Welcome to brain Stuff, a production of iHeart Radio. Hey brain Stuff Lauren Bogelbaum here. Mortgage forbearance is a temporary pause or reduction in monthly mortgage payments for a homeowner who's experiencing financial hardship. It's not loan forgiveness. The deferred payments do need to be repaid at some point, but mortgage forbearance can be a lifeline for homeowners who unexpectedly lose their job or experience losses from a natural disaster,
including the COVID nineteen pandemic. But we spoke with Chuck Kracht, director of loan servicing for the Idaho Housing and Finance Association, which offers free loan counseling to struggling borrowers. He explained that the key to avoiding foreclosure during a financial crisis is to ask for help immediately. He said, that's the
best advice I can give to anyone. The second anyone has any sort of trouble, they need to call their mortgage servicer or lender or a loan counselor Time is of the essence because if you're able to stay current on your mortgage payments, not only will your lender be more open to forbearance, but your credit also won't take a hit during forbearance. Paused payments are not reported to the credit agencies as delinquent as long as you were
on time with your previous monthly payments. Kracht said it's designed to provide payment relief during a short term financial difficulty. In non pandemic times, forbearance plans are typically offered as a way to keep borrowers in their homes during a period of unemployment or recovery from a natural disaster like a hurricane or wildfire. The terms of a forbearance agreement depend on the borrowers specific financial situation, so lenders typically
ask for financial records like monthly income and expenses. Sometimes the mortgage payment is produced, in other times it's suspended entirely. The kruct says that the typical length of forbearance runs from three months to a year. Mortgage forbearance is a tem prairie solution to financial hardship, not a long term fix once a borrower is back on their financial feet. Krocht says that there are three standard options for repaying
a four born mortgage. First, it can be tacked on to the end many lenders will allow homeowners to move all deferred payments to the end of the mortgage, but think of it as a no interest second loan that's repaid either when the house is sold or when the original mortgage is fully repaid. As a second option, it can be added to your monthly payment. This lets you slowly repay the deferred amount as a small increase in your remaining monthly mortgage payments. For the third option, it
can be paid off in one lump sum. While this option is less common, some borrowers pay off the full amount of deferred mortgage payments immediately after the forebearance period ends. Forbearance is a smart option for both borrowers and lenders. For borrowers, the biggest plus is perhaps obviously that it offers a temporary break from monthly mortgage payments with out
adversely affecting their credit. Forbearance gives them much needed time to find a new job or recover from a disaster without technically missing a payment, and according to Kracht that forbearance is a good deal for banks and mortgage lenders too, even if it means a reduction or pause and payments, because anything is better than foreclosure. He said, the foreclosure process really doesn't benefit anybody. It's very costly to go
through foreclosure. The alternative is pretension keeping somebody in their home, which is the best option. The main drawback to forbearance would be that if you have trouble paying the mortgage in general, then at some point those payments are going
to come do. Before the COVID nineteen pandemic, a few states had created forbearance programs provide temporary mortgage relief, for example, after a storm like Hurricane Harvey in but the incredible job losses caused by the pandemic twenty two point two million new unemployment claim in March and April alone required
a whole new level of emergency mortgage assistance. Under the CARES Act, homeowners affected by the pandemic are automatically granted mortgage forbearance for a hundred and eighty days, with an option for extending for an additional eighty days if needed. The correct says that the biggest difference between the forbearance options authorized by the CARES Act and regular forbearance plans is how simple and streamlined the process is for obtaining them.
Usually a lender or mortgage servicer will require financial statements and records before extending an offer of forbearance, but not under the CARES Act. Kracht said, all that's required is for the borrower to call the mortgage company and say that they've been affected. At that point, the mortgage servicer or lender will put them on a forbearance plan, no
questions asked and no financial information required. The repayment options under the CARES Act are the same as regular forbearance agreements. According to one report from October and estimated three point six million households or six point eight percent of all active mortgages in the United States. We're in COVID nineteen related forbearance. But what a forbearance isn't enough. Forbearance is meant to be a short term pause in mortgage payments
while a borrower gets back on their feet. So what happens if the forbearance period is set to expire and
the financial situation has not improved. Foreclosure is always a possibility, But, as Kract says, lenders have their own reasons for wanting to keep borrowers in their homes and will only turn to foreclosure as a last resort, and in response to the pandemic, the Federal Housing Finance Agency has extended its foreclosure moratorium for all homes with federally backed loans, that is, Fannie Mae and Freddie Mack until at least December thirty one.
Kroct explains that the best advice is to call your lender or a loan counselor as soon as you realize that you may have difficulty making payments. When the forbearance period ends, you can find a free or low cost loan counselor in your area by going to Consumer Finance dot gov. At that point, the best option for you and your lender is to make adjustments to your mortgage that make payments more affordable, either by refinancing the mortgage at a lower interest rate or creating some kind of
customized payment plan that better fits your budget. Today's episode was written by Dave Ruse and produced by Tyler Klang. For more on this and lots of other curious topics, visit houstuf forks dot com. Brain Stuff is production of by Heart Radio. Or more podcasts. To my heart radio, visit the heart Radio app, Apple Podcasts, or wherever you listen into your favorite shows.