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 card issuers typically don’t offer forbearance, but they will sometimes 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 and auto loans. 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 most 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 a payment until October, 2020. Borrowers with mortgages backed by Fannie Mae, Freddie Mac, or who have FHA, VA or USDA loans, are also eligible for six months of forbearance, with an option to renew the forbearance for another six months.
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 payments 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/