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Initial Forbearance Periods are Ending; Here’s What to Do Next


Jul 21, 2020 by Aly J. Yale

The CARES Act threw property owners a bone back in March, allowing for up to 180-day forbearances on government- and GSE-backed mortgages. But it's now been months, and for many, those initial grace periods are starting to expire.

If you're in this boat, that means two things: First, mortgage payments will begin to resume. You'll need to make your regularly scheduled payments -- or risk going into default.

On top of this, you will also need to work with your servicer to repay your missed payments. You can choose to pay a lump sum, defer your missed payments to the end of the loan term, modify your loan, or set up a monthly repayment plan. (If you have a private loan not backed by a government agency, Fannie Mae, or Freddie Mac, your options might be different here, so check with your servicer.)

Fortunately, letting your forbearance period expire isn't your only option. If you're not ready to start making payments again, you have a few alternatives to choose from. Here's what you can do:

1. Extend your forbearance.

The CARES Act actually allows for up to two 180-day forbearances, so if you're really struggling financially, you can contact your mortgage servicer and ask for an extension. This is a popular option, it seems. According to data from the Mortgage Bankers Association, about 43% of mortgage loans currently in forbearance are actually extensions.

"Forbearance can last up to a year," says Tendayi Kapfidze, chief economist at loan marketplace LendingTree. "Call your lender and request an extension if you need more time."

Just remember that the more payments you miss, the more you'll owe once that forbearance period ends.

2. Refinance.

You can also refinance your mortgage loan to make payments more affordable. This might mean refinancing into a longer-term loan or to one with a lower interest rate. Rates on 30-year fixed-rate mortgages are currently at all-time lows, averaging 2.98% according to Freddie Mac.

According to Kapfidze, qualifying may be hard. "Lenders have tightened standards," he says."You will need to show that you are a good candidate for refinancing."

3. Modify your loan.

A loan modification is similar to refinancing, except you don't get a new mortgage; you just change the terms of your existing one. You'll need to reach out to your servicer to discuss potential options for modification, but you may be able to lengthen your loan term, reduce your rate, or make other changes to your loan, so it's always worth asking.

4. Talk to a housing counselor.

If you're not sure what to do, talking to a housing counselor can help shed light on your options. HUD has a long list of counseling agencies across the country, so just select your state and find one near you. They can walk you through your post-foreclosure choices as well as advise you on budgeting, refinancing, avoiding default and foreclosure, and more.

5. Sell the house.

It's not ideal, obviously, but selling your property can be an option -- especially if you're worried your income won't bounce back by the end of another forbearance period. Sales are actually strong right now, and home prices are still rising (at least for now), so listing that home soon could mean serious profits.

If you do go this route, consider holding on to those proceeds until the economic uncertainty blows over. It will provide a little financial cushion in case you fall behind on other bills or debts.

The bottom line

Whatever you do, don't let your forbearance period expire and then continue skipping payments. Though foreclosures can't technically start until September (under the CARES Act), falling behind on your payments can seriously ding your credit -- and your chances at getting another loan or property in the future.

Your best bet is to talk to your servicer about your options and to stay on top of the headlines. As Bankrate economic analyst Mark Hamrick explains, "Since Congress has yet to come to terms on what is expected to be another round of pandemic relief legislation, it is possible that this remains a fluid issue, meaning more help could be on the way."

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