Mortgage Forbearance

Forbearance does not mean Forgiveness.  It’s important to understand the difference! 

 Here is a Forbearance scenario:

Cindy  and John have a mortgage currently at $2,500 per month.  John loses his job and gets laid off from work.  John  hears all of the “News”  about  forbearance and how if you’ve been negatively  impacted by COVID-19 that banks have to work with you.” Excited John calls the Mortgage Servicer, and inquires about the Forbearance he is entitled to.  He’s so excited because in just one phone call, he doesn’t have to pay his mortgage for six months. 

This is where the craziness comes in. 

Now fast forward Seven months, John is back to work, and of course he wasn’t able to save any additional money when he was out of work. The Forbearance timeframe of six months is now up and the Servicer sends John and Cindy their bill.  Cindy nearly falls out of her chair because the bill shows that they now owe  $17,500 and it’s all due right now on the seventh month.

  • John in shock calls the Servicer and asks: “WHY??” 
  • The Servicer explains: “That’s the 6 months of forbearance ($2,500 x 6) plus the current month of $2,500”  totaling $17,500 in total are all due now. 
  • John: “Well obviously, I haven’t been working and I don’t have that kind of money. I can’t pay that,  Is there anything I can do, can we renegotiate?” 
  • Servicer: “Sure, we will spread out the $15,000 over 12 months so that will be $3,750 a month for the next 12 months.” 
  • John: ” What!!! I don’t understand, WHY? 
  • Servicer: “$15,000 Fifteen thousand divided by 12 months is $1,250. Add that to your mortgage of $2,500 and that equals $3,750 for the next 12 months”  
  • John: “I can’t afford that.” 
  • Servicer: “Sorry…” 
  • John: “Can I refinance?” 
  • Servicer: “No because the loan went into forbearance and you have an ‘unsatisfactory recent mortgage payment history’ in the eyes of Fannie Mae & Freddie Mac’s current underwriting approval guidelines”.  

To sum all of this up.  Forbearance is not forgiveness.  You still have to pay it back.  Whether it is at the end of a few months, or if it’s at the end of the lifetime of the loan, it will have to be paid back. Know what you’re getting yourself into before you sign.  Speak with the correct people, ask the right questions, read the fine print.  

While forbearance might be the only option for some, it should not be pursued unless absolutely necessary. Bottom line, know what you are agreeing to and work with an experienced Realtor and Lender partner who  know how to protect you and give you accurate advice. 

Please feel free to reach out to me and help you navigate these tough times or guide you to the right direction.

-Kira Brown, “Beach Living Made A Breeze!”

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