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The Complete Guide to Exiting Your Cares Act Forbearance Plan

The Complete Guide to Exiting Your Cares Act Forbearance Plan

The Complete Guide to Exiting Your Cares Act Forbearance Plan 150 150 The Law Office of Nadia K. Kilburn

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How to Exit Your Cares Act Forbearance Plan

If you were placed on a COVID Forbearance plan, you are probably at that point where you’re ready to transition off of your plan and resume regular payments.

While your mortgage lender probably made it seem like it would be a simple transition when you agreed to the forbearance, in reality, the transition is a bit more complicated.

Answer these questions first:


1. Who is your investor?

Your bank or servicer is the party you talk to but your investor is the entity that makes the decisions related to what happens to your loan. The investor is the party that usually buys the loan from the lender who originated your mortgage.

For example, maybe you got your loan through Rocket Mortgage. Rocket originates and closes on your loan, but then immediately turns around and sells it to Fannie Mae, the investor. Your mortgage servicer (the company you send your monthly payment to) could remain Rocket, or they could hire another company, like Chase or SPS, to process the payments.

Government-backed investors make up about 90% of mortgages in America so you likely have one of the five investors below:

  • FHA (Federal Housing Authority)
  • Fannie Mae
  • Freddie Mac
  • VA (Veterans Affairs)
  • USDA

Your investor has guidelines, protections and programs in place for you to take advantage of as you transition off of your COVID forbearance but you can’t always trust your mortgage servicer to give you clear information.

If you don’t know who the investor on your loan is:

  • Call your servicer and ask them to tell you “who the investor on your loan is”
  • Use the loan lookup tools for Fannie Mae and Freddie Mac Loans:

Fannie Mae: https://www.knowyouroptions.com/loanlookup

Freddie Mac: https://loanlookup.freddiemac.com/

2. What was the start date of your Cares Act forbearance plan?

The government investors listed above (Fannie Mae, Freddie Mac, FHA, VA, and USDA) have decided that March 1st, 2020 was the official “start date” of the pandemic. If you were in default (not paying) on your mortgage PRIOR to March 1st, 2020 – there is a chance that your investor will not consider you as someone who has a COVID-related hardship even if they gave you a COVID forbearance plan.

For some people, times were tough and then the pandemic hit making tough times tougher. If this describes your situation, and you were in default prior to March 1st, 2020 and you took a COVID Forbearance, it is not guaranteed that the transition protections apply to you.

Even if you were given a forbearance plan, your default date may show as prior to the pandemic and you may have issues getting into one of the transition plans discussed below.

That doesn’t mean that regular loss mitigation options (like loan modifications or repayment plans) aren’t available to you so you should still contact your lender to see what is available but some of the COVID-specific options like partial claims and deferments may be off the table as most have a requirement that the hardship be “COVID-related” which the banks have determined started on March 1st, 2020.

3. When does your forbearance plan end?

When you entered your forbearance, you should have received your forbearance terms in writing. The document should have told you the start date and the end date of your forbearance. If you never received that document (which is not uncommon because many agreements were entered into quickly and verbally) or have lost your copy, you need to request a copy of that document from your servicer directly.

How to request your forbearance plan:

  • Ask your lender verbally and in writing to send you a copy of your forbearance plan
  • Fax a copy of your written request to as many fax numbers and email addresses as possible for your lender. Include how you want your copy sent to you (give them your email or your fax number).
  • Call your servicer every 48 hours to follow up on your request until they have sent you the document

4. Identify the best time to transition off of your forbearance plan

It is important to know the exact end date of your forbearance plan so you can time your transition correctly.  If you wait too long to engage with your lender after your plan ends, you run the risk of being moved into a default status or facing foreclosure activity. Start engaging with your lender 3-4 weeks BEFORE your forbearance plan ends. This will give you plenty of time to ensure that all options are fully explored and that you have plenty of time to resolve any lender-related processing issues prior to your forbearance plan expires.

5. Understand what the word “waterfall” means

Regardless of who your investor is, when you start the COVID transition process, your lender will say the word “waterfall” to you regarding the available options to help you transition off of your forbearance plan.

“Waterfall” refers to the lender’s process of reviewing available options for you in a tiered or layered manner. Lenders don’t just automatically hand you the best option for you first.

