Loan Deferment Options:

 Loan Deferment Options: - As an independent mortgage broker, understanding how the current market climate affects the mortgage industry, your real estate partners and borrowers is paramount. With the recent passage of the CARES Act (Coronavirus Aid, Relief, and Economic Security Act), many mortgage professionals and homeowners are questioning how this bill will affect their lives and livelihoods. Forbearance, in particular, has become a hot topic, but it is not the only option available to homeowners facing adversity. In this blog, we'll explore what forbearance entails and additional loan modifications and payment options that servicers can offer homeowners as an alternative.

According to the Consumer Financial Protection Bureau, the definition of forbearance is a temporary suspension of payment on a loan, such as a credit card, student loan or mortgage. Loan forbearance for homeowners in the age of the Coronavirus is one of the tactics proposed by the federal government to ease the growing economic pressures facing everyday Americans. However, it is important to note that a mortgage forbearance is not granted to all homeowners, and the guidelines for federally backed mortgages and privately insured mortgages differ.

Loan Deferment Options:

It is also important to note that loan forbearance, although it may help consumers in the short term, can be financially challenging soon after. Forbearance is simply a temporary stop in monthly mortgage payments and unless homeowners make an individual arrangement with their servicer for loan modifications or payment plans, all payment is due immediately when the forbearance period ends.

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“Patience is not forgiveness. Forbearance does not relieve the borrower's obligation, it provides temporary payment relief for people experiencing hardship. That's why it's important for borrowers to work with their (loan servicer) to understand the option that best suits their needs. - Willie Newman, CEO of Home Point Financial

The CARES Act is the largest stimulus package in American history and is designed to prevent economic hardship for businesses and individuals affected by the COVID-19 pandemic and ease the economic downturn. The bill allows single-family homeowners with federal mortgage-backed loans (Fannie/Freddie/FHA/VA/USDA) to request a temporary suspension of their initial mortgage payments. period of up to 180 days with the option to apply for an extension. from the servicer up to an additional 180 days. The forbearance period shall not exceed a 12 month period of time.

For average homeowners, the CARES Act outlines options for what could be considered forbearance agreements, or the ability to temporarily suspend monthly mortgage payments, for those affected by COVID-19. . Borrowers should contact their servicer if they are unsure if they have a qualified loan to understand what their specific options are.

For investors and owners with large family loans, there are also forbearance options available for up to 90 days, which will be disbursed in 30-day increments. It applies to federally insured, guaranteed, extended, or assisted loans, including loans purchased or securitized by the GSEs.

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Read a summary of the CARES Act and find more updates on how the Coronavirus Stimulus Bill affects the mortgage industry on our Legislative Updates page.

A forbearance agreement can vary from servicer to servicer, depending on whether the loan is federally backed or not. Generally speaking, a typical forbearance agreement might look something like this:

One of the difficulties of forbearance is the stress it can cause a homeowner when the forbearance period ends. Since this is a temporary option, it will only delay the monthly mortgage payment to a later date, causing the balloon payment to be completed when the forbearance period ends, if the homeowner has not made a other servicer debt repayment arrangements. A patient homeowner should only use that option because of financial hardship because trying to pay a large sum equal to several monthly payments at once would be difficult or impossible. and servicers are not required to offer all options to borrowers under the CARES Act.

Additional option to repay the loan, they are obliged to continue paying their loan and pay the total amount lost during the forbearance period — all at the same time. Patience is not a one-size-fits-all solution and servicers may offer different loan repayment options, but the homeowner needs to actively seek the best option for their situation through to contact their loan servicer. Loan repayment options are usually outlined in one of the following ways.

Student Loan Deferment Vs. Student Loan Forbearance

Delay is when overdue payments are delayed to a later date. The balance of the loan is due either on the mortgage maturity date, the pay-off date or the sale of the property and deferring is usually the only option available after a missed mortgage payment, which affects the borrower's debt. . Borrowers should contact their servicer to determine if they qualify for deferment.

This is when a borrower must pay the total outstanding payments owed, in a lump sum, on a specific date. This will follow the forbearance plan unless otherwise specified in the agreement. If the loan is made now after the forbearance period, there is usually no effect on the borrower's credit.

It allows a borrower to pay off past payments with regular payments over a long period of time to bring down the current debt. It is usually given to borrowers who can prove a financial need for a payment plan because they cannot carry the current debt.

This is when a lender changes the terms of a mortgage following a borrower's default to avoid foreclosure, usually after a trial period of the payment plan. This may include increasing the time to pay off the loan or changing the amount required for each payment. A loan modification is not usually offered until a borrower defaults or charges and affects the borrower's credit.

Should You Consider A Student Loan Forbearance?

Loan forbearance and loan deferment are two different options that homeowners facing hardship can consider, but there are many differences between the two. As outlined above, during mortgage loan forbearance, payments must be made in full at the end of the forbearance period unless another payment option has been agreed upon by your loan servicer. Generally, a forbearance period does not exceed 12 months at a time and interest continues to accrue during the temporary forbearance period.

A mortgage loan deferment is a delay in payments for a set period of time due to extenuating circumstances and is often used as a last resort to avoid foreclosure. Deferral options are not available from all servicers, may be more difficult to qualify for and may require more detailed documentation during the deferral evaluation process. During a loan deferment, a borrower postpones their loan payments, including principal and interest, to a later date. The loan balance is repaid on any mortgage maturity date, the payment date

The length of the loan term and the repayment schedule will remain the same, but the grace period may vary based on the type of grace. Each loan servicer may have several types of deferrals and since these vary from servicer to servicer, homeowners should contact their specific servicer to review the options available to them. In addition, a grace period can last up to several years and during the grace period, the interest on the mortgage loan is not increased. Servicers may not approve all deferment requests and they may have a harder time qualifying because deferment is not guaranteed by the CARES Act.

In addition to forbearance and deferment, servicers may also provide other options for homeowners experiencing hardship, such as loan modifications or payment plans. Those options vary from lender to lender and case by case and may require additional financial documentation from your bank or other sources to prove financial hardship to qualify.

Federal Student Loan Forbearance: Is It Right For You?

As a mortgage expert, it is important that you are able to communicate real information about the complex situation of the market and the legislative information and how all this affects your clients. Here are five talking points you can use to help inform your borrowers and referral partners.

A forbearance agreement only allows homeowners to temporarily suspend their mortgage payments, but once the forbearance period ends, all payments are due. It can prove difficult for borrowers who believe that payments will be reinstated, as opposed to temporarily suspended. Finally, they may be surprised if they find themselves responsible for several months of loan payments at once, when the period of forbearance, when the loan modification or other options in payment has not been specifically arranged by the servicer in advance.

The Department of Housing and Urban Development (HUD) has issued forbearance guidelines for borrowers with FHA loans. This includes the COVID-19 National Emergency Partial Claim as an option for FHA borrowers after a forbearance period.

The Federal Housing Finance Agency (FHFA) that oversees Fannie Mae and Freddie Mac implements policies to help servicers with liquidity and provides guidelines for servicers to follow when offering payment options to borrowers. The agency also worked with the Consumer Financial Protection Bureau (CFPB) to form the Borrower Protection Program to ensure proper and fair credit.

Student Loan Forbearance Vs. Deferment

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