Wednesday, January 6, 2021 / by Vanessa Saunders
My forbearance is ending, but I can’t afford my home. What can I do?
By Vanessa Saunders, MBA, MIMC , Broker Owner, Global Property Systems Real Estate.
A leading economist is warning that this year’s booming housing market will soon give way to a rising tide of foreclosures that will submerge many Hudson Valley homeowners in 2021. Michael R. Strain, the John G. Searle Scholar and the director of economic policy studies at the American Enterprise Institute (AEI) wrote in Bloomberg News in December 6, 2020 that while federal forbearance policies put a temporary freeze on foreclosures—only 352 foreclosures were started in August, 2020, compared with 10,438 in February—that policy would not remain in place next year and would cause a cascade of foreclosures in 2021.
“The CARE Act, the economic recovery law passed in March included forbearance provisions that allowed borrowers with government-backed mortgages to postpone (or reduce) payments for up to 12 months if they suffered COVID-related financial hardship. When these forbearance provisions expire in 2021, expect a wave of foreclosures to follow,” Strain predicted.
Your choices when facing foreclosure.
If your mortgage forbearance is one of those about to expire, depending on the provisions in your agreement, there are three primary methods for wrapping up your forbearance debt:
1. A lump sum payment, which means paying the entire amount you missed all at once.
2. A short-term repayment plan or a loan modification, which is usually an additional monthly charge on top of your regular mortgage payment to make up that difference.
3. A loan modification, which can mean changing the terms in any number of ways, including extending the repayment period, lowering the interest rate or even reducing the principal loan balance.
If the homeowner cannot afford to pay back their forbearance debt, they’ll find lenders are much more flexible with forbearance these days than they were during the last financial crisis. Your lender or servicer may be able to help you on the road to your next living situation and probably wants to avoid foreclosing on your home almost as much as you do.
If you’re not in love with your house and can move somewhere else, there are a variety of options that avoid foreclosure. If you have a lot of equity in your home, you can sell it and use the equity to pay off the existing mortgage and perhaps fund a down payment on a cheaper house.
Request a forbearance extension
If you’re in your first forbearance period, you likely qualify for at least one extension, but you won’t automatically get one unless you speak to your loan servicer, so it’s important to be in touch. If you don’t respond to your lender and are taken out of forbearance, but fail to make payments, it will likely have a strong negative impact on your credit. So, keep the lines of communication open.
Consider a short sale
A short sale is when you sell your home, and even though the proceeds are not enough to pay off the full mortgage, the difference is essentially forgiven. A short sale is a good option for those able to move out of the foreclosed property. If the borrower can find a buyer who is willing to pay an amount agreed to by the lender (which is usually "short" of the amount owed), the foreclosure will be lifted and the property transferred to the new owner.
For more information on short sales, foreclosures and a step-by-step guide to the foreclosure process read our blog “The threat of foreclosure needn't ruin your happiness.”
If you are considering a short sale or need help selling or buying a home, contact Global Property Systems for guidance through every step in the process.