Loan forbearance is when your lender agrees to give you a temporary or short time period in which to catch up on your late mortgage payments. Generally, loan forbearance is given for a three to six months to help borrowers with temporary financial hardships. It prevents your lender from instituting foreclosure proceedings against you during the time your forbearance plan is in effect. Most of the time your mortgage payment is still at the same loan rate. If you do not expect your financial situation to improve soon, then you may want to consider other options such as a mortgage modification, refinance, deed in lieu of foreclosure or short sale.
What You Need to Do
First step in obtaining loan forbearance is to call your lender and find out if they will consider giving you one and under what terms and conditions. You will need to provide them with the following documents:
- Hardship letter with information regarding your financial situation
- Recent bank statement
- Tax return for the last two years
- 1099 or W-2
- Last 2 paycheck stubs
Once your lender makes a determination that you are qualified, they will prepare the loan forbearance agreement for your review and signature. Be sure to try and negotiate a reduction in the principal balance as well. If you are turned down, then speak to your lender and attorney about other options to save your home.
Expansion of Forbearance under Government HAMP Program
The government is requiring mortgage lenders and loan servicers who are participating in The Home Affordable Modification Program (HAMP) to offer unemployed workers collecting unemployment compensation a forbearance plan for at least three to six months. Payments, if any, must be reduced to 31% or less of the borrower’s gross monthly income. Also, the government is encouraging lenders to reduce the principal on the loans as well. All other HAMP guidelines must be met for the borrower to qualify for the forbearance.
Eligibility Requirements are as follows:
- Property must be owner occupied and borrower’s primary residence (1-4 units)
- Loan must have originated on or prior to January 1, 2009
- Loan balance must be less than$729,750
- Loan cannot be more than 90 days in default
- Borrower must show proof of unemployment
- Borrower must request the forbearance
Other requirements are that if the borrower becomes employed during the forbearance period, they must be offered a permanent modification of their loan if their current mortgage payment would exceed 31% of their gross income. If the homeowner does not qualify for a modification under HAMP, and cannot afford their mortgage payments, the lender/loan servicer must offer the borrower a short sale or deed in lieu of foreclosure under the government's HAFA program.
How an Attorney Can Help
Your foreclosure defense attorney can help negotiate a forbearance plan for you with your lender or negotiate other options to save your home from going to foreclosure. The foreclosure defense attorney is familiar with the forbearance process and the documents needed to complete the plan.
