Galler Law Firm in Roswell, GA wants homeowners in forbearance to know their options during the COVID-19 crisis. Loan servicers are not giving distressed borrowers the information needed to make wise decisions and avoid foreclosure. Solid advice early in the process can keep people from financial ruin.
As of April 12, 2020, nearly 6% of US homeowners find themselves unable to afford their mortgage payments due to a change in financial circumstances resulting from the COVID-19 crisis. The figure is expected to rise as the economic crisis worsens.
Under the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law on March 27, 2020, homeowners with federally backed mortgage loans can get a forbearance (permission to suspend mortgage payments for a time) by making a request to the lender and acknowledging a financial hardship caused directly or indirectly by COVID-19. The forbearance period will last up to 180 days and can be extended up to 180 additional days (360 days, or around 12 months, total).
Borrowers who need forbearance must not simply stop making payments. They must first contact the loan servicer and explain the financial hardship caused by the coronavirus. If the homeowner does not make a proper request, the loan will become delinquent.
Under current forbearance guidelines, distressed homeowners are allowed to miss payments for three months at a time for a period of up to a year. The borrower is required to make up to four separate requests. Repayment plans are delayed as well during the forbearance.
4 Options for Homeowners
#1. Repay all missed payments in one lump sum.
This option is challenging because the borrower had to request mortgage payments to be suspended for a period of time.
#2. Spread the missed payments over a period of time, typically six months to a year.
The payments are to be paid on top of the regular mortgage payment. Again, this option is tough for the homeowner who re-enters the workforce at a reduced rate of pay or who has other important bills to pay.
#3. Extend the loan by the number of missed months.
The missed payments are shifted to the back end of the loan. Known as a deferral or extension, this option will be sought by most borrowers who emerge from forbearance with previous income more or less intact. Loan servicers are not initially disclosing this option to borrowers requesting forbearance.
#4. Modify the loan.
To make it more affordable, the loan would be entirely reworked, including its length and interest rate.
Mortgage servicers for Fannie Mae and Freddie Mac are not allowed to offer options when the customer first calls to request a forbearance. Servicers are told to follow a process where those options emerge only as the process moves forward.
Only when the borrower nears the end of the forbearance period will the servicer begin to discuss repayment options. The borrower must first be asked whether or not they can repay the full amount of missed payments. None of the options require out-of-pocket fees, and participants in the forbearance program are protected from negative credit reporting as long as the terms of the repayment plans are fulfilled. The requirement to repay the missed payments in one lump sum at the end of forbearance has been removed.
Homeowners seeking forbearance, working out repayment terms, or struggling to understand the various options should seek legal counsel from an experienced and knowledgeable bankruptcy and foreclose attorney. A misstep when working out repayment options after forbearance could result in foreclosure, financial ruin, and bankruptcy.
Serving the Roswell area for over 30 years, Galler Law Firm specializes in bankruptcy and foreclosures as well as all forms of debt settlement. Attorney David Galler is uniquely qualified to guide struggling homeowners in navigating the turbulent legal environment surrounding the COVID-19 crisis.