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Borrowers Rush to Seek Mortgage Forbearance Before COVID-19 Relief Runs Out

By Maurie Backman – Dec 16, 2020 at 5:40PM

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Forbearance activity is up for the first time in August. Should you pause your home loan payments?

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Many homeowners are experiencing financial hardships during the coronavirus pandemic. Thankfully, there's relief available in the form of mortgage forbearance. But new forbearance requests are on the rise, reports the Mortgage Bankers Association. Though the total number of loans in forbearance decreased from 5.54% to 5.48% as of Dec. 6, new forbearance requests reached their highest level since the week ending Aug. 2. That means more homeowners may be looking to put their mortgages into forbearance before that option runs out at the end of the year. It's also a sign that we may be further away from widespread economic recovery than we'd like.

In fact, compared to the last two months, more homeowners exiting forbearance are having their home loans modified. Loan modification is the process of changing the terms of a mortgage without going through the process of refinancing, and it's a sign that borrowers continue to need help. 

Meanwhile, the CARES Act, which was signed into law in late March, requires that mortgage lenders comply with borrowers' forbearance requests provided they're made by Dec. 31, 2020. The approach of this deadline could explain why new forbearance plans have increased -- because borrowers want to lock in that relief before it's too late. 

Should you put your mortgage into forbearance?

If you can't keep up with your mortgage payments, then forbearance is a good option right now. Under the CARES Act, you can request an initial 180-day period of forbearance and then a 180-day extension. Your lender will be required to give you that extension, but it won't happen automatically -- you'll need to ask for it. 

During forbearance, you won't have to make any mortgage payments, and you also won't be reported as delinquent on those missed payments to the major credit bureaus. Once your forbearance period ends, you'll need to catch up on the payments you skipped, but your lender is not allowed to force you to make those payments in a single lump sum. Rather, you'll pay them off over time, the specifics of which will depend on the arrangement your lender works out with you. If you're unable to keep up with your monthly payments once your 360 days of forbearance end, you may have the option to modify your loan, or refinance to a mortgage with a much lower rate.

Another thing you should know is that you're allowed to make partial mortgage payments during forbearance to minimize the amount you have to catch up on down the road. Of course, if you're struggling to pay your mortgage and don't want to deal with forbearance, there's another option, too -- selling your home. If you can sell your property for enough money to pay off your mortgage balance and downsize to a more affordable place to live, that's an option you might consider. 

But if you expect your hardship to be temporary in nature, then forbearance really could be a good solution. Just make sure to apply quickly. Though forbearance will exist beyond 2020, lenders may not have the same obligation to grant it once the CARES Act expires on Dec. 31. Wait too long, and you could lose out.

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