You Ask. Bev Answers: What happens when forbearance ends?
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In a time of great uncertainty, a voice of knowledge and reassurance can make all the difference. Beverly Anderson, President of Global Consumer Solutions at Equifax, answers your questions based on her years of experience in the consumer finance industry. You can post a question for Bev on Equifax’s Facebook page. Bev regrets that she cannot answer every question individually.
Question: My debt has been in forbearance during the Coronavirus/Covid-19 pandemic but the agreement I reached with my lender or creditor will expire soon. What might happen at the end of my forbearance period?
Answer: Let's start with the basics. A forbearance agreement, sometimes referred to as a deferred payment agreement, is an agreement with a mortgage lender or creditor that enables the borrower to delay or suspend loan payments for an agreed-upon amount of time. Credit cards typically don't offer forbearance, but they will offer accommodations or workouts for consumers who are having trouble making their payments.
What debts qualify for forbearance?
The term "forbearance" is usually associated with home mortgages, but the truth is any lending agreement you've entered into may be eligible for deferred or suspended payments.
In response to the severe and immediate economic impact of the Covid-19 pandemic, many creditors and lenders are offering special repayment options on a variety of debts. This includes mortgages, student loans, auto loans, and credit card debt. You may also be able to work out a payment schedule with your utility payments, property taxes and small business loans, though this list is by no means exhaustive.
The CARES Act mandated that federally-backed mortgage lenders and federally-backed student loans provide forbearance for borrowers.
How long does forbearance last?
Depending on what agreements you reach with your lenders and creditors, they may agree to allow decreased or delayed payments for a specific time period of up to 12 months. They may also offer to reduce the interest rate being charged on your debt, but there are no federal guidelines requiring specific terms for forbearance agreements across all industries.
Currently, most federally-backed student loans are in forbearance and borrowers are not required to make payments. Although forbearance was initially set to end in September of 2020, that deadline has since been pushed back and continues to update as the Covid-19 pandemic progresses. You can refer to the U.S. Department of Education for up to date information about Coronavirus and loan forbearance by visiting studentaid.gov.
For people who are struggling to keep up with mortgage payments, federal officials have also announced a temporary nationwide halt to foreclosures and evictions for federally-backed mortgages. People who have suffered a loss of income due to the Covid-19 pandemic can qualify to reduce or suspend payments for up to 180 days, with specifics depending on their particular situation.
Borrowers whose mortgage loans are backed by Fannie Mae or Freddie Mac, which underpin the majority of loans in the United States, or by the U.S. Department of Veterans Affairs (VA), the Federal Housing Administration (FHA) or the USDA are also eligible for help, including options for forbearance and delayed payments. You must contact your loan servicer to request this forbearance.
Learn more about applying for forbearance here.
What happens when that forbearance period runs out?
Many Americans are currently grappling with this question, as the expiration date for their forbearance agreements with lenders and creditors is fast approaching. The short answer is that after your forbearance period ends, you'll have to make arrangements with your servicer to repay any amount suspended or paused.
To be clear, forbearance doesn't mean the debt goes away. You still have to repay it. But how you repay that debt depends on your loan and the options the lender or creditor is offering. Forbearance repayment can look very different depending on your lender. Here are some of the ways you might see lenders ask for repayment:
- As a lump sum due at the end of the forbearance period
- As an additional charge on top of your existing monthly payments over a set number of months
- As a lump sum or additional payment added to the end of your loan
Just as your eligibility for debt forbearance may differ between different lenders, so might the options available for repayment of those deferred payment agreements. The most important thing is that you ask your lender about the options available to you, and make sure you get the final agreement in writing, and signed by the lender.
Beverly Anderson is the President of Global Consumer Solutions at Equifax. She is responsible for the strategy, development, growth and profitability of direct and indirect businesses serving consumers with credit, identity and financial education products and services.
For more than three decades, Beverly has built businesses and delivered significant results in the financial services and payments industries. She drove consumer and small business strategies, product strategies, and enterprise growth and profitability strategies for First USA (now JPMorgan Chase), Fleet (now Bank of America) and American Express. Before joining Equifax, she was the Executive Vice President of Cards and Retail Services at Wells Fargo where she led consumer credit cards, co-branded cards, loyalty solutions, retail finance, digital payments and enablement capabilities. She has also held leadership roles managing auto loans, personal lines and loans, servicing, loan operations, collections and fraud operations. https://www.equifax.com/about-equifax/corporate-leadership/beverly-anderson/