If it hadn’t been for a mortgage forbearance program, Destiny Blackmon says she could have lost her home.
Blackmon had just returned to work after dealing with a medical issue when the COVID-19 pandemic hit and knocked her and her husband, Floyd, and their three children off their feet again. “It just got really bad … both of us had like a crazy reduction in hours,” says Blackmon. By June 2020, she estimates they were getting by on the equivalent of a single pre-COVID income.
Now the Blackmons are among an estimated 330,000 homeowners facing the end of their mortgage forbearance protections in October, according to a recent report from the data analytics firm Black Knight.
Over 9 million households have taken advantage of mortgage forbearance programs made available by the CARES Act since the start of the pandemic, according to a New York Federal Reserve Bank report. Roughly 1.5 million households are still in forbearance. A disproportionate number of those fighting to keep their home are in communities of color, according to a Consumer Financial Protection Bureau (CFPB) report.
But forbearance is a temporary solution, because it only pauses your mortgage payments. When forbearance ends, you’ll need to resume your payments and work out a repayment plan for the missed mortgage payments. A repayment plan is a crucial step to avoiding foreclosure, because without one, your loan servicer could begin the foreclosure process.
The Blackmons’ COVID forbearance ends on Oct. 1, 2021, and their first payment is due on Nov. 1. With only weeks left until payments resume on their FHA loan, the Blackmons are still working with their loan servicer to hash out a forbearance exit plan that works for them.
The end of mortgage forbearance is a confusing and difficult process for homeowners to navigate, say housing experts and homeowners with firsthand experience.
For starters, you should engage with your mortgage servicer sooner than later “to find out what your options are,” says Mitria Wilson-Spotser, director of housing policy at the Consumer Federation of America, an association of nonprofit consumer advocacy organizations.
But don’t stop there. With so much complexity, it pays to do your own research, and you may be eligible for options your lender doesn’t tell you about. Here is what you need to know about exiting mortgage forbearance.
First Thing: Connect With Your Loan Servicer
If you’re experiencing financial hardship and your forbearance is about to expire, “the most important thing you can do is not panic,” Wilson-Spotser says. While many people tend to avoid difficult situations, Wilson-Spotser says that can only make the situation worse. Talk with your loan servicer — the company you make payments to — so you can find out what all of your options are.
When you contact your loan servicer, ask for documentation to record the communications and verify the information provided.
The Consumer Financial Protection Bureau (CFPB) recently issued a new set of guidelines that offer additional safeguards against foreclosure. These new protections, which apply through Jan. 1, 2022, apply to most home loans for a borrower’s primary residence.
The new CFPB rule requires loan servicers to proactively attempt to contact borrowers at least 30 days prior to the end of forbearance. One of the key components to avoiding foreclosure is responding to your loan servicers’ attempts to reach you. Even though a foreclosure could take months or years to complete, lenders could start the foreclosure process in as little as 30 to 90 days after your forbearance ends, if your servicer cannot contact you, says Mark McArdle, assistant director, mortgage markets at the CFPB.
That’s why it’s so important to respond to your loan servicers’ communication.
What to Expect When You Speak With Your Loan Servicer
Under the new CFPB rule, your loan servicer typically must provide you with your forbearance end date, your options for paying your missed payments, and information about free housing counseling services. After confirming some details regarding your current financial situation and what help you may need, then your servicer will present the options based on your loan, McArdle says.
But communicating with your loan servicer may not always be easy. Blackmon says she struggled to get consistent information from their servicer. Sometimes, system notes from previous conversations were nowhere to be found the next time she called, she says. So the Blackmons started to get everything in writing. This way, “we can hold the company accountable if one rep said this and another rep said that.”
Exiting Forbearance: Understanding Your Repayment Options
Figuring out a repayment plan for the payments missed during your forbearance period is the most impactful step to exiting forbearance. And it’s important to know your rights so you are able to consider all possible options when discussing repayment with your lender.
The options available to you will vary depending on your personal situation, loan servicer, and the type of mortgage you have. The repayment plans listed below are required options if you have a federally-backed mortgage, which includes all of the following types of loans:
For all other types of home loans, there is no law requiring your loan servicer to offer forbearance or specific options for ending forbearance. But even though they are not required, many financial institutions that hold these mortgages offer options similar to what is required for federally-backed loans, Wilson-Sposter says.
