Forbearance Agreement is an agreement that is made between a mortgage holder and homeowner whose account is delinquent. Forbearance agreements reduce or suspend the homeowner's payment for specific amount of time, generally between 3- to 12- months. During which the mortgage holder agrees not to pursue foreclosure proceedings against the homeowner.
Forbearance agreements are followed by a payment plan to bring the account up to date. The homeowner and bank loss mitigator agree on a plan that is in the best interest of both parties. Generally, the repayment plan includes the normal monthly payment along with a payment to repay the delinquent amount. The delinquent amount will include any past due payments, accrued interest, or other fees charged by the mortgage holder. This repayment plan usually last for one year.
A forbearance agreement is for homeowners that experience temporary financial situations. The homeowner must prove that their situation is temporary to show that a forbearance agreement is in the best interest of both parties. The bank loss mitigator reviews the information provided by the homeowner to make a decision.
After a successful forbearance agreement and repayment plan, the homeowner's mortgage is current and converted back to a regular account. The homeowner keeps their home and the bank is able to avoid the time and money needed to foreclose on a home.
When the homeowner's situation is not temporary, a forbearance agreement and repayment plan is not in the best interest of either party. Although a foreclosure might seem like the right thing for this situation, foreclosures are costly when there is little to no equity in the real estate. In situations where a foreclosure agreement is not an option, the bank loss mitigator might suggest a loan modification.
Loan modifications can include a longer term on the mortgage, lower interest rate, or possibly a different type of loan. The goal of the loan modification is to create a lower payment to fit the new financial needs of the homeowner. While the forbearance agreement and loan modification are intended for the same result, the circumstances for each are very different.
A forbearance agreement allows for a win-win situation between a temporarily struggling homeowner and mortgage holder. When situation arise that prohibit a homeowner from making timely payments, they should contact the lending bank as soon as possible. Foreclosure proceedings cost the mortgage holder time and money that can be avoided by a forbearance agreement between the two parties.