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What Options are Available to Lenders as Forbearance Periods End?
No one could have anticipated the struggles we’ve all faced this year. The onset and spread of COVID-19 throughout the country has caused major disruptions across nearly all industries in 2020. While we have somewhat recovered from the initial shock of job losses in the spring, mass furloughs and layoffs have negatively affected millions of Americans—between February and August 2020, our nation lost nearly 11.6 million jobs. The mortgage industry has been severely impacted as well.
There has been a lot of market discussion associated with the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and mortgages within that program. This program was created in March 2020 to assist with the delay of a foreclosure (or to avoid a foreclosure completely). As a result of COVID-19, many lenders offered relief under the mortgage forbearance act. According to data from the Mortgage Bankers Association, roughly 3.5 million homeowners are in forbearance.
While this temporary relief has helped millions of consumers get through the worst of the economic upheaval caused by the coronavirus in 2020, forbearance periods are currently set to expire at the end of the year. While Congress may choose to extend the CARES Act, or create other assistance programs to prolong the forbearance period, this is not guaranteed.
At the time of writing, there are no plans in place to extend mortgage forbearance periods into 2021, so lenders may want to start looking to more permanent solutions to help homeowners avoid foreclosure, such as refinancing or loan modifications.
Requesting a Forbearance Extension
If you have a homeowner whose mortgage is currently in forbearance, it’s important to monitor the loan and have a plan for what to do when the end of the forbearance period approaches. According to ConsumerFinance, “Under the CARES Act, homeowners have a right to a forbearance extension for up to an additional 180 days if they have a federally or GSE-backed mortgage (for a total of up to 360 days). You must contact your servicer in order to receive the extension.”
Refinancing After Forbearance
With mortgage rates at historic lows, borrowers may be able to reduce their monthly payments and make their loans more manageable. As a lender, you will want to guide your borrower through the refinancing option to see if it makes the most sense for their current situation.
Coming out of mortgage forbearance can be financially challenging for your borrower, especially if they are still catching up after a layoff or reduction in their income. Refinancing can ease the borrower’s burden as they rebuild their finances, and it can provide some breathing room as they navigate the continued uncertainty of the pandemic.
But, refinancing isn’t right for everyone. If your borrower is still on shaky ground, they may want to explore a forbearance extension or other repayment options such as a loan modification.
Loan Modification After Forbearance
Unlike a refinance, a loan modification doesn’t pay off the current mortgage and replace it with a new one. Instead, it directly changes the conditions of the loan. Modifications are also less expensive.
As you know, every lender has their own standards when it comes to who qualifies for a modification and what types of modifications they offer. Most financial institutions have years of experience when it comes to refinancing, but may not have much experience when it comes to loan modifications and struggle with the process or not even offer loan modifications as an option.
SWBC Lending Solutions has affordable solutions to assist lenders with their loan modifications, regardless of the lender’s loan modification volume. Our modification offering has been designed to provide a turnkey solution that provides end-to end automation, or compliments any current loss mitigation fulfillment solution that is already in place. Our solution is not “one size fits all.” Rather, the option to modify is customized based on loan type. All solutions include the option for complimentary business intelligence and data analytic reporting.
As a lender, it is important to have options for your borrowers during these unprecedented times. Whether you need one of SWBC Lending Solutions' Valuation Products and Services, or a loan modification solution, we are here to help.
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LendingDarlene Burnham
Darlene Burnham leads the SWBC Lending Solutions sales team as Senior Vice President of Business Development. She is responsible for developing and executing strategic initiatives for business development in valuation-centric and settlement services products. With over 25 years of experience in sales and management in the mortgage industry, her client focus includes financial institutions, banks, and credit unions. Darlene graduated from Manchester Community Technical College with a degree in business, and is Six Sigma certified.
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