Speaker 1: Welcome to brain Stuff, a production of iHeart Radio. Hey
Speaker 1: brain Stuff Lauren Bogelbaum here. Mortgage forbearance is a temporary
Speaker 1: pause or reduction in monthly mortgage payments for a homeowner
Speaker 1: who's experiencing financial hardship. It's not loan forgiveness. The deferred
Speaker 1: payments do need to be repaid at some point, but
Speaker 1: mortgage forbearance can be a lifeline for homeowners who unexpectedly
Speaker 1: lose their job or experience losses from a natural disaster,
Speaker 1: including the COVID nineteen pandemic. But we spoke with Chuck Kracht,
Speaker 1: director of loan servicing for the Idaho Housing and Finance Association,
Speaker 1: which offers free loan counseling to struggling borrowers. He explained
Speaker 1: that the key to avoiding foreclosure during a financial crisis
Speaker 1: is to ask for help immediately. He said, that's the
Speaker 1: best advice I can give to anyone. The second anyone
Speaker 1: has any sort of trouble, they need to call their
Speaker 1: mortgage servicer or lender or a loan counselor Time is
Speaker 1: of the essence because if you're able to stay current
Speaker 1: on your mortgage payments, not only will your lender be
Speaker 1: more open to forbearance, but your credit also won't take
Speaker 1: a hit during forbearance. Paused payments are not reported to
Speaker 1: the credit agencies as delinquent as long as you were
Speaker 1: on time with your previous monthly payments. Kracht said it's
Speaker 1: designed to provide payment relief during a short term financial difficulty.
Speaker 1: In non pandemic times, forbearance plans are typically offered as
Speaker 1: a way to keep borrowers in their homes during a
Speaker 1: period of unemployment or recovery from a natural disaster like
Speaker 1: a hurricane or wildfire. The terms of a forbearance agreement
Speaker 1: depend on the borrowers specific financial situation, so lenders typically
Speaker 1: ask for financial records like monthly income and expenses. Sometimes
Speaker 1: the mortgage payment is produced, in other times it's suspended entirely.
Speaker 1: The kruct says that the typical length of forbearance runs
Speaker 1: from three months to a year. Mortgage forbearance is a
Speaker 1: tem prairie solution to financial hardship, not a long term
Speaker 1: fix once a borrower is back on their financial feet.
Speaker 1: Krocht says that there are three standard options for repaying
Speaker 1: a four born mortgage. First, it can be tacked on
Speaker 1: to the end many lenders will allow homeowners to move
Speaker 1: all deferred payments to the end of the mortgage, but
Speaker 1: think of it as a no interest second loan that's
Speaker 1: repaid either when the house is sold or when the
Speaker 1: original mortgage is fully repaid. As a second option, it
Speaker 1: can be added to your monthly payment. This lets you
Speaker 1: slowly repay the deferred amount as a small increase in
Speaker 1: your remaining monthly mortgage payments. For the third option, it
Speaker 1: can be paid off in one lump sum. While this
Speaker 1: option is less common, some borrowers pay off the full
Speaker 1: amount of deferred mortgage payments immediately after the forebearance period ends.
Speaker 1: Forbearance is a smart option for both borrowers and lenders.
Speaker 1: For borrowers, the biggest plus is perhaps obviously that it
Speaker 1: offers a temporary break from monthly mortgage payments with out
Speaker 1: adversely affecting their credit. Forbearance gives them much needed time
Speaker 1: to find a new job or recover from a disaster
Speaker 1: without technically missing a payment, and according to Kracht that
Speaker 1: forbearance is a good deal for banks and mortgage lenders too,
Speaker 1: even if it means a reduction or pause and payments,
Speaker 1: because anything is better than foreclosure. He said, the foreclosure
Speaker 1: process really doesn't benefit anybody. It's very costly to go
Speaker 1: through foreclosure. The alternative is pretension keeping somebody in their home,
Speaker 1: which is the best option. The main drawback to forbearance
Speaker 1: would be that if you have trouble paying the mortgage
Speaker 1: in general, then at some point those payments are going
Speaker 1: to come do. Before the COVID nineteen pandemic, a few
Speaker 1: states had created forbearance programs provide temporary mortgage relief, for example,
Speaker 1: after a storm like Hurricane Harvey in but the incredible
Speaker 1: job losses caused by the pandemic twenty two point two
Speaker 1: million new unemployment claim in March and April alone required
Speaker 1: a whole new level of emergency mortgage assistance. Under the
Speaker 1: CARES Act, homeowners affected by the pandemic are automatically granted
Speaker 1: mortgage forbearance for a hundred and eighty days, with an
Speaker 1: option for extending for an additional eighty days if needed.
Speaker 1: The correct says that the biggest difference between the forbearance
Speaker 1: options authorized by the CARES Act and regular forbearance plans
Speaker 1: is how simple and streamlined the process is for obtaining them.
Speaker 1: Usually a lender or mortgage servicer will require financial statements
Speaker 1: and records before extending an offer of forbearance, but not
Speaker 1: under the CARES Act. Kracht said, all that's required is
Speaker 1: for the borrower to call the mortgage company and say
Speaker 1: that they've been affected. At that point, the mortgage servicer
Speaker 1: or lender will put them on a forbearance plan, no
Speaker 1: questions asked and no financial information required. The repayment options
Speaker 1: under the CARES Act are the same as regular forbearance agreements.
Speaker 1: According to one report from October and estimated three point
Speaker 1: six million households or six point eight percent of all
Speaker 1: active mortgages in the United States. We're in COVID nineteen
Speaker 1: related forbearance. But what a forbearance isn't enough. Forbearance is
Speaker 1: meant to be a short term pause in mortgage payments
Speaker 1: while a borrower gets back on their feet. So what
Speaker 1: happens if the forbearance period is set to expire and
Speaker 1: the financial situation has not improved. Foreclosure is always a possibility, But,
Speaker 1: as Kract says, lenders have their own reasons for wanting
Speaker 1: to keep borrowers in their homes and will only turn
Speaker 1: to foreclosure as a last resort, and in response to
Speaker 1: the pandemic, the Federal Housing Finance Agency has extended its
Speaker 1: foreclosure moratorium for all homes with federally backed loans, that is,
Speaker 1: Fannie Mae and Freddie Mack until at least December thirty one.
Speaker 1: Kroct explains that the best advice is to call your
Speaker 1: lender or a loan counselor as soon as you realize
Speaker 1: that you may have difficulty making payments. When the forbearance
Speaker 1: period ends, you can find a free or low cost
Speaker 1: loan counselor in your area by going to Consumer Finance
Speaker 1: dot gov. At that point, the best option for you
Speaker 1: and your lender is to make adjustments to your mortgage
Speaker 1: that make payments more affordable, either by refinancing the mortgage
Speaker 1: at a lower interest rate or creating some kind of
Speaker 1: customized payment plan that better fits your budget. Today's episode
Speaker 1: was written by Dave Ruse and produced by Tyler Klang.
Speaker 1: For more on this and lots of other curious topics,
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