New Forbearance Repayment Option
Homeowners in Forbearance Granted Deferred Repayment Option Under New Program
By Garrett Clayton | May 27, 2020
As businesses across the country have been called to shutter their doors in an effort to slow the spread of COVID-19, millions of Americans have been subjected to the financial impact of lost earnings and jobs.
Forbearance vs. Forgiveness
While forbearance is a welcome relief for homeowners struggling to make ends meet, it is not the same as loan forgiveness. A forbearance allows borrowers to postpone mortgage payments for a certain period of time without financial penalty, but the missed loan payments will eventually have to be repaid. Whereas with loan forgiveness, you are no longer expected to pay your loan.
The New COVID-19-Related Forbearance Repayment Program
Typically, the terms of a forbearance repayment are negotiated between borrower and lender at the outset, and included in the initial agreement. However, what repayment looks like once forbearances granted under the CARES Act end has yet to be made entirely clear.
To the relief of many of the nearly 4 million borrowers currently in forbearance on their mortgages, GSEs Fannie Mae and Freddie Mac have recently announced a new program that will not require borrowers to repay the payments they missed until the end of their loan. Under the new program, borrowers can defer up to 12 months of missed payments to be paid at the end of their loan, or in other words, when they sell, refinance, or pay off the loan.
Why This New Program Matters
This is significant because it gives borrowers time to rebuild their finances post-COVID-19-closures before tacking on additional expenses in the form of an increased mortgage payment. The deferred payment option also holds that the principal, interest, and expenses that were suspended during the forbearance period will not accrue interest between the time the forbearance period ends and when repayments are due at the end of the loan.
Who It Helps
According to Fannie Mae and Freddie Mac, this deferred repayment option is designed for borrowers who have completed a COVID-19-related forbearance plan and are able to begin making their regular monthly mortgage payments again but cannot yet support the financial burden of making missed payments as well.
Know Your Options
While the new deferred repayment option will provide extended relief for many of the millions of borrowers in forbearance, not all will qualify or benefit. Other repayment options, including reinstatement, a repayment plan, or loan modifications will still be available and may be a better option for some homeowners.
Mortgage lenders, like those at AmCap Home Loans, can evaluate your unique circumstances and advise you on which repayment option makes the most sense for you.
Fannie Mae and Freddie Mac’s New Payment Deferral Option May Help Homeowners Get Back on Track
In its efforts to mitigate the financial losses incurred by so many members of our population during this time, the U.S. government released the Coronavirus Aid, Relief, and Economic Security (CARES) Act. As part of this Act, homeowners who are experiencing COVID-19-related hardships, and whose loans are backed by the government or GSEs including Fannie Mae and Freddie Mac, may request and must be granted a forbearance. The initial forbearance period may be issued for up to 180 days, and an additional 180-day extension may also be given.
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