Homeowners want to know how to get back to regular mortgage payments

Q: At the start of this year, our household was blasted by the COVID-19 virus. We didn’t get sick, but local businesses really suffered, and as a result, both my wife and I lost our jobs. Unemployment insurance helped, and we were able to get into a mortgage forbearance program with our lender. We cut back on everything, paid all bills and went through a lot of savings. Now we want to get back to regular mortgage payments. How do we do that?

A: Figures from the Department of Labor show that 26 million people claimed unemployment benefits as of September 5, up from almost 1.5 million a year earlier. Not since the Great Depression has unemployment been so widespread.

Amid tough times, you planned well. You had savings. You were able to get unemployment benefits. You paid your bills and thus protected your credit standing.

Forbearance — a lender’s willingness to accept smaller monthly payments and even no monthly payments for a limited amount of time — has been widespread. According to Black Knight, roughly 3.6 million loans were in forbearance in late September, down 24% from the peak level.

Forbearance means that mortgage obligations have been postponed; it does not mean they have gone away. The lender advanced money and wants it back with interest. If you were a lender, you would feel the same way.

Generally, there are several ways to handle mortgage payments after forbearance, according to the Consumer Financial Protection Bureau (CFPB).

First, you may be able to create a payment plan with your lender. In this case, you resume your regular monthly payment plus an additional sum each month until money not paid during forbearance is returned. If you can get a payment plan, be sure that the new and higher cost is affordable.

Second, you may be able to create a payment deferral program. With this approach, you restart your regular monthly mortgage payments. The money not paid as a result of forbearance is added to the mortgage debt. When the property is sold or the loan is refinanced or repaid, the additional debt is paid back at closing.

Third, in some cases, you may be able to get a mortgage modification. A lower interest rate or longer loan term will result in lower monthly payments, thus making the debt more affordable.

Fourth, with FHA loans, you may be able to get a COVID-19 Standalone Partial Claim. This is a junior lien that’s repaid when the property is sold, or the existing FHA loan is refinanced or paid off. It is functionally similar to a payment deferral plan.

If you have a mortgage owned by Fannie Mae or Freddie Mac or backed through the FHA, VA or USDA, the lender cannot require a lump sum repayment.

For details and specifics, speak with your mortgage lender as soon as possible. The faster you exit a forbearance program, the less you will owe in deferred payments.