It’s always exciting to help clients complete the home buying process, especially when it’s their first home. Helping buyers achieve such a milestone in life is a great feeling for many real estate agents, brokers, and title agents alike! But depending on your role in the buying process, part of serving your clients means being there as a resource to help even when things aren’t going well—such as when they’re unable to make their mortgage payments on time and may need to take advantage of forbearance options.
Since the beginning of the COVID-19 pandemic, more than 11 million people have had trouble paying mortgage or rent. Fortunately, there are programs available to help them, including forbearance options that can allow them to stay in their home even when they can’t afford to send their mortgage payment. If you want to help your clients in any way possible, giving them information about their forbearance options is a good start. Here’s what you need to know to help your clients.
When your clients contact you for resources on how to keep their homes during a difficult financial time, it’s important to first identify and define the most common option: forbearance. So, what does that mean for homeowners?
Forbearance allows them to temporarily pause their mortgage payments for an agreed-upon amount of time if they can’t pay due to hardship. Normally, the hardship could be any event that might reduce their income, such as job loss. But for most homeowners in the last couple of years, that hardship is related to the COVID-19 pandemic.
This means that as long as your clients qualify for forbearance, they can stop making their mortgage payments without worrying about being foreclosed on or kicked out of their homes. They also don’t have to worry about being charged additional penalties, fees, or outrageous interest over time.
However, make sure your clients understand that the available forbearance options are only temporary. Once the agreed-upon period for forbearance is over, they must start paying their mortgage on time again, or else they’ll risk negative marks on their credit report and even foreclosure. But as long as you give them the most current, accurate information about their forbearance options, they should be able to use this temporary help to get back on their feet financially.
Since March 2020, the mortgage forbearance options that are available are focused on hardships due to the pandemic. These came about due to the CARES Act, which is the pandemic relief plan created by the federal government.
This act provides temporary relief for homeowners who cannot currently make the payments on their government-backed loans. These loans include those backed by the following agencies:
- Freddie Mac
- Fannie Mae
Fortunately, most homeowners in the US have one of these loans. Those who are having trouble making their mortgage payments can contact their loan servicer to ask about forbearance options. Note that they can simply state that their hardship is due to the pandemic, and won’t have to provide any paperwork that proves it. This makes the process rather streamlined and easy for any homeowner to get started.
So, how long does forbearance last under the CARES Act? It depends on the loan, but in general, homeowners can delay their mortgage payments for three to six months. If they need more time, they can request an extension for a few more months. Depending on the loan and the number of extensions they get, homeowners can get 12 to 18 months of relief from their mortgage payments.
If it turns out that your client’s home loan is not backed by the government and therefore not eligible for the CARES Act, this doesn’t mean there are no forbearance options available. They should contact their loan servicer anyway to explain the situation, as most banks offer temporary relief for financial hardships.
It’s important to explain to your clients what they should expect after forbearance ends. Will they have to pay for their delayed payments in a lump sum, or can they make smaller payments over time? The answer is that it depends on what they work out with their servicer.
Their loan servicer will contact them before the forbearance period is over so they can determine how the money will be paid. Typically, there are a few options. One is to pay the missed loan payments in one lump sum if they can afford to do so. But there’s also the option of starting a payment plan, in which case they’d add a small amount of the total to the regular mortgage payment until it’s paid off. They can also choose to defer the payments until they sell the house, pay off the mortgage, or refinance.
Some clients might still struggle to afford their mortgage payment after they’ve completed 12 to 18 months of forbearance. If they want to keep the house, they can look into loan modification to change the mortgage terms to reduce the payments. If this won’t help and they’re open to moving, they can look into selling the house—or initiating a short sale if necessary.
Whether you’re a real estate agent who helped your client buy their dream home or a title agent who assisted with the transaction, there’s only so much you can do when it comes to forbearance options for your clients. You can let them know what’s available and answer some initial questions. But ultimately, it’s up to them to contact their loan servicer and start the forbearance process.
So, what should you do when your clients tell you they can’t pay their mortgage due to COVID-19 and need help? First, help them find out which agency backs their home loan. They can check with Fannie Mae or Freddie Mac, or reach out to their loan servicer to find out if the loan is government backed. At that point, they can discuss their forbearance options with their lender.
Another way to help clients is to make sure any transactions they make during the buying or refinancing process are secure and fast. One example is paymints.io, a payment platform that makes it easy for clients to securely send funds for earnest money and other costs when buying or refinancing. To find out more about how we can help you help your clients, contact us to schedule a demo!