THE FORBEARANCE FAILURES OF 2021

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.

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.

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.”

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.

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.

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).

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.