Forbearance: Tread Lightly
Written By: David Reed
Tuesday, July 14, 2020
A forbearance is a formal agreement between the lender and the borrower. Borrowers cant decide to take a mortgage payment holiday on their own. Doing so would start the foreclosure clock ticking. And lenders are loathe to foreclose. Its the very last thing on their list when trying to work with struggling homeowners. Lenders have employees whose sole job is to provide workout solutions for those having problems making the mortgage payment.nbsp;
A forbearance agreement can be arranged if the borrowers meet certain standards such as documenting their situation as well as the lender seeing there is light at the end of the financial tunnel. If both can be met, a forbearance may be an option. Such an agreement will allow the borrowers to suspend the monthly mortgage payment for a specific period. Yet with a forbearance, the payments dont go away, they payments accrue during the forbearance period. If the mortgage payment is 2,500 and the agreed upon period is for six months, that means at the end of six months, not only will payments resume but theres a 15,000 bill that comes due. Thats the tough part. If someone is having difficulty paying 2,500 where will the 15,000 come from? There are other options such as a Loan Modification that can help and recent changes to agency guidelines may arrange for the past due amounts be added back to the existing mortgage.
Another major consideration with a forbearance agreement is the hit credit reports and credit scores take. On the credit report, late payments will be listed. Late payments on a mortgage does most of the damage to credit scores. Further, if a forbearance agreement is executed, that too will be listed on the credit report. While the borrowers get a breather on making the monthly payment, the credit report will list the forbearance filing. And, at the same time, many lenders who see a forbearance listed on a credit report wont approve a new loan, be it for a purchase or a refinance for up to a year. Or even longer, its enti>
Deciding whether or not to ask for a forbearance agreement should be made alongside your loan officer or financial professional. There are consequences of such a filing that many may not know about. Yes, there is a payment reprieve and foreclosure is avoided, but the filing will negatively impact a credit report. There can be other options available for struggling homeowners. This isnt something to do on your own volition. Theres a lot more help out there than you might think.
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