April 1, 2020
It was announced that banks will waive mortgage payments for 90 days.
What does this mean for you?
New York State Gov. Cuomo and the Federal government have announced that banks will waive mortgage payments for 90-180 days. This has brought on a lot of discussion regarding mortgage lenders stating they will waive or defer mortgage payments for borrowers during the COVID-19 crisis and what that actually means. We would like to explain this in more detail for you since it is not as clear cut as it sounds.
Words like forgive, waive and defer your mortgage payment(s) are misleading. Mortgage lenders are not simply forgiving mortgage payments for borrowers. They are doing what is called mortgage forbearance. Below we hope to clear things up for you to make sure you are well informed on what this announcement means.
First and foremost, DO NOT just stop making your mortgage payment without getting approval from your mortgage servicer. If the COVID-19 crisis has made it difficult or impossible for you to make your monthly mortgage payment you should call your mortgage servicer immediately to work out a plan. Be prepared to show you have a NEED for this (i.e. you have been furloughed or laid off)
Q. Does this mean we don’t have to make our mortgage payments for 90 days?
A. No, if you are able you need to make your mortgage payment each month just as you have been and should continue to do so. This forbearance help is for people who NEED it because of economic hardship due to the Coronavirus. IF due to the Coronavirus you have circumstances that have occurred in your life that make it difficult to make your mortgage payment your current Mortgage Servicer (lender) could offer you a mortgage forbearance to help you through this difficult time.
You may need to supply proof of your financial hardship and should contact your current Mortgage Servicer for specifics. Their number is usually located on your mortgage statement.
Q. If I use the forbearance option now will it affect my ability to purchase a home in the future?
A. Since this program is fairly new and not yet fully vetted we would caution you that even though the Mortgage Servicers were instructed to suspend reporting forbearance to the credit bureaus we feel there may be some missteps with this and your credit could inadvertently be negatively effected in the short term. This could cause issues with obtaining mortgage financing in the future. For this reason you are encouraged to continue making your mortgage payments so long as you are financially able.
Q. What is a mortgage forbearance?
A. A mortgage forbearance agreement is made when a borrower has a difficult time meeting his or her payments. With the agreement, the Mortgage Servicer agrees to reduce or even suspend mortgage payments for a certain period of time and agrees not to initiate a foreclosure during the forbearance period. The borrower must resume the full payment at the end of the period, plus pay an additional amount to get current on the missed payments, including principal, interest, taxes, and insurance. The terms of the agreement will vary among lenders and situations.
Q. Will my property taxes and Homeowners insurance get paid?
A. Yes, most Mortgage Servicers will pay these bills using your current escrow account balance. If there is not enough money in your escrow account they will put you in what is called an ‘escrow shortage’. Once you are out of forbearance this ‘escrow shortage’ is usually added to your monthly payment or to your mortgage balance.
Q. How long can I be in forbearance?
A. Mortgage Servicers were instructed to allow reduced or suspended payments for up to 12 months. This again could be lender specific and you should contact your current Mortgage Servicer.
Q. What happens when the forbearance ends?
A. After forbearance your Mortgage Servicer is mandated to work with you on a permanent plan to help maintain or reduce monthly payment amounts as necessary, including a loan modification.
Q. What is a loan modification?
A. A loan modification is a refinancing of your loan by your current Mortgage Servicer that will change the terms of your existing loan. This could mean increasing the mortgage balance by adding in your missed mortgage payments as well as extending the original term.
Q. If I do a mortgage forbearance will my credit be affected?
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A. Mortgage Servicers were instructed to suspend reports to credit bureaus of past-due payments for borrowers in a forbearance plan. Also, there are to be no penalties or late fees for homeowners in a forbearance plan.
We hope this clears up any confusion on the matter of waived mortgage payments. As always it is best to contact the company that is servicing your current mortgage and their number/email is usually located on your current mortgage statement. You can also contact your Premium Mortgage Corp. representative for assistance.
Premium Mortgage Corp. continues to operate and be open for business. We are here available to help you through these difficult times and answer any mortgage questions you may have.