Forbearance is a temporary suspension or reduction of your monthly mortgage payment. While forbearance has always been an option to explore, a much more lenient review process is now available under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The key difference today is that, due to the pandemic, CARES is not requiring proof of financial hardship.
Think about that for a moment…
EVERYONE can now apply to their loan servicer in order to postpone their mortgage payments for up to 12 months (generally just for mortgages which are federally-backed by Fannie Mae, Freddie Mac, FHA, VA or USDA). On the honor system, you just need to say you have a financial hardship – and voilà, payment deferral.
But whether you are honorable or not, or whether you need the deferral or not, you will still have a huge balloon payment immediately due at the end of the negotiated forbearance period. And if you cannot fully repay, you immediately go into default – and the lender can promptly commence foreclosure proceedings. So unless forbearance is a necessity, there is arguably no economic benefit. In fact, consumer loan costs increase – and therefore mortgage rates go up – since the servicers must continue to make the same payment to the investor on your behalf during the deferral period.
If the Rent and Mortgage Cancellation Act is approved (under review), there may be an option to forgive rents or mortgage payments for up to one year or through the end of the pandemic.
Here’s the Point: "If you are contemplating a forbearance arrangement (which should be a last resort), it is a must to consult with legal and mortgage professionals".