Lenders try certain options first – and the options they try first are usually the options that are most beneficial to them, meaning banks ALWAYS want to see if you can just pay them back what you owe immediately, first.

Then, if the options they want to try first are unaffordable for you, then they move down the waterfall to the next available options.

Your  job is to understand ALL the different options included in the waterfall procedure so you can advocate for the option that truly fits your financial situation. Don’t let the banks stop the waterfall on an option that is not affordable for you.

Now that you understand where you are in the process, and who your investor is, feel free and skip ahead to the section that applies to your investor.

FHA Loans

FHA has three programs to help you transition off of your COVID forbearance, the COVID-19 Standalone Partial Claim, the COVID-19 Recovery Modification and COVID-19 Advance Loan Modification (ALM).

The ALM will automatically be offered to borrowers currently 90 or more days delinquent, or at the end of their Covid forbearance plan. This retention option is for borrowers, who if given a 30-year rate and term mortgage modification, are able to reduce their Principal and Interest portion of their mortgage by 25% or more. All you have to do is sign and return the mortgage modification documents to your mortgage servicer.

If you do not accept or qualify for ALM, the other loss mitigation options still remain in place. The FHA will then review you for the Partial Claim, and if you don’t qualify for that, only then will they review you for the Recovery Modification. This is the FHA waterfall:

  • COVID-19 Standalone Partial Claim
    • COVID-19 Recovery Modification

What is the FHA COVID-19 Standalone Partial Claim?

A partial claim is the tool that FHA will use to help you transition out of a COVID forbearance. A partial claim allows FHA to take the amount that you missed during your forbearance plan (your arrears) and make it due at the maturity date of your loan (instead of being due immediately).

The partial claim reflects your total arrearages and is essentially “added to the end of the loan.” The amount becomes due only when the loan matures (or when the home is sold or refinanced) but otherwise, you don’t make payments toward the partial claim immediately.

A partial claim does not collect interest or fees.

Getting a partial claim allows you to move forward resuming your regular mortgage payments without having to pay anything toward your missed payments until the maturity date of the loan.

What is the COVID-19 Recovery Modification?

This recovery modification is a tool that FHA may use to restructure your loan to help you resume affordable payments. This is 2nd in the waterfall if you are not eligible for a partial claim because your arrears are too high OR in the event that you aren’t able to just resume your regular mortgage payments.

If you need a reduction in your mortgage payment in order to be able to afford it, FHA offers this option.

FHA may extend the term of your loan to 30-years to spread the payments out further, thereby lowering the monthly payment amount.. They also may reduce your interest rate to further reduce your monthly payment.

Sometimes, you may receive a recovery modification AND a partial claim. In this case, the bank may take some of the payments you missed, create a partial claim for those, and then provide you a new agreement that reduces your interest rate and extends the term of the loan.

The recovery modification option through FHA is technically “streamlined” – which means you should not have to submit a full document package in order to receive this modification.

Fannie Mae and Freddie Mac Loans

Like FHA, Freddie Mac and Fannie Mae have a waterfall system in place, where they attempt to get you to agree to the option that benefits them to the greatest extent. Remember, you can advocate for the option that makes the most sense for you when you transition off of your COVID forbearance.

Their “waterfall” looks like this:

  • Reinstatement (the lender tries to see if you can first pay everything you missed during your forbearance immediately, at one time – then, you resume regular payments)
    • Repayment Plan (the lender tries to give you an agreement where you resume your regular mortgage payments PLUS you pay an extra amount on top of your regular payment each month to go toward the amounts you missed during your forbearance).
      • Payment Deferral (the lender takes the amount of missed payments that you owe and makes them due at the maturity date of your loan – then, you resume your regular monthly payments)
        • Flex Modification (the lender writes a new mortgage agreement that allows you to make regular payments without having to pay everything you missed during the forbearance. The payments may be a bit lower due to a drop in your interest rate or extended term)
          • Short Sale (you sell your home because staying there and resuming payments is not affordable and the bank cannot offer you any of the above options)
            • Deed in Lieu (you work out an agreement to give the home back to the bank to avoid foreclosure because you do not qualify for any of the above options and cannot resume making payments)

The two most helpful options for you are going to be:

  1. The payment deferral option
  2. The flex modification option

These two options do NOT require large payments toward the arrears and they do not require you to pay everything you owe at once.