Here are the options to discuss with your loan servicer:
1. Lump-sum payment
You could choose to repay all of your missed payments in a single lump-sum payment. But this is unlikely to be a feasible option for many borrowers exiting forbearance.
A lump-sum repayment cannot be forced onto anyone exiting a COVID forbearance plan on a federally-backed loan. If your loan servicer only offers a lump-sum repayment plan, ask what other options are available.
2. Repayment plan
With a repayment plan, you pay extra each month for a set number of months until you’ve repaid all of your missed payments. Let’s say you’re $5,000 behind on your payments and given a 12-month repayment period. In that situation, you’d pay about $417 extra per month to repay the full $5,000. Then your monthly payments would return to normal.
This is going to increase the amount you have to pay each month. If you can’t afford to make larger monthly payments, other options might be more manageable.
3. Partial claim or deferred payments
If you can resume your regular monthly mortgage payments, but can’t afford to pay extra, then a deferred or partial-claim payment plan could work for you. With this option, all of your missed payments are essentially tacked on to the end of your loan.
You won’t repay any missed payments until:
- You sell the home
- You refinance your mortgage
- You reach the end of your original loan term
4. Loan modification
During the pandemic, many homeowners experienced a reduction or total loss of income. If your forbearance is expiring, but you can no longer afford the full monthly payment, you may be eligible for a loan modification.
With a loan modification, the goal is to reduce your monthly payment to an affordable amount. That is typically accomplished by adding the missed payments onto your existing loan balance and lowering your payments with a longer loan, lower rate, and/or a reduced loan balance. Depending on the type of mortgage and your personal situation, you may be able to reduce your monthly principal and interest payment by up to 25%.
If you’re in a situation where you’re unable to resume making payments or you need additional help, here are a few resources to help you avoid losing your home to foreclosure:
Get professional advice
Contact a housing counselor who is certified by the U.S. Department of Housing and Urban Development (HUD) to discuss your situation and what options are available for you. You can find a local counselor through HUD’s website, and foreclosure prevention counseling is available for free.
McArdle warns that during the last crisis there were scams offering assistance to homeowners for a fee. “We haven’t seen as many of those yet, but last crisis they were everywhere,” he says. “No one should ever pay up front first, for what is free through a HUD-approved housing counseling agency.”
File a complaint
If your loan servicer hasn’t offered you all of the options available for existing forbearance, isn’t responsive, or provides you with information you believe is inaccurate or incomplete, you can file a complaint with the CFPB or the Better Business Bureau (BBB).
Filing a complaint can be a good way to get the attention of someone who can help. Blackmon says she struggled to get consistent information from their loan servicer, getting different stories about what she needed to provide and how long things would take. It wasn’t until after filing complaints with the BBB and CFPB that someone from the corporate office of her loan servicer reached out to clarify, she says.
If your servicing issues go beyond a CFPB or BBB complaint and you need legal counsel, these organizations can connect you with pro-bono legal services:
Seek financial aid
Nearly $10 billion has been allocated through the Housing Assistance Fund to help eligible homeowners experiencing extensive financial hardship. “For folks who have had more significant hardships and have not fully recovered, the housing assistance fund could be a good option,” McArdle says.
These funds are meant to keep homeowners in their homes and will be distributed through state-level programs, which a housing counselor can help you navigate. The assistance may be used for expenses such as:
- Mortgage payments
- Homeowner’s insurance
- Utility payments
Some states have their own mortgage relief programs and foreclosure suspensions. To learn if your state offers additional protections, look up your state’s government website.
Carefully consider selling your home
If you have exhausted all of your other options, you may be able to sell your home to pay off your existing mortgage balance and missed payments. When it comes to this difficult decision, going over your options with a HUD-approved housing counselor is important.
Home values have been rapidly increasing over the last year, and selling before entering foreclosure could allow you to cash out your home’s value if it’s worth more than what you owe. “[Homeowners] could go through a normal sale, they could capture some of that equity that’s accumulated for a lot of folks over the last two years, and use that as a cushion or transition on to the next situation,” McArdle says. If your home is sold through foreclosure, you’ll likely walk away with less money. “Foreclosure over time, that will eat away equity,” McArdle says.