The 2020 CARES Act – Forbearance

Forbearance that you are temporarily halting the payment structure

Here’s an update of something that’s come out from the CARES Act, which the government just created to help assist homeowners who have income that’s been really adversely affected by the Corona virus. One of the components is something called a “forbearance” and it’s not just in the CARES Act. It’s also in the fact that a lot of servicers are trying to be proactive and help people. What a forbearance means, and it is very often misinterpreted, is that you are temporarily halting the payment structure. It’s not stopping it permanently. It’s not eradicating it. It’s just temporarily doing it. And forbearance means that your payments will be stopped for a specific amount of time and it’s whatever you have agreed upon with your servicer or, if you’re going directly for some reason to Fannie Mae or Freddie Mac.

When you go into forbearance, let’s say you do a three-month forbearance, and your first payment’s due in April, right? Your first payments are due in April, May and June. So, your actual payments now are all due in July. So, if your monthly payments were $2000, $2000, $2000 – that’s $6000. Then, July – the fourth month – is $8000. You now have to pay $8,000 in July. That’s a forbearance. That is not the same as a deferment, which I’ll go over in a different video. But this is really important: forbearance is really, really important that you understand it and understand what you’re getting into. Because at the end of that four months or whatever your agreed upon time is if you cannot pay that back, you go to loan modification. Loan modifications are credit impacting and they can significantly impact your ability to borrow or buy for a long time. And I just want to make sure that you are getting the information you need.

Um, the CFPB actually has a great blog on this. Because it’s a lump sum repayment, then you might have to modify your loan. This may have no benefit for you. At the end of the day, do you want to have to modify your loan if you can’t make the payments? You need to think this through and also read the paperwork that is sent to you very carefully to make sure that what you understood on the phone is really what you’re signing. The other thing is, please don’t stop making your loan payments until you’ve gotten a fully executed document agreeing to the fact that you are going to go forbearance. You can’t just willy-nilly stop making your payments. It doesn’t work that way and you should never do that because that will hurt you and that will have a credit impact and a very negative one.

So, depending on your situation, you may also be able to still qualify for a refinance. And if you can, you may need to do some debt consolidation or maybe just get cash out to give you a cushion for a short time, in case you’re afraid you may lose your job later on. I can help you with that and I can also answer whatever questions you may have on the forbearance deferral piece of it. A lot of this is a moving target and as more information comes out, I’ll be doing more updated videos.

If you have questions, let me know.