Questions to Ask Before Accepting a COVID Forbearance or Deferral

With over 5 million homeowners given forbearances during the COVID-19 pandemic, mortgage servicers anticipate a flood of requests from homeowners asking for help with their mortgage payments. Fearing that servicers will not be able to properly handle the demand, the CFPB is allowing mortgage servicers to simply grant a one-size fits all “payment deferral” that may not be appropriate for all homeowners.

The payment deferral allows homeowners to resume regular mortgage payments when a forbearance or delinquency ends, and accounts for the months of missed payments by placing them at the end of the loan term. This prevents the borrower from facing a balloon payment immediately after the forbearance ends.

However, this deferral option is not suitable for all borrowers such as those who may need other more comprehensive mortgage assistance since the homeowner may feel a false sense of security that their payment obligations for the forbearance period have been met.
           
Homeowners should ask themselves:

• Am I confident that the lender’s representative is providing me the correct information about my payment obligations going forward?
• Will I be able to resume paying once the forbearance is complete? 
• Was I previously delinquent on my mortgage?

 
If a homeowner is either unable to resume payments or was previously delinquent, then a loan modification may be a better option to pursue. If the mortgage delinquency is significant then a Chapter 13 bankruptcy should be considered to prevent a foreclosure.
 
 Homeowners should ask the mortgage servicer:

• When will the deferral or forbearance need to be repaid?
• Does my forbearance include amounts being collected for taxes and insurance in escrow? If so, how will those amounts be collected? And will my monthly payment be raised as a result?
• How will this deferral be reported on my credit?