I know it is probably too late for many people to be warned about forbearance, but I wanted to share what I have seen in talking with different homeowners who have accepted forbearance and what I have learned about it and the CARES Act.
During Covid Forbearance became a very highly discussed item. It seemed like a hot topic that people could pause their payments on their homes until a later point in time and then restart. There are some really tough side effects. It appears that lenders for the most part have created their own ways of doing forbearance and in some ways had federal guidelines to follow.
Along the way, I read articles where homeowners were shocked that when they restarted payments, their lender was wanting all of those missed payments at once! Since that time federal regulators have made it so that if you received forbearance under the CARES act your lender can not require that all at once lump sum. I have not personally spoken to a homeowner who ran into that, but I can only imagine that would be a massive shock for someone who did not have the ability to pay a regular monthly payment to then have all of those funds at one time.
Federally backed mortgages (FHA, VA, Fannie May, Freddie Mac) under the CARES Act have certain programs available. Homeowners could request 180 days of relief, and could ask for an additional 180 days of relief near the end of the first 180 days. Non Federally backed loans could have different options available through their lenders with different plans to pay back.
Under the CARES Act on an FHA for example your interest will still accrue. So if you are pausing your payments, that does not pause your whole account balance and have it remain the same. You don't have to make the payment under this act if you are approved, but you do still accrue interest from what they say. So for you, take a look at your payment breakdown. The part that is going toward your interest should get tacked on to your payoff amount each month. The interest each month would continue to go up because your balance would go up monthly.
I would caution that each lender may have different parameters and ways of doing things. I have talked with homeowners who put their home into forbearance and stopped making payments for less than a year and accrued over $20,000 in extra payoff costs which does not seem to add up to what I saw online when researching what should be expected with the CARES Act forbearance. That math would be more in line with each payment they make on your behalf is charged plus the full 30 years interest added on to that payment. This then is turned into a second mortgage on the property owed to HUD (The Secretary of Housing and Urban Development). So in a scenario where someone may have thought they could pause and sell shortly, the costs ballooned and the equity that they had was completely erased. You really need to understand the costs associated with any forbearance option offered as things don't seem to be adding up for some homeowners.
All I ask is that you know what you are getting into. Good luck out there.
Written by Korey Rowlson
Associate Broker
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