The payment deferral takes the amount you missed during your forbearance and adds it to the end of the loan. The amount becomes due only when the loan matures (or when the home is sold or refinanced) but otherwise, you don’t make payments toward the deferral immediately.

A deferral does not collect interest or fees.

Getting a deferral allows you to move forward with your regular mortgage payments without having to pay anything toward your missed payments until the maturity date of the loan.

A flex modification is the name for the modification program used by Fannie Mae and Freddie Mac. If you get a flex modification, you will have a new loan with a new interest rate, new maturity date and new monthly payment.

Many times, the interest rate gets lowered and the payment ends up permanently being lowered. It takes the payments that you missed during your forbearance and adds it to the total amount you owe. The bank may extend the maturity date of the loan so you don’t have to pay on the amount you missed until the end of the loan.

Both payment deferrals and flex modifications are supposed to have less paperwork involved and be streamlined per the investor’s guidelines.

VA Loans

If you have a VA loan, here are the options available to you to help you transition off of your COVID forbearance:

  • Repayment Plan (the lender tries to give you an agreement where you resume your regular mortgage payments PLUS you pay an extra amount on top of your regular payment each month to go toward the amounts you missed during your forbearance)
  • Loan Modification (the bank completes their standard loan modification process where they extend the term of your loan, add the missed payments to the end of the new loan, and adjust your interest rate to create an affordable payment)
  • COVID-19 Veterans Assistance Partial Claim Program (the lender takes the amount of missed payments that you owe and makes them due at the maturity date of your loan – then, you resume your regular monthly payments)
  • COVID-19 Refund Modification (the bank looks at your finances and if you do not qualify for any of the above options, they can complete a modification where you receive a “refund” of up to 30% of the unpaid principal balance in order to create an affordable payment)

The important thing to understand about the VA guidelines is that they CAN review the “affordability” aspect more than other investors.

Other investors have rules in place that remove the lender’s ability to look directly at your finances; however, the VA can still review your financial documents as part of their waterfall process. Many COVID transition options are supposed to be given out to anyone impacted by COVID who took the appropriate steps to get on a forbearance without having to show financials but the VA is still allowed to review for “affordability” so you should be prepared to show them financial documents.

USDA Loans

In order to qualify for the USDA COVID transition options, you must meet the following criteria:

  1. The property must be owner-occupied (not rentals and not vacant homes)
  2. Prior to COVID starting on March 1, 2020 – the mortgage had to be less than 120-days delinquent.
  3. You must have already requested assistance from your lender due to a COVID-related hardship prior to September 30th, 2021

USDA views you in one of two categories:

Category 1: If you can afford your pre-forbearance mortgage payment, there are three potential options that you can expect to be offered:

    1. A payment deferral (the lender takes the amount of missed payments that you owe and makes them due at the maturity date of your loan – then, you resume your regular monthly payments)
    2. An interest rate reduction and term extension to get you back on an affordable payment (this is essentially a loan modification option)
    3. A mortgage recovery advance (this is a one-time payment paid to you by USDA to help you bring the loan current)

Category 2: If you cannot afford your pre-forbearance mortgage payment:

USDA will attempt a combination of the above options to help you transition and bring the loan current.

What this means is you may receive a mortgage recovery advance (one time payment) from USDA in conjunction with an interest rate reduction or some sort of term extension in order to get an agreement that works for your finances.

Private Investor Options

If your mortgage is NOT backed by one of the above 5 investors, you likely have a private investor. Private investors do NOT have to follow the waterfalls or government guidelines listed above. They can foreclose without offering you any of the COVID protection plans.

With that said, many private investors are choosing to offer their own types of COVID forbearance plans when the pandemic hit, so it is possible that you received a COVID forbearance from your private investor.

Some private investors currently have their own types of loss mitigation options for homeowners in default – most commonly – I’ve seen them entertain repayment plans and loan modifications. If you were able to get a COVID forbearance from a private investor, chances that they will have some sort of program for you at the end of the forbearance are high (even though they’re not required to by law).

If you have a private investor and need help transitioning, the best thing you can do for yourself is to:

  • Make contact with them immediately so they know you’re trying to be responsible.
  • Do not delay in letting them know that you want to get current and figure out a plan.
  • Ask them to tell you in detail what loss mitigation options they require and what the requirements to be approved for them are.

