What You Can Do If Your Foreclosure Is Ending

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In all, more than 2.5 million remained on forbearance plans at the end of February. If you’re at that number, here’s what you need to know as you approach your initial forbearance deadline. Your options may include extending the forbearance, repaying the amount owed, or even resuming your previous payments as if the forbearance had not occurred. COVID forbearance can be extended As your initial 12-month mortgage forbearance expires, you can request an extension for three months. Then, if you need it, you can request another three-month extension. In total, your indulgence can last 18 months. Extensions will not be granted automatically. You should call or respond to your mortgage servicer (the company that processes your monthly payments) and ask. The option to extend the forbearance to 18 months is available for most types of mortgages, depending on when the initial forbearance began: for loans securitized by Fannie Mae FNMA, -1.45% or Freddie Mac, FMCC, -1.46%, you must have entered the forbearance before February 28, 2021. For mortgages insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs and the Department of Agriculture, you must have entered the forbearance before June 30, 2020. Approximately the 70% of home loans fall into the above categories. They are covered by government regulations designed to protect borrowers. Mortgage companies may find these regulations burdensome, but you may find them a lifesaver. Approximately 30% of mortgages do not have to comply with these regulations. These are largely giant loans, exceeding compliance limits; mortgages that banks originated and kept on their books; and unqualified mortgages, many of which are underwritten with alternative documentation or have a debt-to-income ratio greater than 43%. See: Join MarketWatch’s first Money Challenge to clean up your finances. Although servicers of these loans are not required to offer tolerance, some do. When they are ready to break out of forbearance, these borrowers must negotiate with their mortgage servicers. The Department of Housing and Urban Development reviews housing counseling agencies. You can contact a HUD-approved agency for advice before or after contacting your mortgage servicer, regardless of the type of loan. What happens when the indulgence finally ends? When you entered the forbearance last spring or summer, you may have heard that you would have to repay the amount owed upon leaving the forbearance, either in a lump sum or through additional monthly payments. If the prospect of continued financial stress made your heart pound, the bump-bump-bump caught the attention of people in Washington. They realized that it was unrealistic to expect you to find thousands of dollars at the bottom of an empty checking account. Recognizing that reality, regulators devised an additional way out of tolerance: postponement. If you can’t afford a large lump sum or higher payments each month, deferral means you could go back to the same monthly payments you had before. Also read: Eager to save hundreds of dollars, Americans flock to one type of product But, in general, the options for getting out of tolerance vary, depending on your financial situation and the type of mortgage you have. If your loan is backed by Fannie Mae or Freddie Mac Repayment If you have enough savings to comfortably pay the amount owed in one payment, well, bless your heart. Go ahead, pay. Your loan will be reinstated and you will move on as if the forbearance never happened. Payment plan If you can afford to pay an extra few hundred dollars each month until you are current, you can accept a payment plan. It works like this: Let’s say you’ve missed $ 3,000 in mortgage payments. Now your income is restored and you can afford to add $ 250 to each monthly payment for the next 12 months. At the end of this payment plan, you would have repaid the $ 3,000. Then he would go back to his regular payments. COVID-19 Payment Deferral What if you and the administrator analyze your income and expenses and decide that while a payment plan would be unaffordable, you could resume your pre-COVID monthly payments? In this case, you could be eligible for a COVID-19 payment deferral. Related: CDC Extends National Eviction Moratorium, But Tenant Advocates Argue More Help Needed With Payment Deferral, Amount Due Is Delayed To End Of Mortgage Term And Added To Last Scheduled Payment . Go back to making your regular payments. You will pay the amount owed when you sell the home, refinance the mortgage, or reach the end of the mortgage term. Loan Modification If a COVID-related financial hardship permanently hampers your ability to resume pre-pandemic payments, the servicer may offer to modify the loan to lower the monthly payment. With a loan modification, the servicer can extend the term of the mortgage, lower the interest rate, forgive part of the principal, or some combination. See: How To Determine If You Qualify For Pandemic-Related Mortgage Relief If Your Mortgage Is An FHA Loan Independent Partial Claim Of COVID-19 When Forbearance Ends On A Mortgage Insured By The Federal Housing Administration, Your Primary Option Is To Return to make a regular loan, pre-COVID payments. The past due amount is reserved as an interest-free second mortgage that does not require monthly payments. This overdue amount is repaid when you sell the home, refinance