Borrower Options After COVID-19 Mortgage Relief Ends

Along with COVID-19 came hardship for many mortgage borrowers, who found it harder and harder to make their payments due to job loss, hours reductions or illness. 

Here at Servion, our servicing department fielded hundreds of inquiries for COVID-19 assistance, ultimately processing and completing over 1,900 forbearances and deferments. As more and more borrowers are reaching the end of their COVID-19 relief programs, what lies ahead for them? 

Borrowers exiting COVID-19 forbearances in the current environment will likely have a mix of post-forbearance options that include traditional loss mitigation options and unique COVID-19 programs developed by the investor/insurer. A list of common post-forbearance options/pathways and a brief description of each is included below. Of course, the types of options and specific terms available to any one borrower will depend on loan type, local laws and investor/insurer requirements.

Reinstatement

The borrower pays back all payments that were missed under the forbearance plan. After the reinstatement, the borrower continues to pay his or her contractual payment under the original terms of the loan.

Repayment Plan

The borrower resumes making his or her regular monthly payments, plus an additional portion of the missed amount each month, until the missed amount is paid off. Repayment plans can vary drastically in length and amount.

Payment Deferral / Partial Claim

Missed payments and, in some cases, other amounts (e.g. servicing advances paid to third parties) are deferred to the maturity date as a non-interest-bearing balance. The deferred amount is due on the maturity date (or earlier whenever the home is sold, or the loan is refinanced or otherwise paid off). Once the deferral is processed, the borrower resumes making his or her regular contractual monthly payment.

Loan Modification

The terms of the mortgage loan are modified to reach an affordable payment solution for the borrower. Loan modifications can take many forms but typically include capitalization of arrearages, a reduction in interest rate and/or a term extension.