CARES Act Mortgage Forbearance: FAQs And Updates
Kevin Graham7-minute read
April 15, 2022
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.
What Is The CARES Act?
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 calls for lenders to provide mortgage forbearance programs. Let's take a look at this mortgage assistance and how it works.
Mortgage Forbearance And The CARES Act
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 has given Americans impacted by COVID-19 the option to request up to a year of mortgage payment forbearance. Rocket Mortgage® will approve 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 may qualify for additional months of forbearance beyond what's provided in the CARES Act. Check in with your Rocket Account to see what's available to you.
To request a COVID-19-related forbearance under the CARES Act, you just need to attest to your mortgage servicer – the entity you make your payment to, which may or may not be the lender that you close your loan with – that you've 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 will continue to pay your taxes and insurance during your forbearance if you have an escrow account with us.
Rocket Mortgage clients who request a forbearance will initially be approved for a 3-month forbearance plan. While on the plan, you'll check in monthly on your Rocket Mortgage account. You can also use this check in to request an extension or exit forbearance.
It's important to note that payments paused under forbearance aren't forgiven and will need to be repaid. 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 additional options.
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.
Mortgage Forbearance Deadlines Under The CARES Act
If you request mortgage forbearance under the CARES Act, it can last up to a year. We're giving forbearances in 3-month increments. You'll need to request an extension if you still need it at the end of your forbearance period by reaching out to your servicer.
What Other COVID-19 Mortgage Relief Options Do Borrowers Have?
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.
CARES Act FAQs
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?
Due to the widespread impact of the pandemic, qualification for forbearance related to COVID-19 is very streamlined. You submit a request, and beyond that, you just have to affirm that you're experiencing financial hardship due to COVID-19.
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 different options depending on how far along you are. If you're nearing the end of your first 6 months of forbearance, you can extend the forbearance for up to 6 additional months.
If you're nearing a year on forbearance, you'll need to contact your servicer to have them evaluate you for one of the repayment alternatives discussed earlier.
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 forbearance as late to the credit bureaus. More complicated is whether and when you can refinance or get a loan for a new home:
- In general, if you've continued to make mortgage payments on time throughout your forbearance, you're eligible.
- For FHA loans, unless you've been continuing to make your payment throughout the forbearance, you have to make three consecutive scheduled payments or three payments after selecting a repayment option to do a purchase or rate and term refinance. For cash-out refinances, you need to make payments for a year.
- For VA loans, you can bring yourself current, but if you qualify, you can also refinance to pay off past-due amounts.
- To qualify for a conventional loan option through Fannie Mae or Freddie Mac, you have to either have made up all back payments on the mortgage that was in forbearance or have made three consecutive payments in a workout plan.
Review: Mortgage Forbearance Under The CARES Act
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 works 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 can qualify for a forbearance if they were negatively financially impacted by the pandemic. No fees, penalties or excess interest can be charged on paused payments.
Although payments not made during the 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 Bottom Line
The COVID-19 pandemic has been hard for a lot of people, some more than others, and the CARES Act gives 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.
Viewing 1 - 3 of 3
Pros And Cons Of Mortgage Forbearance
Mortgage Basics - 6-minute read
Victoria Araj - September 19, 2022
Life happens. That’s why mortgage forbearance can be a lifeline to maintain your homeownership and loan requirements. Find out if it’s a good idea for you.
The Difference Between Forbearance And Foreclosure
Mortgage Basics - 7-minute read
Victoria Araj - September 19, 2022
The words may sound the same, but there’s a difference between forbearance and foreclosure. Here’s what you need to know.
Beyond VA Loan Forbearance: Options To Help With Pandemic-Related Mortgage Repayment Problems
Loan Types - 5-minute read
Melissa Brock - September 19, 2022
If you have a VA mortgage and are facing financial difficulties because of Covid, your options extend beyond VA loan forbearance. Find out how you can catch up.