Unemployed with looming mortgage? Here's how forbearance option works

If you've lost income because of the coronavirus pandemic, mortgage forbearance might be an option for you. However, some have reported receiving misleading information about what happens when forbearance ends.

LOS GATOS, Calif. (KGO) -- 3.5 million Americans have contacted their mortgage company, saying they can't afford their monthly payment. The Mortgage Bankers Association tells us that's an astounding seven out of every 100 mortgages in the country.

Many of those people may have been given misleading or even frightening information from their mortgage company. Now there are signs that are beginning to change for the better.
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Mark Miano has been a realtor since 1979. He's seen home prices dip in his territory of Los Gatos since the pandemic.

"The prices have been depressed slightly, maybe 3 to 5 percent of where they would have before COVID," said Miano.

He recalls the pain of the 2008 recession caused homeowners. So when the shelter-in-place orders came, he immediately picked up the phone for his clients.

What he found out didn't make him happy.

Christiana Tetreault is the manager of financial policy for Consumer Reports.

She says what Miano has been told by his bank is similar to what Consumer Reports has heard from dozens of homeowners.

"They were told when they requested forbearance that any skipped payments would need to be paid back in a lump sum," said Tetreault.
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The CARES Act passed by Congress back in March allows those with federally-backed loans to request up to two forbearances of 180 days. 63% of the loans are federally backed.

Most private lenders are offering forbearance of up to 90 days.

What happens after that wasn't immediately clear.

Miano says requesting full payment after the forbearance just isn't realistic.

"If you have nothing coming in, you're not going to be able to pay off a balloon payment and catch up. You're underwater from day one," he said.

Both lenders and borrowers agree no one wants a repeat of the '08 mortgage meltdown, which saw a huge spike in foreclosures.
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So Freddy Mac and Fannie Mae have since clarified the forbearance rules:

Those skipped payments can be tacked on to the end of your mortgage

Borrowers can negotiate lower payments or a loan modification

The last option is foreclosure

Miano says his bank also has clarified the rules.

"They'll add the balance due to the loan balance, and potentially extend the term of the loan to make it manageable without dramatically increasing the payments when you get your job back," he said.

A loan servicer is required to tell you if you have a federally-backed loan. So if you don't know, just ask.

Take a look at more stories and videos by Michael Finney and 7 On Your Side.

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