Mortgage Forbearance Could Spark More Financial Woes

April 17, 2020

With business closures and job losses due to the coronavirus outbreak, about 2 million borrowers so far have applied for mortgage forbearance programs. But homeowners should fully understand what forbearance means before entering into such an agreement with their lender, financial experts advise.

Many homeowners who take forbearance options will be on the hook for making up missed payments in a lump sum at the end of the program. As one homeowner in Chicago realized, taking 90 days of forbearance on his mortgage would have meant he would have to pay three monthly payments at once at the end of the period.

In the last month, nearly 17 million Americans have filed for unemployment, as social distancing measures have prevented most businesses from operating as normal. This has left many homeowners scrambling to figure out how to pay their mortgages. Many homeowners with government-backed loans or private loans are being offered up to 12 months of forbearance. Homeowners will want to check on what happens at the end of the forbearance period: Will they be asked to pay back all of those missed payments in a lump sum?

Fannie Mae, Freddie Mac, and the Federal Housing Administration say they never require their borrowers to make lump-sum payments. Banks may also work out repayment plans with borrowers.

Joseph Sant, deputy general counsel for the Center for New York City Neighborhoods, told realtor.com® that he is concerned that the lack of uniformity among mortgage assistance programs may spark greater confusion among the public. “We are concerned about what’s going on right now, with many people going into these forbearance plans without a clear sense of what will happen at the end,” Sant says.

Financial experts are urging homeowners to weigh forbearance options carefully. “If you can make the payment, make the payment now,” mortgage broker Rocke Andrews, president of the National Association of Mortgage Brokers, told realtor.com®. “Don’t take [forbearance] if you don’t absolutely need it. It all becomes due, and who knows what happens between now and then.”