Then, start saving your money as much as possible in the event you end up in a non-traditional type of negotiation with them. Private investors may be inclined to accept some sort of agreement where you make a lump sum payment toward your arrears up front and then start making payments toward the remaining outstanding debt.

So, when negotiating with a private investor, it is always good to have a lump sum available to offer (even if it’s small) as it demonstrates to them that you’re serious about negotiations and bringing your loan current.

6 Things to AVOID doing during your Forbearance Transition

  • Don’t send your lender money without an agreement in place: If you took a COVID forbearance plan, you MUST work out an agreement with your bank prior to resuming payments.
  • Don’t assume that your lender will automatically offer you a transition plan without any effort from you: Your lender is supposed to make contact with you prior to the expiration of your forbearance but many lenders either don’t do this or they call at weird times when you’re not available. It is ultimately up to you to reach out and start the transition process.
  • Don’t accept a verbal agreement only: If you come to terms on a plan with your lender, they may tell you that it’s fine to accept it verbally. You can accept it verbally BUT you should also make a request to have the agreement sent to you in writing. Continue to follow up until you have your agreement in writing even if the lender is pushing you to take a verbal agreement.
  • Don’t let time pass without receiving updates from your bank: Even if your lender tells you that they are working on a new agreement, don’t just wait for it passively. Call them every 48 hours for status updates until the agreement is finished and you have a copy in writing.
  • Don’t take the first agreement they offer you if it’s unaffordable: Due to the waterfall issues discussed above, lenders will try to slot you into programs that are beneficial to them even if they’re unaffordable to you. There are MANY options within each investor’s waterfall of options so if you get offered a bad option, seek help, get informed, and do everything you can to be re-reviewed for a different option.
  • Don’t assume your bank is calculating your total missed payments correctly: Count how many months you missed during your forbearance plan, multiply the months by your payment amount so you can have a rough estimate of what your total missed payments should be. If the bank is telling you a number that is much higher than what you’ve calculated, consider getting some help or do some more digging to get an accurate accounting.

What to do if your COVID transition is not going well

It is no secret that lenders repeatedly and egregiously fail to help homeowners correctly and follow the guidelines of what they’re supposed to be doing.

If you have a feeling that your COVID forbearance transition isn’t going well or something is falling apart, you’re probably right.

The lawmakers and high-up decision-makers working for the investors can say “this is how it’s going to go” as much as they want but they rarely understand the actual challenges of implementation. They are not on the ground, in the trenches trying to force a mortgage lender to actually comply with what they’re supposed to be doing.

There simply just isn’t enough regulation of the big banks in this country and homeowners are often at a disadvantage.

With that said, there are a few things you can do to try and help yourself.

If you feel like things are not going well with your COVID transition, try the following things:

1. Open an escalation and speak to a supervisor as soon as you feel things aren’t going well

Many lenders have formal “escalation procedures” where you can formally request that you be moved to the next level of support if the front-end customer service representatives aren’t doing a good job. If you start receiving the same update every time you call in or feel like nothing is happening or if you receive a denial when you believe you should be approved for a transition option, you can ask the lender to “open an escalation on your account.” They will then (hopefully) attach a supervisor to the problem to trigger some file movement.

You can also ask to speak directly to a supervisor and refuse to hang up the phone until you’re connected with one. Try to aggressively decline being connected to a “supervisor line.” Decline a transfer to a supervisors’ voicemails as well.

2. Do everything you can to get connected to an actual person and then tell them what you perceive the problems on your file to be. Get their name and their employee ID number and take detailed notes of what is happening on the call.

That way, in the event you end of filing a CFPB complaint (below), you have detailed people and information to reference.

3. File a Consumer Financial Protection Bureau (CFPB) Complaint

The CFPB is one of the agencies that tries to regulate lender-compliance related to the COVID mortgage protections.

It is always an option to file a complaint against your mortgage lender with them.

