To Suspend Or Not To Suspend Mortgage Payments

How financially uncomfortable are you due to Coronavirus? Were you aware that the CARES Act allows residential mortgage borrowers with federally-backed loans to obtain a “forbearance” of up to 180 days, which may be extended by an additional 180 days?

If you are experiencing a hardship caused by the pandemic, lenders are supposed to allow forbearance. It may be only for federally backed loans, however, about 70% of mortgages in the U.S. are backed or insured by a federal agency, so chances are your mortgage will qualify for it if you need it. The CARES Act also provides that, except for abandoned property, a servicer of a federally-backed mortgage loan may not initiate or advance foreclosure proceedings, or execute a foreclosure-related eviction, for a period of not less than the 60-days beginning on March 18, 2020.

All a homeowner needs to do is affirm they are experiencing a financial hardship due to the COVID-19 national emergency. No further documentation or proof is required. During the forbearance period, a servicer may not assess fees, penalties, or interest that would not have been charged to a consumer if they made timely payments under the terms of their mortgage contract. A servicer must continue to report the account as current if the consumer fulfills the terms of the accommodation unless an account was delinquent before the accommodation was made. The covered period applies to consumer accounts between January 31, 2020 through 120 days after the end of the COVID-19 national emergency.

But what is forbearance exactly? And is it in your best interest to suspend your mortgage payments?

Forbearance lets homeowners interrupt their monthly payments or reduce them when they experience a hardship or lose their ability to make payments. Borrowers qualify if they are experiencing a financial hardship caused directly or indirectly by the Covid-19 emergency. So why is it viewed as a double edge sword? Because it is not payment forgiveness or even deferment. Instead, all the missed payments, plus interest, are often due when the forbearance period ends.

Fannie Mae and Freddie Mac have said this applies whether the homeowner faces job loss, reduced income, illness or other issues that impact ability to make the monthly mortgage payment. It might also apply if a hardship with a co-borrower or family member has similarly affected someone’s ability to make payments. Even those who lose work hours or are considered underemployed may qualify. The number of people affected by this crisis means there will be lots of room for interpretation of the CARES Act, for both servicers and those seeking forbearance.

Privately held mortgages are another story. Those are the brokered-out loans, the type of mortgages where people had the stated income or bank-statement-type loan programs to show incomes. As the mortgage market continues to break down in the wake of the pandemic, those might be the ones most negatively affected.

So should you do it?

Maybe, it depends. Forbearances were usually granted after a personal hardship such as death, divorce or a natural disaster. They are expected to be widely used as millions of Americans lose their jobs and struggle to cover living costs due to Coronavirus. If you have not been severely affected and are still able to make your payments, perhaps you should do so. Remember if the mortgage payment is due on April 1st, there’s usually some sort of a grace period, so technically it’s not delinquent until April 15th.

How can you do it?

Many mortgage companies have posted options available on their websites to customers who have been affected by the coronavirus pandemic. You could try calling your company directly but it might be hard to get through due to the volume of calls, skeleton staff, working remotely etc.

Must it be by a certain date?

The Wall Street Journal recently reported some servicers are taking days or weeks to respond to forbearance requests. “These long wait times could mean some borrowers might not be approved until both their payment date and grace period have passed.” It is best to put in a request before the payment date, but remember to take advantage of the grace period if you need to. If the forbearance plan hasn’t been approved by the last day to make that month’s payment, the loan will likely be considered delinquent.

Will my credit score be affected?

It shouldn’t affect your credit score, but it might. Freddie Mac has instructed mortgage servicers not to report borrowers on forbearance plans as delinquent to the credit bureaus. But the record number of forbearance requests expected will challenge servicers’ capabilities, including the suspension of negative credit reporting. Regularly check your credit report to make sure you haven’t been reported past due, you might have to wait a bit longer to have inaccurate information removed from your credit report.

How will I be allowed to catch up on the missed payments?

You may be allowed to apply for a repayment plan, in which the missed payments are spread over a given time frame. Or you might be granted a loan modification which changes the terms of the loan. Being approved isn’t automatically guaranteed. Sometimes you are not informed about the life of the loan or what happens to the interest during the time you’re not paying until the forbearance ends.

Are there protections for renters?

If you are renting from an owner who has a federally backed mortgage, the CARES Act provides for a suspension or moratorium on evictions. If your landlord has a federally backed mortgage or multi-family mortgage, you cannot be evicted for nonpayment of rent for 120 days beginning on March 27, 2020, the effective date of the CARES Act. After the 120-day period is up, the landlord cannot require you, the tenant, to vacate until providing you with a thirty-day notice to vacate. If the property you rent isn’t covered by the CARES Act, many states have suspended all evictions and foreclosures due to the pandemic. Check the websites of your state government, state court, or legal aid program for details and updates.

Contact Us: Remember that scammers often take advantage of vulnerable consumers during disasters and financial shocks. In addition to coronavirus-related scams, be aware of scams that falsely promise financial relief from your mortgage loan, or from foreclosure. Contact our professionals for help at This e-mail address is being protected from spambots. You need JavaScript enabled to view it . We may be able to help you find the cash flow you need to help you ride out the financial hardship during the pandemic.