizens filed for unemployment benefits.

Yet putting off your mortgage payments may not be as helpful as it seems. In some cases, signing up for mortgage forbearance could potentially set you up for serious problems in the not-too-distant future.

The CARES Act isn’t specific when it comes to what happens once the forbearance period ends. As a result, individual lenders and servicers are setting different rules about how borrowers must make up the delayed payments.

Many banks require you to pay back the full amount that has been deferred, in a lump sum, once the forbearance time period ends. It’s hard for me to imagine someone not having the income to pay the monthly mortgage due to being laid off or having their income reduced, all of a sudden being able to not only make that next payment, but somehow find additional funds to make up for the entire past due amount.

Some mortgage servicers may provide other alternatives. Some may allow for a gradual repayment of the missed payments. Others may agree to put the missed payments at the end of the loan. Most of the lenders we’ve interviewed are simply offering the original scenario, which ultimately will not be a good solution for most borrowers.

Under the CARES Act, mortgage servicers are required to report borrowers as “current.” However, once the due date comes, if a balloon payment is required, and the borrower is unable to make that payment, they will start being reported as “late,” until the payments are brought current.

Despite the requirement that mortgage servicers report borrowers taking advantage of forbearance as “current,” I would still recommend that you check your credit report regularly during the interim. You can get a free copy of your credit report, once every 12 months at AnnualCreditReport.com.

If you choose to seek forbearance, I have two recommendations. First, get everything in writing. Read it over. Do not assume anything based on a conversation or an email.

The devil is in the details, so make sure you know what you are agreeing to, and then have a plan in place to honor that agreement. Second, beware of scams. Sad, but true, the worst of things seem to come out in the worst of times.

If you have applied for any of the loan packages available for small businesses, or for individual help, or if you’ve applied for unemployment, that information may get into the hands of predators who want to make a quick buck at your expense.

You may receive postcards, letters and phone solicitations. There are a few tips to help keep you from becoming a victim.

First, never pay any person or company, in advance. It is unlawful for any entity to charge an advance fee. Remember, loan mods back in 2008-2012. That is exactly what the “loan mod” companies were doing. They promised if you paid them $3000, they would help you get a loan mod. The only problem is, most of those loan mods never happened and the $3000 was gone.

Second, never sign a deed that transfers any portion of your home ownership to another entity as part of a forbearance scheme.

Third, never make a mortgage payment to anyone other than your lender. Don’t be fooled. Those payments will never get to your lender.

Fourth, until you receive the paperwork that provides the details and agreement of the forbearance, do not stop making your mortgage payments.

The only way to get forbearance is for you to go directly to your lender.

I hope this has been helpful. We’re here to answer your questions as best we can. Until things make their way back to normal, be careful, my friends.

Kim Murphy can be reached at [email protected] or (760) 415-9292 or at 130 N Main Avenue, in Fallbrook. Her broker license is #01229921, and she is on the board of directors for the California Association of Realtors.