A forbearance is a temporary postponement of mortgage payments in hopes of avoiding foreclosure. Foreclosure costs fall onto the lender, making foreclosure an undesirable outcome. Borrowers must demonstrate the need for forbearance. The need might be due to an illness or job loss. The need for forbearance must be demonstrated because loan terms will change. A borrower with a steady job who has always made their mortgage payments is likely to receive a forbearance. Whereas, A borrower with a spotty job history who has missed some mortgage payments may have a more difficult time receiving a forbearance.
Any skipped payments may be moved to the back of the loan or lumped into one payment at the end of the forbearance. The lender and borrower will discuss the new loan terms. Some lenders may allow borrowers to pay only interest during forbearance while others may allow partial interest payments. The remaining interest may result in negative amortization, which means payments for some period were less than the interest over the same period.
Fannie Mae and Freddie Mac offered forbearance to homeowners because of COVID. Late fees are not incurred due to missed payments during a forbearance. Additionally, nothing negative is reported to credit bureaus.
Unlike bank lenders, loan servicers are different since they do not own the loans. They only collect payments from borrowers. This means loan services may be less willing to provide any forbearance, as they are not taking on the same risks as bank lenders.