CARES Act Mortgage Forbearance: FAQs And Updates

COVID-19 has had a profoundly negative effect on the economy and the livelihoods of many Americans. Whether because of temporary job shutdowns, permanent layoffs or missing work because of the illness or having to care for someone with it, there is no doubt that many of us are facing a new financial reality.

The good news is that as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, Congress provided funding and guidance for several measures intended to offer financial and other assistance during this challenging time. In this article, we'll be going over the CARES Act mortgage provisions and what you need to know, but first, let's get back to basics.

The CARES Act is a law passed in late March 2020 that is intended to help provide funding for economic relief related to temporary shutdowns and job losses. Among other things, the economic provisions of the act led to the Paycheck Protection Program and expanded unemployment assistance along with some emergency loan funding. Another big item that was reported on was a temporary waiver of student loan interest payments.

Additionally, funding is provided for various health care provisions, such as a rapid vaccine development program, health care workers support and money and guidance to address a shortage of personal protective equipment (PPE) and other crucial items related to dealing with COVID-19 and similar situations.

One of the other sections of the act called for lenders to provide mortgage forbearance programs. Although many of the pandemic-related laws expired with the declaration of the end of the national emergency in April 2023, including the mortgage provisions, some will still be finishing their COVID-19 forbearances. Let's take a look at this mortgage assistance and how it worked.

A mortgage forbearance program involves a temporary pause in mortgage payments in order to provide relief for those who might be struggling financially for whatever reason.

As part of the CARES Act, Congress gave Americans impacted by COVID-19 the option to request up to a year of mortgage payment forbearance. Rocket Mortgage^® approved initial forbearances for 3 months, with a client option to extend forbearance every 3 months for up to a year. Depending on your circumstances, you might have qualified for additional months of forbearance beyond what was provided in the CARES Act.

To request a COVID-19-related forbearance under the CARES Act, you only needed to attest to your mortgage servicer – the entity you made your payment to, which may or may not have been the lender that you closed your loan with – that you suffered a financial hardship directly or indirectly caused by the virus. Servicers are also responsible for the administration of your escrow account for taxes and insurance, if you have one. Rocket Mortgage continued to pay your taxes and insurance during your forbearance if you had an escrow account with us.

It's important to note that payments paused under forbearance aren't forgiven and will need to be repaid. Depending on timing, some of you may still be finishing up your COVID-19 forbearance. When you're ready to exit your forbearance or coming up on expiration, you'll need to check in with your mortgage servicer to be evaluated for next steps.

Rocket Mortgage clients still on COVID-19 forbearances may finish out the remainder of their time on the plan without any negative credit impact. However, the amount of time you have left in your forbearance is dependent on how long you've been on it as well as the policies of your mortgage investor.

Because payments missed during your forbearance will have to be repaid, anything you can pay during forbearance will lessen the amount you need to pay back when it ends.

If you're planning to refinance or purchase soon, accepting forbearance may impact your ability to qualify. If you can continue making your payments, it's best to do so.

COVID-19 Mortgage Forbearance Repayment

Once your forbearance is over, you need to repay those missed payments. Your mortgage servicer will work with you to determine what programs are available to help you get back on track. Here are some programs you may be reviewed for:

• Deferral or partial claim: Part or all of your past-due balance will be put aside to pay off later. It'll be due when you pay off your mortgage, sell your home or refinance. You won't be charged any additional interest on the deferred balance.
• Repayment plan: Your past-due balance will be added to your regular monthly payments for a specified amount of time, typically 3 – 6 months, until your loan is current.
• Loan modification: The terms of your existing loan will be updated in order to include past-due payments. These terms can include changing your rate, term and principal balance.
• Reinstate: If you find it feasible, you also have the option of paying back the full amount all at once.

If you have any questions, make sure you're communicating with your servicer.

If you requested mortgage forbearance under the CARES Act, it could have lasted up to a year. If you currently have a COVID-19 forbearance ongoing, contact your servicer about the end date and your options. Rocket Mortgage clients can also check online.

The prevailing option among the major mortgage investors who work with lenders at this point is mortgage forbearance. There is some general confusion around the difference between forbearance and deferral, and even well-intentioned servicers sometimes trip here, so let's be clear.

Forbearance is a temporary pause in mortgage payments. This is usually the starting point. A payment deferral is one of the options you may have upon exiting your forbearance plan to repay the missed payments.

Now that we've gone over the basics, it's time to answer several frequently asked questions about COVID-19 forbearances.

What types of loans are covered under the CARES Act?

Under the CARES Act, mortgage forbearance relief must be offered to anyone experiencing a financial hardship due to COVID-19 for all federally backed mortgages. This includes loans guaranteed by the FHA, USDA and VA, among others. Because Fannie Mae and Freddie Mac are government-sponsored enterprises, conventional loans made by these institutions are also covered.

How do borrowers qualify for CARES mortgage forbearance?

Because the national emergency was declared terminated in April 2023, you can no longer qualify for a COVID-19 forbearance beyond that end date, although the exact timeframe will be dependent on the mortgage investor involved. Rocket Mortgage clients in a COVID-19 forbearance at that time may finish up that forbearance and work with us to qualify for a workout option.

Are there fees or penalties that accompany a CARES forbearance request?

The provisions of the act are specifically written to prevent the charging of fees and penalties related to a COVID-19 forbearance. During your forbearance, servicers aren't allowed to charge extra interest beyond what they would have had you made the payment on time as scheduled.

What happens if your CARES forbearance plan extension is about to expire?

If your forbearance is about to expire, you'll have to contact your servicer to have them evaluate you for a potential repayment option. If beginning repayment is unrealistic for you at that time, they can also look into other options which would likely impact your credit.

Can you exit your CARES forbearance plan early?

You have the option of exiting your forbearance and asking your servicer to qualify you for a repayment option at any point.

How will forbearance impact my credit?

Rocket Mortgage won't report payments paused during a COVID-19 forbearance as late to the credit bureaus. If you're getting a new loan, speak with a Home Loan Expert for more information.

We realize this is a lot of information to take in at once. Let’s review the most important aspects regarding the CARES Act and how mortgage forbearance worked under it.

The CARES Act was designed to provide relief in many areas, including allowing forbearance of mortgage payments for those whose finances were impacted by COVID-19. A forbearance is a temporary pause in mortgage payments. After a forbearance, clients may qualify for repayment alternatives including deferral, a repayment plan or a modification, among others.

Deferral and forbearance are sometimes confused, but the important thing to remember is that deferral is a repayment option sometimes offered following forbearance.

Under the law, those with federally backed mortgages could qualify for a forbearance if they were negatively financially impacted by the pandemic. No fees, penalties or excess interest could be charged on paused payments.

Although payments not made during a COVID-19 forbearance won't be reported late to the credit bureaus, you may be required to bring your loan current or make a certain number of payments before applying for a new loan after a forbearance, depending on the type of loan you're looking for.

The COVID-19 pandemic has been hard for a lot of people, some more than others, and the CARES Act gave many American homeowners the chance to get back on their feet financially by pausing their mortgage payments for a time.

Consult with your mortgage servicer, and a financial advisor, before making any decisions regarding forbearance, as it could affect your ability to refinance or purchase down the line.

To see what your refinance options may be, apply online at Rocket Mortgage.