Forbearance Frustrations

How to keep up the payments in the midst of Covid-19 changes

The word forbearance has entered the vocabulary of so many lately — initially, people felt relieved that the CARES Act and other government programs were resulting in mortgage forbearance. Most believed that forbearance = forgiveness. Unfortunately, the confusion surrounding the word and the way this is working today is just adding stress to an already stressed population.

Forbearance literally means: “The action of refraining from exercising a legal right, especially enforcing the payment of debt.” (Dictionary.com)

So as it applies to a mortgage and payments due, what is meant by 90-day forbearance on a loan? Well, it depends.

The philosophy behind the forbearance policy is to create some relief to a borrower who might have abruptly lost their job, and therefore their ability to make a mortgage payment. By giving time, the idea is to hold off calling an account delinquent and initiating foreclosure proceedings. However, how it works in practice varies widely.

Below I will give some details of how this is currently working for several loan providers. However, and this cannot be stressed enough:

CALL YOUR PROVIDER DIRECTLY

Find out their policy and discuss your own situation. See if arrangements can be made to stay current on your loan, with a customized plan. One strategy is to send in a letter in lieu of your loan payment. Document it by taking pictures and keeping notes. Have you ever had the experience of speaking with one customer service representative about something, only to have the next one tell you something different? If you do speak with an agent by phone, follow up the call with a written letter to the bank documenting the call, the name of the agent with whom you spoke and details of your conversation. Include details like the number you called and the date you spoke.

If you do come to an agreement, ask for written documentation confirming those details. My father used to say, “The palest ink is better than the best memory.”

Keep in mind, given these unprecedented circumstances, lenders are overwhelmed with calls and inundated with constantly changing guidelines and information. It certainly requires patience and persistence to get answers.

Here are some of the most common ways lenders are approaching forbearance:

90 day forbearance with balloon payment:

This would typically mean interest would continue to accrue, and at the end of the 90 day period, all of the payments are due at once, with a lump sum.

90 day forbearance with payment tacked at end:

This would typically mean the missed payments would be added to the end of the loan.

If at the end of the forbearance period, you are still under duress, some lenders are allowing loan modification. This could allow a borrower some leeway to get back on track. In some cases, borrowers will negotiate another forbearance period. They will either have a balloon payment at the end of the new period, or alternatively they will have all of the missed payments and interest tacked onto the end of the loan.

One big misconception is that forbearance means forgiveness. Some individuals are seeing this as a free pass on their loan payment. This is certainly not the case, and it could result in payment trouble ahead as a lump sum is due. If you can continue to make the payments, you should continue to do so.

Soon, all this will be behind us, but if you are struggling right now to make your monthly payments, reach out to your lender. Keep in mind, it is in their best interests to find a way to keep you in the loan. Helping you figure out a plan, is simultaneously helping them to figure out a plan. At the end of the day, you are on the same team.

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