What Does Loan Forbearance Mean?

April 27, 2020

In the midst of the coronavirus crisis, many government-backed loan programs including the FHA Single-Family Home Loan program, announced foreclosure relief measures borrowers could choose to take advantage of if the need arises.

All foreclosure avoidance measures open to you--loan modification, loan forbearance, refinance, etc. require borrower action. These measures are not automatic--those who have mortgage payments are ALWAYS required to make arrangements with the lender.

What About the Foreclosure Moratorium?

The moratorium issued on foreclosures by the FHA and HUD only DELAYS foreclosure. If you do not contact your lender to make arrangements on your mortgage, the delay will end and 60 days later the eviction and foreclosure actions will resume.

Is Loan Forbearance the Same as a Foreclosure Moratorium?

Absolutely not. A foreclosure moratorium, as explained above, is a temporary halt in foreclosure proceedings. Loan forbearance is an arrangement you must negotiate with your lender. 

Loan forbearance does certain things that mirror a foreclosure moratorium in some ways, but forbearance is an arrangement intended to stop foreclosure action and get the borrower back on track with mortgage payments. But that’s where the similarities end.

How Loan Forbearance Works

FHA home loan forbearance is when the borrower contacts the lender because there is a danger of foreclosure. The lender and borrower work out an agreement where the lender promises not to initiate foreclosure action even though they could.

This agreement is for a fixed period where the borrower’s payments are suspended with an agreement that the borrower resumes mortgage payments at the end of that time. Mortgage payments after the forbearance period may feature a higher payment designed to help the borrower catch up over time.

This is not intended as a long-term solution, but such agreements are ideal in conditions such as the COVID-19 coronavirus pandemic.

Forbearance isn’t the best solution for all problems. For example, those who need to get out of an adjustable rate mortgage because payments have been adjusted and the mortgage is getting too expensive? These borrowers should talk to their lender about a refinance option instead.

Your choices to prevent foreclosure during a financial crisis are better the sooner you act; talk to your lender today.

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