In March, 2020, the United States enacted the CARES Act which contains a number of provisions to help Americans through the Coronavirus Pandemic.  One of the most important of these provisions is to allow homeowners to request a forbearance of their mortgage payments if their mortgage is a federally backed or Government Sponsored Entity backed mortgage.  These forbearances are for an initial 3 month period, and can be extended up to 360 days total.  Strangely, the CARES Act is silent on how the payments missed during the forbearance period must be paid back.  However, each federal agency and Government Sponsored Entity has written rules on how a homeowner can repay the missed payments once the forbearance ends.  Your mortgage company can tell you what agency or government sponsored entity backs your mortgage.  Each agency and government sponsored entity lists the full options on their websites.

Each government agency and government sponsored entity lists a lump sum payment (“full reinstatement”) as an option.  With this option, the homeowner would pay the full amount of all of the missed forbearance payments in one lump-sum payment at the end of the forbearance period.

The other options for government agency and government sponsored entity forbearance repayments are listed as follows:

Freddie Mac & Fannie Mae mortgages: 1) Borrowers are allowed to repay the missed forbearance payments within 12 months after the forbearance ends;  2) Borrowers may extend the term of the mortgage by the number of months of the forbearance; 3) Borrowers may add the missed payments into the mortgage balance, and extend the loan by enough months to pay the balance off; and 4) Borrowers may modify their mortgage by adding the missed payments to the loan balance, and reamortizing the loan over a period of 40 years.

FHA mortgages: 1) Borrowers may enter into a repayment plan to repay the payments missed during the forbearance within 6 months after the end of the forbearance; 2) Borrowers may put the payments missed during the forbearance period at the end of the loan to be paid in a lump sum at that time; and 3) Borrowers may modify their mortgage by adding the payments missed during the forbearance period to the mortgage balance and reamortize the loan over 30 years.

VA mortgages: 1) Borrowers may enter into a repayment plan to repay the payments missed during the forbearance within 6 months after the end of the forbearance; 2) Borrowers may modify their mortgage by adding the payments missed during the forbearance period to the mortgage balance and reamortize the loan over 30 years; and 3) Borrowers may modify their mortgage to extend the loan term to 30 years targeting the payments at 31% of the borrower’s gross income with the option to forbear principal repayment amounts that exceed 31% of the borrower’s gross income.

USDA mortgages: 1) Borrowers may enter into a repayment plan to repay the payments missed during the forbearance within 6 months after the end of the forbearance; 2) Borrowers may add the payments missed during the forbearance period to the balance of the loan and modify the mortgage to extend it to 30 years so long as payments are less than or equal to the monthly payment prior to the forbearance; and 3) Borrowers may put the payments missed during the forbearance to the end of the loan term and pay this off at the end of the mortgage in a lump sum payment at that time.

There is one other option you have for repaying the payments missed during the forbearance period, which is to file a Chapter 13 bankruptcy.  Filing a Chapter 13 bankruptcy case gives you the option to catch up, or cure, the missed payments over a three- to five-year repayment plan by making monthly payments through the bankruptcy court.  With a Chapter 13, a homeowner can make a plan to catch up the missed payments over time, through steady monthly payments as opposed to leaving the payments to be paid later at the end of the loan.

If you have questions about your mortgage forbearance or are interested in filing a Chapter 13 to cure your mortgage arrears, contact Prescott, Pearson & Tande, PA.