You can do that here: https://www.consumerfinance.gov/complaint/

Before you start the complaint have the following ready:

  • A clear, concise, and persuasive summary typed up of what is going on. Include as many dates, names and verifiable information as possible
  • Your loan number
  • Your property address
  • The name of your mortgage lender as it appears on your mortgage statement

There will be a spot during the complaint process the CFPB will auto-populate your lender’s name so if nothing is coming up, type different versions of your lender’s name until you see it. For example, Loancare LLC is actually called Lakeview Servicing / Loancare LLC but on the CFPB’s side, they go by “LOANCARE LLC” so if you typed Lakeview – it wouldn’t pop up.

After you file the CFPB complaint, send a copy of the complaint confirmation that comes to your email directly to your lender so they know you’re serious and so that they’re aware that you took that step. By sending it yourself, you notify them faster than the CFPB and that you’re willing to fight what’s going on.

Sometimes, just the fact that your lender can see that you’re taking things to the next level will encourage them to speed up their process or provide you some additional attention.

4. Get help from an attorney

If things aren’t going well, know that you’re not alone.

The COVID processes are new and it is not uncommon for lenders to be slow, disorganized and deliberate in their attempts to debt collect and foreclose instead of help homeowners.

Frequently Asked Questions

What is a partial claim?

A partial claim is the tool that FHA uses to help you transition out of a COVID forbearance. A partial claim allows FHA to take the amount that you missed during your forbearance plan (your arrears) and make it due at the maturity date of your loan (instead of being due immediately).

The partial claim reflects your total arrearages and gets essentially “added to the end of the loan.” The amount becomes due only when the loan matures (or when the home is sold or refinanced) but otherwise, you don’t make payments toward the partial claim immediately.

A partial claim does not collect interest or fees.

Getting a partial claim allows you to move forward resuming your regular mortgage payments without having to pay anything toward your missed payments until the maturity date of the loan.

What is a deferment or deferral option?

A deferment or deferral is the tool that Fannie Mae and Freddie Mac use to help you transition out of a COVID forbearance. A deferment allows your investor to take the amount that you missed during your forbearance plan (your arrears) and make it due at the maturity date of your loan (instead of being due immediately).

The deferral reflects your total arrearages and gets essentially “added to the end of the loan.” The amount becomes due only when the loan matures (or when the home is sold or refinanced) but otherwise, you don’t make payments toward the deferral immediately.

A deferral does not collect interest or fees.

Getting a deferral allows you to move forward resuming your regular mortgage payments without having to pay anything toward your missed payments until the maturity date of the loan.

What is the difference between a Partial Claim and a Deferral?

These options are very similar and have the same impact on the loans they’re applied to.

The main difference between the two relates to the terminology used by the investor. FHA calls these agreements “partial claims” and Fannie Mae / Freddie Mac calls the agreements “deferral options” or “deferments.”

What is a loan modification?

A loan modification is a new agreement written to help bring a mortgage current when there are missed payments. It is one of the options offered as a way to help people transition off of their COVID forbearance plans.

Loan modifications are used so you can resume making mortgage payments without having to pay all the payments you missed during your COVID forbearance.

A loan modification typically involves an extended term, a reduced interest rate and a slightly lower payment than your original mortgage payment.

What is a repayment plan?

A repayment plan is a way for you to get current on your existing mortgage if you have missed payments. If you are offered a repayment plan as part of a COVID forbearance transition, the bank is usually asking that you resume your regular mortgage payment AND pay an additional monthly amount on top of your mortgage payment each month until you’re current.

Once you have paid off the amounts you missed during your COVID forbearance plan, your monthly payment reverts back to the original payment and you stop paying the extra amount each month.

Repayment plans often require high payments and are usually considered unaffordable by people transitioning off of a COVID Forbearance.

What is the difference between a loan modification and a repayment plan?

A loan modification creates a NEW agreement and a repayment plan is an agreement to become current on the original mortgage. A loan modification usually allows monthly payments to resume at their normal amount (or a little bit lower) while a repayment plan usually requires high payments (a normal mortgage payment AND some extra every month).

What is a reinstatement?

A reinstatement is the process of paying back everything you missed during your COVID forbearance at one time, immediately. If you do this, you cure your default and reinstate your mortgage. Then, your monthly payments resume at their normal amount.

If you’re having trouble with your COVID forbearance, reach out to an attorney in your state who practices mortgage relief law to see if they can represent you or at least point you in the right direction.

If you’re in Washington State, you can always call me at (425) 654-1674.

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