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What Is Mortgage Forbearance?

Would Mortgage Forbearance Help You?

If you are having trouble paying your mortgage, a mortgage forbearance agreement may be helpful. Mortgage forbearance in the simplest terms gives the borrower some breathing room to catch up on their payments.

The guidelines for forbearance will vary depending on the type of mortgage you have and the lender’s guidelines. Only your lender can determine the exact guidelines for forbearance on your mortgage and whether or not you will qualify. Contacting your lender to discuss forbearance is the best way to determine if it will be helpful in your situation.

Here is a general description of mortgage forbearance and circumstances where it applies.

What are a bank’s forbearance guidelines?

Forbearance agreements are contracts, and as such vary from one case to another. They are negotiated based on a number of guidelines and considerations. For example, a home that is severely underwater gives leverage to the borrower, because a foreclosure would likely result in steep losses for the lender.

Lenders are more likely to agree to a forbearance agreement for borrowers that have a clearly defined, short term financial problem. The borrower could have fallen ill or been injured on the job, temporarily limiting their cash flow. If the borrower can show that their income will soon resume, the bank could be willing to agree to a forbearance.

At the end of the day, the bank simply wants the loan to be paid on time and the borrower wants to overcome their financial difficulty with minimal damage to their credit and finances. If the borrower can prove that payments are highly likely to resume after the forbearance period is over, then the bank is more likely to agree to the contract.
– via The Motley Fool

Freddie Mac’s Forbearance Guidelines

Here are the eligibility guidelines and a general requirements of a mortgage forbearance plan under Freddie Mac as written to the lender. If you have a Freddie Mac loan these guidelines may be helpful to you.

NOTE: The only way to know the most current rules that apply to your mortgage and whether you will be eligible for mortgage forbearance is to contact our lender and discuss your situation.

Eligibility

The borrower must have a financial hardship due to unemployment.

The property must be a principal residence.

Second homes, investment properties, and properties that are vacant, condemned, or abandoned are ineligible.

For short-term unemployment forbearance, the borrower:

May be either current or less than or equal to 12 months delinquent.

May be in a HAMP or non-HAMP trial period plan and convert to a forbearance plan.

For extended unemployment forbearance, the borrower must have:

Complied with the terms of the short-term forbearance plan.

Cash reserves less than or equal to 12 months of their monthly housing expense.

A current monthly housing expense-to-income ratio (excluding unemployment benefits) greater than 31 percent.

If the mortgage is covered by mortgage insurance, you must obtain the MI’s approval prior to offering the borrower unemployment forbearance.

Forbearance Plan

The unemployment forbearance plan must be in writing and:

Indicate the duration of the unemployment forbearance.

State that the plan will terminate earlier upon the borrower’s re-employment.

Require the borrower to provide updates on his or her employment status and immediate notification of re-employment.

Contain an explanation of what will occur upon expiration or re-employment.

State that borrowers in a HAMP modification are ineligible for incentives if the borrower loses good standing.

Indicate that terms may be re-evaluated if there is a material change in the borrower’s financial circumstances.

State that you will cancel the plan and initiate or resume foreclosure if the borrower defaults on the terms of the plan.

You must have written policies and procedures relating to forbearance plans, including how to determine if a payment will be required and how the amount will be calculated.

An unemployment forbearance plan will be terminated if:

Any of the eligibility criteria are no longer applicable.

The property becomes vacant, abandoned, or condemned.

The borrower advises you that he or she is no longer actively seeking employment.

The borrower fails to make timely payments.

Late charges may accrue while you determine borrower eligibility.

You may not accrue or collect late fees during the unemployment forbearance period. – via www.freddiemac.com

Do you think mortgage forbearance would help you get back on track with your mortgage payments?

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