The recent uptick in home loans entering forbearance is a troubling sign for both homeowners and the broader economy. After several months of increases, the share of mortgages in forbearance now stands at 0.34%, according to the Mortgage Bankers Association (MBA). That translates to roughly 170,000 American households who have hit the pause button on their mortgage payments.
What is Forbearance?
So, what exactly is forbearance? In simple terms, it’s an agreement between a borrower and their lender to temporarily reduce or suspend mortgage payments due to financial difficulty. Forbearance doesn’t erase the debt – the missed payments still need to be made up later – but it provides a lifeline for homeowners struggling to make ends meet.
Reasons for Seeking Forbearance
The most common reasons homeowners seek forbearance include job loss, divorce, disability, or natural disasters. In the current economic climate, with high inflation and fears of a recession, it’s not surprising to see more families turning to forbearance for relief.
The concerning part of the recent MBA data is that forbearance rates are creeping up despite a relatively strong job market. This suggests that even employed homeowners are feeling the squeeze of rising costs and may be on the brink of financial distress. If the economy takes a turn for the worse and unemployment rises, we could see a more significant spike in forbearance and, eventually, foreclosures.
Options for Homeowners in Forbearance
For homeowners already in forbearance who cannot resume their normal mortgage payments, the options are limited but not nonexistent. The first step is to contact your lender or servicer to discuss your situation. They may offer:
A Repayment Plan to Gradually Make Up the Missed Payments
For homeowners who have experienced a temporary hardship but are now able to resume their regular mortgage payments, a repayment plan may be the most direct solution. Under a repayment plan, you agree to make your normal monthly payment plus an additional amount each month to gradually pay off the missed payments from the forbearance period.
The specifics of repayment plans can vary widely depending on your lender’s policies and your individual financial situation. Some plans spread the missed payments out over a few months, while others may extend the repayment period to a year or more. The key is to work with your lender to find a plan that is realistic and sustainable for your budget.
When considering a repayment plan, it’s important to take a hard look at your finances and be realistic about what you can afford. Committing to a plan that stretches your budget too thin could put you right back in financial distress. Don’t be afraid to advocate for yourself and push for a plan that truly works for your situation.
A Partial Claim Where Missed Payments Become an Interest-Free Second Mortgage
For some homeowners, particularly those with FHA loans, a partial claim may be available. Under this arrangement, the missed payments from the forbearance period are set aside as a separate, interest-free loan that you must repay when you sell your home, pay off your primary mortgage, or reach the end of your loan term.
A partial claim can be a good solution for homeowners who fell behind due to a temporary hardship but now have the means to resume their regular mortgage payments. It allows you to get back on track without having to come up with a lump sum or commit to higher monthly payments right away.
However, it’s important to understand that a partial claim is essentially a new loan that must eventually be repaid in full. When considering this option, think carefully about your long-term plans for the home. If you intend to stay in the house for the long haul, a partial claim may make sense. However, if you’re planning to sell or refinance in the near future, you’ll need to be prepared to pay off the partial claim at that time.
As with any major financial decision, it’s wise to consult with a qualified professional before agreeing to a partial claim. At Consumer Law Attorneys, we can help you weigh the pros and cons and ensure you fully understand the long-term implications.
Economic Implications of Rising Forbearance
For the broader economy, a rise in forbearance signals that more households are under financial stress, which could lead to reduced consumer spending, slower economic growth, and a potential uptick in foreclosures and bankruptcy filings. This, in turn, could put downward pressure on home prices and make banks more cautious about lending, further constraining economic activity.
The key question is whether the current increase in forbearance is a temporary blip or the beginning of a more worrisome trend. Much will depend on the trajectory of the economy, inflation, and interest rates in the coming months.
Seeking Help Early is Key
If you’re a homeowner facing financial hardship, seek help as soon as possible. Don’t wait until you’re drowning in missed payments and facing imminent foreclosure. The earlier you act, the more options you’ll have to protect your home and protect your financial future.
Our experienced foreclosure defense attorneys can review your loan documents, make sure your lender is following all legal requirements, and advocate on your behalf for the best possible outcome. At Consumer Law Attorneys, we make sure your rights are protected every step of the way.
Remember, you have options, but time is of the essence. The longer you wait to seek help, the fewer possibilities you may have to save your home. Don’t let fear or embarrassment keep you from taking action. Reach out today and take the first step towards a more stable financial future.
Consumer Law Attorneys Can Help
If you’re facing foreclosure or need help understanding your rights in forbearance, contact us today at 877-241-2200 for a free consultation. We’re here to stand up for homeowners when they need it most.
Don’t let rising forbearance rates and economic uncertainty put your home at risk. Take action now to protect your most important asset and secure your financial future. With Consumer Law Attorneys by your side, you can face these challenges with confidence and get back on the path to stability.
