WEBVTT - How Does Mortgage Forbearance Work?

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<v Speaker 1>Welcome to brain Stuff, a production of iHeart Radio. Hey

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<v Speaker 1>brain Stuff Lauren Bogelbaum here. Mortgage forbearance is a temporary

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<v Speaker 1>pause or reduction in monthly mortgage payments for a homeowner

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<v Speaker 1>who's experiencing financial hardship. It's not loan forgiveness. The deferred

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<v Speaker 1>payments do need to be repaid at some point, but

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<v Speaker 1>mortgage forbearance can be a lifeline for homeowners who unexpectedly

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<v Speaker 1>lose their job or experience losses from a natural disaster,

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<v Speaker 1>including the COVID nineteen pandemic. But we spoke with Chuck Kracht,

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<v Speaker 1>director of loan servicing for the Idaho Housing and Finance Association,

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<v Speaker 1>which offers free loan counseling to struggling borrowers. He explained

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<v Speaker 1>that the key to avoiding foreclosure during a financial crisis

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<v Speaker 1>is to ask for help immediately. He said, that's the

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<v Speaker 1>best advice I can give to anyone. The second anyone

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<v Speaker 1>has any sort of trouble, they need to call their

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<v Speaker 1>mortgage servicer or lender or a loan counselor Time is

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<v Speaker 1>of the essence because if you're able to stay current

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<v Speaker 1>on your mortgage payments, not only will your lender be

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<v Speaker 1>more open to forbearance, but your credit also won't take

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<v Speaker 1>a hit during forbearance. Paused payments are not reported to

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<v Speaker 1>the credit agencies as delinquent as long as you were

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<v Speaker 1>on time with your previous monthly payments. Kracht said it's

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<v Speaker 1>designed to provide payment relief during a short term financial difficulty.

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<v Speaker 1>In non pandemic times, forbearance plans are typically offered as

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<v Speaker 1>a way to keep borrowers in their homes during a

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<v Speaker 1>period of unemployment or recovery from a natural disaster like

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<v Speaker 1>a hurricane or wildfire. The terms of a forbearance agreement

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<v Speaker 1>depend on the borrowers specific financial situation, so lenders typically

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<v Speaker 1>ask for financial records like monthly income and expenses. Sometimes

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<v Speaker 1>the mortgage payment is produced, in other times it's suspended entirely.

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<v Speaker 1>The kruct says that the typical length of forbearance runs

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<v Speaker 1>from three months to a year. Mortgage forbearance is a

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<v Speaker 1>tem prairie solution to financial hardship, not a long term

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<v Speaker 1>fix once a borrower is back on their financial feet.

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<v Speaker 1>Krocht says that there are three standard options for repaying

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<v Speaker 1>a four born mortgage. First, it can be tacked on

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<v Speaker 1>to the end many lenders will allow homeowners to move

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<v Speaker 1>all deferred payments to the end of the mortgage, but

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<v Speaker 1>think of it as a no interest second loan that's

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<v Speaker 1>repaid either when the house is sold or when the

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<v Speaker 1>original mortgage is fully repaid. As a second option, it

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<v Speaker 1>can be added to your monthly payment. This lets you

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<v Speaker 1>slowly repay the deferred amount as a small increase in

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<v Speaker 1>your remaining monthly mortgage payments. For the third option, it

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<v Speaker 1>can be paid off in one lump sum. While this

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<v Speaker 1>option is less common, some borrowers pay off the full

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<v Speaker 1>amount of deferred mortgage payments immediately after the forebearance period ends.

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<v Speaker 1>Forbearance is a smart option for both borrowers and lenders.

