Learn something new every day
More Info... by email
Buying a house usually involves a person borrowing a substantial amount of money from a lender. She is then responsible for repaying the lender in portions known as mortgage payments. If she fails to make her mortgage payments, the lender can foreclose, or repossess the property. Mortgage forbearance is an agreement that postpones foreclosure and allows the borrower extended time to pay.
Mortgage forbearance is an option for some, but not all, people who have become delinquent in their mortgage payments. This option allows an agreement to be made which postpones payments for a limited amount of time, which is usually specified in the agreement. Mortgage forbearance does not cancel overdue or upcoming mortgage payments. The agreement also does not generally stop the accrual of interest. If a person agrees to mortgage forbearance and then defaults on the terms of the plan, she may face foreclosure without any further opportunities to make payment arrangements.
A forbearance can benefit both parties. The borrower generally benefits because she is allowed to keep her home. Entering this agreement also prevents the damage that a foreclosure can have on a person's credit report. Many lenders are open to this option because they are also likely to suffer some losses in the event of a foreclosure.
Mortgage forbearance often stems from a borrower's effort to make an arrangement with the lender. Lenders are less likely to extend the option when a delinquent lender has not made effort to solve the problem. It is recommended that those who are interested in mortgages forbearances should exercise the initiative to contact their lenders. It should be remembered, however, that a lender is not obligated to suggest or to agree to any extensions.
These agreements are not always made by people who want keep their homes. Some people use mortgage forbearances to buy time so that they may sell their homes instead of having them repossessed. Mortgage forbearances, however, are not suitable for everyone.
These agreements are not encouraged as solutions to long-term problems. Mortgage forbearance is generally reserved for defaults that occurred due to unforeseen and temporary hardships. For example, a contractor who is injured may need to postpone his mortgage payments while he recovers. Furthermore, the agreement may prove useless in situations where a person has more than one mortgage which is delinquent. Mortgage forbearance on a first mortgage does not prevent the lender of a second mortgage from foreclosing.
@Soulfox -- and that embarrassment keeps a lot of people from taking action and making such requests at the first sign of trouble. Asking for help through a mortgage forbearance early is critical because you are most likely to get one.
If you wait until your mortgage is 90 days in default before asking for help, you have a lot fewer options. It is human nature to hope things will improve and they can catch up on their mortgages, but the reality a lot of times is things won't get better and the borrower will need a little help.
A lot of people don't take advantage of these because they are embarrassed about their financial situations and are also afraid the bank may turn them down. But, here's the thing. Most banks don't want to foreclose on properties because they are not in the business of listing and selling them. They almost always lose money when they foreclose on houses and had rather avoid doing that.
Also, there is some federal and state pressure on banks to help out borrowers who are struggling with their mortgages.
It may be embarrassing to admit you need some help with your mortgage, but it never hurts to ask for help. Besides, asking for help is a matter between your banker and you. Who else will ever know?
One of our editors will review your suggestion and make changes if warranted. Note that depending on the number of suggestions we receive, this can take anywhere from a few hours to a few days. Thank you for helping to improve wiseGEEK!