Facing the Finances of COVID-19: Understanding Federal Mortgage Forbearance

“The COVID-19 pandemic has triggered a housing affordability crisis,” the White House announced on Feb. 16, 2021. “Today, 1 in 5 renters are behind on rent and just over 10 million homeowners are behind on mortgage payments.”

Thus, President Biden and Congress instituted the CARES Act, the likes of which offered mortgage aid for homeowners facing newfound financial hardship.

If you have yet to apply for mortgage forbearance, or if you applied within the last year but are now coming up on your plan’s deadline, here’s what you need to know:

The Ins-and-Outs of Federal Mortgage Protection

Forbearance is the process by which a homeowner requests a mortgage payment pause or reduction through their loan servicer. Note, however, that the assistance provided by forbearance is only designated for a limited period of time.

“Forbearance doesn’t mean your payments are forgiven or erased,” the Consumer Financial Protection Bureau (CFPB) explains. “You are still obligated to repay any missed payments, which, in most cases, may be repaid over time or when you refinance or sell your home.”

Under the CARES Act, homeowners may be given up to a full year of mortgage forbearance depending on their financial situation. Those who had initially applied for forbearance in August of 2020, for example, would now reach the end of their forbearance period as of August, 2021.

Once that period has expired, homeowners have the following options:

• Pay all of the missed payments back at once in one large sum.
• Pay the money back incrementally by increasing the amount they pay each month. This typically involves a payment plan spanning 3 to 12 months.
• Request a loan payment deferral.
• Request to lengthen the overall loan term.
• Apply for a loan modification.

Understanding Extensions and Applications

Originally, homeowners who had not yet applied for mortgage forbearance under the CARES Act had up until July 30, 2021 to apply for the aforementioned assistance. That application period, however, has since been extended.

“To assist homeowners who remain at risk of falling behind on their mortgage payments due to COVID-19, FHA is extending the time period for homeowners to start new forbearance plans to September 30, 2021,” the U.S. Department of Housing and Urban Development (HUD) clarified in a statement on June 25, 2021. “Homeowners who have not previously been in COVID-19 forbearance can request this pause or reduction in mortgage payments.”

This also applies to homeowners with mortgages through USDA or the VA. Those with mortgages backed by Fannie Mae or Freddie Mac are not currently subject to a deadline for an initial forbearance application.

Otherwise, those who had previously applied for forbearance still have the opportunity to request an extension depending on their type of mortgage loan:

• Homeowners with conventional loans may request up to two extensions of three months, bringing their overall forbearance period to a total of 15 or 18 months. Only those who had been granted a forbearance plan under the CARES Act prior to February 28, 2021 are eligible for such extensions.
• Homeowners with government-backed loans through the FHA, USDA, or VA may also request up to two extensions of three months, bringing their overall forbearance period to a total of 15 or 18 months. However, to be eligible, homeowners must have received an initial forbearance plan before June 30, 2021.

Finding Financial Freedom After Federal Forbearance

Whether you’re struggling to pay back all of your missed payments as a result of forbearance or are facing the challenges involved in loan deferrals or modification, it’s important to know that bankruptcy is a powerful tool for finding financial freedom in the looming future.

COVID-19 has upended the lives of many, both emotionally and financially. Bankruptcy, however, may help those who have waded into the deep waters of insecurity to once more find their footing, as the clean slate it affords is the first large step in ending wage garnishment, stopping credit harassment, and finding lasting relief.

To learn more about how filing can benefit you, contact Dolaghan Law today by calling (904) 354-4935! You are not alone.