What is Forbearance

In the Know: Forbearance

What is a Mortgage Forbearance Agreement

A mortgage forbearance agreement is an agreement made between a mortgage lender and delinquent borrower in which the lender agrees not to exercise its legal right to foreclose on a mortgage and the borrower agrees to a mortgage plan that will, over a certain time period, bring the borrower current on his or her payments.

The coronavirus outbreak has triggered forbearance help from Fannie Mae and Freddie Mac—which, between them guarantee more than two-thirds of all mortgage and 95% of mortgage backed securities.

When Borrowers Have Trouble Paying

A mortgage forbearance agreement is made when a borrower has a difficult time meeting his or her payments. With the agreement, the lender 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. 

A mortgage forbearance agreement is not a long-term solution for delinquent borrowers; it is designed for borrowers who have temporary financial problems caused by unforeseen problems such as temporary unemployment or health problems. Borrowers with more fundamental financial problems––such as having chosen an adjustable-rate mortgage on which the interest rate has reset to a level that makes the monthly payments unaffordable––must usually seek remedies other than a forbearance agreement.

A forbearance agreement may allow a borrower to avoid foreclosure until his or her financial situation gets better. In some cases, the lender may be able to extend the forbearance period if the borrower's hardship is not resolved by the end of the forbearance period to accommodate the situation.

What is a Student Loan Forbearance Agreement

If you have student loans that are in good standing, you may qualify for a forbearance. If you do, your payments may be lowered or suspended for a specified period of time. Interest, however, continues to accrue.

Under the stimulus package passed by the Senate, FEDERAL student loans will automatically have their interest rates set to 0% for a period for six months. Additionally, borrowers do not have to make payments during that six-month period.

Here’s what you need to know.

The Six-Month Suspension Of Payments Will Be Automatic

The Department of Education’s guidance directed borrowers to contact their student loan servicers and request forbearance, or a suspension of payments. Now, according to the stimulus package, the expanded six-month payment relief will be automatic.

What if my students loans are not federal loans

A public corporation and a private-sector lender, such as Sallie Mae, are not direct federal loans. However, some private-sector lenders are still offering student loan forbearance on their own terms. It’s always worth contacting your lender and seeing what options are available to you. 

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