What Is a Forbearance Mortgage?
Many Americans who are delinquent on their mortgage payments are too embarrassed to ask their financial institution about specialized programs for individuals who are having trouble paying the mortgage, but remaining quiet is a mistake. A forbearance mortgage might enable you to temporarily stop paying your mortgage for a short period of time while you renegotiate the terms and interest rate of the loan.
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Time Frame
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A borrower is usually three to six months behind on his mortgage before a forbearance agreement is entered into. A forbearance agreement is seen as an amicable solution; a safe way to protect the asset from the bank proceeding with a short sale or foreclosure of the property. It is typically used only for people who are suffering through a short-term setback, such as a job loss or temporary illness. Those with more structural problems -- such as an adjustable rate mortgage that has reset to an unaffordable rate -- probably won't qualify for this option.
Function
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A forbearance agreement restructures the borrower's loan agreement by outlining new terms and payment schedules that are intended to enable the borrower to repay the missed mortgage payments at a later date. This is a temporary fix allowing the terms of the loan to be renegotiated so they are more bearable for the borrower.
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Terms
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A "drop dead" clause may be attached to the restructure loan agreement defining the dates by which interest must be current on payments, or else legal action can be taken. A "loan mitigator" may be assigned to help protect the bank against future loss of the asset. The terms of a forbearance agreement are all subject to review by the bank.
Solutions
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A one-time loan or partial claim can be offered to a borrower. This will allow the borrower to receive an interest-free loan to bring the account current. This kind of forbearance agreement protects the bank by preventing future financial losses.
Expert Insights
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It may be difficult to negotiate with your lender during times of high foreclosure rates, but it is still best to seek out the advice of your lending institution if you are having trouble making payments. They may be able to offer you a program that will help your family through a financial crisis -- you will never know unless you try.
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