Good News on Mortgages: You Won't Have a Huge Lump Sum Due If You Seek Relief

https://news.yahoo.com/good-news-mortgages-wont-huge-221923890.html

Scott Medintz
,Consumer Reports•April 29, 2020

t's a classic good news, bad news, good news story.

In early April, many people needing help paying their mortgage because of financial woes caused by the coronavirus crisis were heartened to learn that they could hold off payments for a year without any late fees or extra charges, thanks to the recently passed $2.2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act.

But when they contacted their mortgage companies to avail themselves of the provision, they were told about a big catch: They’d have to make up any skipped payments, in full, as soon as the forbearance period was up.

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But the message these consumers were hearing—that they’d owe a lump-sum payment at the end of the forbearance period—was incorrect. The vast majority of homeowners who accept a COVID-related forbearance will be offered less painful ways to get current on their home loans.

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most homeowners who accept forbearance will ultimately be offered an alternative repayment plan that does not require a large lump-sum payment. Per Fannie and Freddie guidance, servicers of federally backed mortgages are instructed to contact borrowers around 30 days before their forbearance ends to determine an appropriate “workout option.”

Depending on the borrower’s financial situation, such options will likely include simply adding the missed payments to the end of the mortgage, which many consumer advocates believe to be the best option for many consumers who can afford to restart their monthly payment. “It’s the simplest, cleanest way to do it, for everyone involved,” Sitkin says.

Others will be asked to catch up to the original payment schedule by resuming their full monthly payments and making modest extra payments over a period of, say, one or two years.

Borrowers who are unable to resume full payments, meanwhile, could be required to go through a formal loan modification process, where their payments are lowered and the term extended further into the future.

Those unable to pay anything going forward, unfortunately, may lose their homes to foreclosure.

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Keep in mind that these guidelines, like the forbearance provisions of the CARES Act, apply only to federally backed mortgages. (If you aren’t sure if that includes your mortgage, read our article How to Get Help With Your Mortgage During the Coronavirus Pandemic or call your servicer.)

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