Don't jump into mortgage forbearance without counting the cost.

Homeowners in Sun Country are struggling; furloughs, layoffs and business closings surround us. Our government is trying to help, bless their heart, but accepting Uncle Sam's offering of mortgage forbearance could leave us feeling all sorts of blue.

Let's back up.

In response to COVID-19's economic impact, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which includes a mortgage forbearance option for homeowners of up to 12 months. While this might initially seem a great option for relief, looking closely (and metaphorically), the cure could be worse than the disease.

Why?

The CARES Act does not provide mortgage forgiveness, only forbearance, a temporary postponement of payment. Also, the government has not been specific on the details of repayment, leaving lenders with the discretion to make the rules.

Lenders are not approaching mortgage forbearance equally.

Depending on your loan and your lender, there are four main approaches to repayment of "paused" payments: a balloon payment at the end of the forbearance period, a payment plan at the end of forbearance, loan modification at the end of forbearance, OR a repayment at the end of the loan.

"Consumers need to read the fine print," says Steve Zechman, sales manager for Hershey's Homesale Mortgage. "Every lender has something on their website about COVID 19 and it's easy to find. The problem is people aren't examining the details. The applications are being done online, consumers aren't talking with anyone, and they aren't looking at the fine print."

To ensure homeowners know what they are agreeing to before signing on the dotted line, here is a quick rundown of each option. Keep in mind, not all lenders offer all options.

First, balloon payments. Assuming you have a $2,000 mortgage payment and don't pay any of it for six months, that's a $12,000 balloon payment due to your lender just when you're trying to get back on your feet. Yikes!

A payment plan at the end of forbearance might be offered from your lender. In this example, if your mortgage payment is $2,000, payments might reduce to $1,000 for 6 months. That's definitely helpful. But at the end of the forbearance period, your lender would tack on the missed amount, making payments $3,000 per month. Is that going to be doable when you're getting back on your feet?

A loan modification at the end of forbearance could come in the form of new terms, like interest rate or length of the loan. However, when the time comes to apply for the loan modification, you'll be assessed at your current financial situation. Will you have the credit score to qualify for favorable terms? Forbearance will not affect your FICO score, but lenders might view your application differently.

Option four, paused payments due at the end of the loan (not at the end of the forbearance period). This seems palatable but, as a REALTOR®, I see a major drawback—what if you need to sell your home in a few years? This amount will be added to all other closing costs, taxes, fees, and expenses incurred. Will you have the money to write that check at closing?

Zechman encourages consumers to choose a different option, if possible: delay your payment.

He says, "Remember, your mortgage payment isn't considered late until it's 31 days past due. If May 1 comes around and you can't make your payment but could by June 1st, consider doing that. There may be fees involved, but that's a smaller price to pay than ramifications from forbearance."

Don't jump into mortgage forbearance without counting the cost. Research your options. Pick up the phone and discuss your specific situation with your lender or loan servicer. And if circumstances dictate your usage of the CARES Act, you'll know you made an educated choice.

Hang in there! We'll get through this together. Please call me if I can be of help in any way; I have some great local resources.

Eileen S. Voyles is a REALTOR® with Berkshire Hathaway HomeServices Homesale Realty. She can be reached at 717-533-8181 or evoyles@homesale.com.

https://news.thesunontheweb.com/articles/the-real-scene-13/