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<v Speaker 1>For borrowers, the biggest plus is perhaps obviously that it

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<v Speaker 1>offers a temporary break from monthly mortgage payments with out

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<v Speaker 1>adversely affecting their credit. Forbearance gives them much needed time

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<v Speaker 1>to find a new job or recover from a disaster

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<v Speaker 1>without technically missing a payment, and according to Kracht that

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<v Speaker 1>forbearance is a good deal for banks and mortgage lenders too,

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<v Speaker 1>even if it means a reduction or pause and payments,

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<v Speaker 1>because anything is better than foreclosure. He said, the foreclosure

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<v Speaker 1>process really doesn't benefit anybody. It's very costly to go

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<v Speaker 1>through foreclosure. The alternative is pretension keeping somebody in their home,

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<v Speaker 1>which is the best option. The main drawback to forbearance

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<v Speaker 1>would be that if you have trouble paying the mortgage

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<v Speaker 1>in general, then at some point those payments are going

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<v Speaker 1>to come do. Before the COVID nineteen pandemic, a few

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<v Speaker 1>states had created forbearance programs provide temporary mortgage relief, for example,

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<v Speaker 1>after a storm like Hurricane Harvey in but the incredible

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<v Speaker 1>job losses caused by the pandemic twenty two point two

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<v Speaker 1>million new unemployment claim in March and April alone required

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<v Speaker 1>a whole new level of emergency mortgage assistance. Under the

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<v Speaker 1>CARES Act, homeowners affected by the pandemic are automatically granted

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<v Speaker 1>mortgage forbearance for a hundred and eighty days, with an

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<v Speaker 1>option for extending for an additional eighty days if needed.

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<v Speaker 1>The correct says that the biggest difference between the forbearance

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<v Speaker 1>options authorized by the CARES Act and regular forbearance plans

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<v Speaker 1>is how simple and streamlined the process is for obtaining them.

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<v Speaker 1>Usually a lender or mortgage servicer will require financial statements

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<v Speaker 1>and records before extending an offer of forbearance, but not

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<v Speaker 1>under the CARES Act. Kracht said, all that's required is

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<v Speaker 1>for the borrower to call the mortgage company and say

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<v Speaker 1>that they've been affected. At that point, the mortgage servicer

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<v Speaker 1>or lender will put them on a forbearance plan, no

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<v Speaker 1>questions asked and no financial information required. The repayment options

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<v Speaker 1>under the CARES Act are the same as regular forbearance agreements.

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<v Speaker 1>According to one report from October and estimated three point

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<v Speaker 1>six million households or six point eight percent of all

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<v Speaker 1>active mortgages in the United States. We're in COVID nineteen

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<v Speaker 1>related forbearance. But what a forbearance isn't enough. Forbearance is

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<v Speaker 1>meant to be a short term pause in mortgage payments

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<v Speaker 1>while a borrower gets back on their feet. So what

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<v Speaker 1>happens if the forbearance period is set to expire and

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<v Speaker 1>the financial situation has not improved. Foreclosure is always a possibility, But,

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<v Speaker 1>as Kract says, lenders have their own reasons for wanting

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<v Speaker 1>to keep borrowers in their homes and will only turn

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<v Speaker 1>to foreclosure as a last resort, and in response to

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<v Speaker 1>the pandemic, the Federal Housing Finance Agency has extended its

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<v Speaker 1>foreclosure moratorium for all homes with federally backed loans, that is,

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<v Speaker 1>Fannie Mae and Freddie Mack until at least December thirty one.

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<v Speaker 1>Kroct explains that the best advice is to call your

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<v Speaker 1>lender or a loan counselor as soon as you realize

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<v Speaker 1>that you may have difficulty making payments. When the forbearance

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<v Speaker 1>period ends, you can find a free or low cost

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<v Speaker 1>loan counselor in your area by going to Consumer Finance

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<v Speaker 1>dot gov. At that point, the best option for you

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<v Speaker 1>and your lender is to make adjustments to your mortgage

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<v Speaker 1>that make payments more affordable, either by refinancing the mortgage

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<v Speaker 1>at a lower interest rate or creating some kind of

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<v Speaker 1>customized payment plan that better fits your budget. Today's episode

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<v Speaker 1>was written by Dave Ruse and produced by Tyler Klang.

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<v Speaker 1>For more on this and lots of other curious topics,

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<v Speaker 1>visit houstuf forks dot com. Brain Stuff is production of

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