If you went on a COVID-19 Forbearance plan during the pandemic, you’re probably starting to look at options to resume making regular mortgage payments.
Lenders made it sound like the transition off of your forbearance would be straightforward, but the lenders aren’t doing a great job of explaining all the options.
One of the options that may be available to you is a payment deferral.
(Here’s a complete guide to all of your forbearance plan exit options)
What is a payment deferral?
A payment deferral is an agreement with your mortgage lender where the lender agrees to take all the payments you missed during your COVID Forbearance and “defer” or move them to the end of your loan.
The deferred amount (the payments you did not make during your forbearance period) get added together. This amount then becomes due at the maturity date of your mortgage, instead of being due immediately.
Once the payment deferral is complete, you resume making regular mortgage payments in the amount you were paying before COVID, under the terms of your original mortgage.
(If a payment deferral doesn’t sound right for you, check out this guide to loan modifications vs refinancing.)
How do I know if I qualify for a payment deferral?
A payment deferral may be an option for you if:
- You were current on your mortgage prior to March 2020
- As a result of financial hardship related to COVID-19, you entered into a mortgage forbearance with your mortgage lender
- Your financial hardship has recovered and you are able to resume regular payments
- You have Fannie Mae, Freddie Mac, or USDA as the investor on your mortgage.
There are two ways to determine whether you have a Fannie Mae or Freddie Mac loan if you don’t know who your investor 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 Loan Lookup
Freddie Mac Loan Lookup
How do I apply for a payment deferral?
If you were current on your mortgage prior to March of 2020 and took a COVID Forbearance, you should be able to transition off of your Forbearance in a streamlined manner – meaning, you will NOT be required to submit documents in order to get your payment deferral approved.
The streamlined review is done over the phone with a customer service representative from your lender.
Once you are ready to transition off of your forbearance plan, call your bank’s loss mitigation department and tell them you would like to be reviewed for a payment deferral.
The bank will then ask you a series of questions that will sound something like this (the questions vary slightly depending on the servicer):
- Has your hardship been resolved? (Say “yes” if it has)
- Is this your primary residence?
- Are you able to resume your regular monthly payment at the same amount you were before COVID? (Because you want a payment deferral and not a loan modification, you should say “yes” to this question. This is the bank’s way of making sure that once they defer the missed payments, you can afford your regular mortgage payment).
If you can’t afford the mortgage payment you were making prior to COVID, you should probably look into getting a loan modification instead of a payment deferral. Learn how a flex modification might be right for you.
After you complete this call, the bank will then open their review for your payment deferral.
How long does it take for the servicer to approve the payment deferral?
It will take anywhere from 10 – 30 days to approve the payment deferral, depending on how quickly your mortgage servicer and your investor can produce a decision.
If your decision is pending past the 30-day mark, you should try escalating the matter with your lender by calling your lender and asking to speak to a supervisor for an update.
Will I get the payment deferral in writing?
Yes. Once your investor has approved your file for a payment deferral, they will issue the agreement in writing.
Do not rely on any verbal assurances from your bank that you have a payment deferral in place. All lenders must send these agreements to you in writing for your signature.
Can I get a payment deferral if I didn’t have a COVID Forbearance Plan?
No. The payment deferral option is specifically for people who took a COVID Forbearance plan as a result of financial hardship related to the pandemic.
However, this doesn’t mean that there aren’t other loss mitigation options available for you if you’re behind on your mortgage and it doesn’t mean that you won’t be able to get some other type of assistance.
What is the difference between a “payment deferral” “payment deferment” and a “partial claim”?
A “payment deferral” and a “payment deferment” both refer to the same thing – a payment deferral (as described above).
A partial claim is a similar tool that does (essentially) the same thing that a payment deferral does. It has a different name because it comes from a different investor.
If your investor is the VA or FHA, you will hear use the phrase “partial claim” to describe the payment deferral process.
What is the difference between a loan modification and a payment deferral?
Both a loan modification and a payment deferral are ways to transition off of your COVID Forbearance.
A payment deferral is an agreement to move the missed payments to the end of your loan. Once you execute a payment deferral, you resume making regular mortgage payments under the terms of your existing mortgage. A payment deferral allows you to resume making the payments you were making prior to COVID and all the terms of your original mortgage stay in place.
A loan modification is a restructuring of your mortgage debt. A loan modification incorporates your missed payments into a new principal balance. Then, the mortgage servicer will offer you a new loan with the new balance (and new terms).
The new loan (the loan modification) may have a lower interest rate and an extended maturity date.
The loan modification option is designed for someone who needs a lower monthly payment and isn’t fully comfortable resuming mortgage payments at their original amount.
Is it possible to receive a combination of a payment deferral and a loan modification?
Yes. It is possible that your lender will offer you a transition option that includes both a payment deferral and a loan modification.
This might happen if you took a full 18 months of forbearance.
Your arrears (your missed payments) may be so high that the lender can’t fully defer the full 18 months (due to their guidelines) so they defer part of the missed payments and incorporate the remaining missed payments into a loan modification with a new balance.
This type of structure is still new at this time and is being sorted out by the lenders.
If you are a Washington homeowner and are ready to transition off of your COVID Forbearance plan or if you have questions about your mortgage or a payment deferral, feel free to reach out at (425) 654-1674.