the loan, or reach the end of the mortgage term. Your mortgage servicer might call this a deferral, and the FHA calls it a separate COVID-19 partial claim. COVID-19 Owner-Occupant Loan Modification If you cannot afford to resume your previous COVID payments, the servicer will evaluate you for a COVID-19 Owner-Occupant Loan Modification. With this loan modification, the servicer would make payments affordable by lowering the interest rate and lengthening the term of the loan. There are two other options if these two don’t work: The Combined COVID-19 Partial Claim and Loan Modification, for borrowers who do not meet the eligibility requirements for the first two options. The COVID-19 FHA-HAMP Combination Loan Modification and Partial Claim with Reduced Documentation, for borrowers who cannot afford payments under any other option. If your mortgage is a USDA loan Payment plan When a forbearance ends in a rural development loan guaranteed by the Department of Agriculture, the first option is a payment plan, in which you pay more each month for a specified period until has paid the amount due. Term Extension If a payment plan does not work, you may have the option of a term extension. The USDA offers two types of term extensions. With one, you pay more each month for five years to cancel your expired insurance and property taxes. Also, the term of your loan is extended by the number of months you missed payments. If you cannot afford five years of additional payments, the other type of term extension may be an option. This is a loan modification that adds up everything you owe and turns it into a new mortgage for up to 30 years with an interest rate reduction. Mortgage Recovery Advance This deferral program is similar to the FHA’s separate Partial Claim. Resume previous monthly payments. Meanwhile, your past due payments are held until you sell the home, refinance the mortgage, or reach the end of the mortgage term. You do not accrue interest and do not make monthly payments on this overdue amount. If your mortgage is a VA loan The Department of Veterans Affairs is more stingy on borrowers coming out of forbearance than the FHA and USDA on their borrowers. The FHA and USDA can defer your past due payments without interest until you sell the home or refinance, but VA does not guarantee such an option. The VA has proposed a deferral program, but it would charge interest and the amount owed would have to be repaid within 10 years. The proposal faces criticism for not being friendly enough to borrowers. More on that show below. Payment plan VA’s first option is to offer a payment plan, in which you pay more each month for an agreed period until you have repaid the amount owed. Modification If you cannot afford a payment plan, the next step would be a loan modification, in which the term of the mortgage would be extended and the interest rate could be adjusted. Deferral Technically, VA gives mortgage servicers the option of setting aside the amount owed without interest until the home is sold or refinancing the mortgage, just as the FHA and USDA do. But the VA does not require administrators to provide deferrals. COVID-VAPCP The VA has proposed a solution in which the overdue amount would be deferred, more or less. Under the proposed COVID-19 Veterans Assistance Claims Partial Payment Program, the amount owed would be reserved as a second mortgage with an interest rate of 1%, which would be repaid within 10 years. You wouldn’t have to start paying right away, you could wait up to five years, but the unpaid interest would be added to the loan amount. As long as you don’t pay, the amount you owe will increase each month. The VA has not implemented COVID-VAPCP and has not suggested a start date. He proposed the show in December 2020 and requested public comment. Some of the resulting comments were critical, asking the VA to reconsider charging interest and requiring payment before selling the home or refinancing the mortgage. “If VA establishes a partial claim process, it should financially benefit the veteran or service member, not create a new loan that they have to repay,” wrote three Democratic members of the Senate Banking Committee in a letter to the VA. The Mortgage Bankers Association and the Housing Policy Council asked the VA to adopt a program similar to that of the FHA and USDA, in which the past due amount would be deferred without interest and repaid when the home is sold or the home is refinanced. mortgage. A coalition of 27 banking associations and consumer advocacy groups sent a similar request.What to do if your tolerance ends soon When you’ve endured money problems caused by a pandemic, you yearn for certainty and simplicity, something that mortgage companies and regulators they can’t give you. But in their clumsy and bureaucratic way, they are committed to helping you. Here are three tips to help your servicer get out of the forbearance: Your servicer will try to contact you one month before your forbearance ends, whether it is the original forbearance or an extension. Please reply promptly. Those forbearance extensions are there to help you get out of a financial bind. Accept an extension if you need one. Familiarize yourself with your options to find out what to order. Talk to a housing counselor if you want to hear an understanding voice explaining your options in detail. More from NerdWallet Holden Lewis writes for NerdWallet. Email: hlewis@nerdwallet.com. Twitter: @HoldenL.