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Mortgage Forbearance

A guide to mortgage forbearance

In today`s economy many people are having trouble meeting their financial obligations. As a result of this there have been a large amount of homes that have been abandoned by their owners or foreclosed by the banks. Lending institutions were a little too generous in giving large loans to people who could not possibly afford to keep up the payments. The price of housing was in a bubble for a long time and when that bubble finally burst many people discovered they were stuck with high mortgage payments and property that was worth less than the cost of their mortgage.
In the past few years things have stabilized somewhat and lenders are now much tighter when it comes to their lending policies. There are, however, people who can get into temporary financial difficulties and these are the individuals who are ideally suited to a mortgage forbearance agreement.
So what exactly is a mortgage forbearance agreement? It is an arrangement or agreement made between a delinquent borrower and their mortgage lender. The lender agrees to forego the legal right to foreclose on the mortgage, while the borrower agrees to a mortgage plan designed to bring the borrower up to date on their payments over a certain amount of time.
Mortgage forbearance agreements are not long-term solutions for borrowers who are delinquent in their payments, but rather it is designed to help borrowers who are experiencing temporary financial setbacks caused by unexpected events, such as illness or unemployment. Individuals who have bigger financial problems, such as adjustable rate mortgages that had their interest rates reset to unaffordable levels, usually have to seek other remedies than mortgage forbearance agreements.
Pros and Cons of Mortgage Forbearance
In simple terms, mortgage forbearance makes it possible for the borrower to stop making mortgage payments. This is a plus for those who cannot make payments due to unforeseen circumstances. It can help people to avoid foreclosure and losing their homes. This is especially helpful for those who are suffering from a sudden illness that prevents them from going to work. Being made homeless on top of being ill and unable to work is a situation in which no one wants to find themselves.
Being able to stay in your home and knowing you have a respite from bill payments can speed the healing process since so much illness is caused by financial stress. Being able to keep the home you worked hard for is a lot better than having your home foreclosed.
Unfortunately, this solution is only temporary and usually only lasts over a period of several months until the homeowner can get back on their feet financially. Lenders are not doing this out of the kindness of their hearts but because they feel that they will wind up with more money from repayment of the original mortgage than from a foreclosure sale.
The homeowner must also keep in mind that while the payments are not being made, the interest rates on the mortgage continue to accumulate and are added to the remaining loan balance. Homeowners are generally required to sign forbearance agreements that state the date by which they are required to start making payments again. Once the forbearance period is at an end regular monthly payments will have to be made again. There are companies such as that specialize in helping homeowners with financial solutions.

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High-cost credit market

In 2010 we called for secondary lending providers to consider affordability of borrowing in the context of overall borrowing, including mortgages prior to offering credit. We consulted lenders again, and all – without exception – said they would welcome greater controls including the requirement to consider affordability of all borrowings, including the mortgage, prior to offering credit.

We have also argued that credit providers should have the same forbearance rules as mortgage lenders applied when the borrower has a mortgage, as it’s often the assertive and immediate chasing of outstanding interest payments that exacerbates a borrower’s financial position. This often means that by the time a mortgage lender starts to communicate with borrowers about late payments any financial reserves the borrower had have been swallowed by other debts.

The FCA made two very important statements that underline why mortgage borrowers can find themselves in trouble, both of which our experience confirms. The first is the identification of ‘present bias’ being that people may have excessive urges for immediate gratification, overvaluing present consumption over future consumption.

The official launch of the Mortgage Finance Gazette Annual Awards

Over the past year lenders and suppliers to the mortgage industry have been working hard and in recognition of this we invite you to enter the Mortgage Finance Gazette Annual Awards. There are positive stories to tell, so share them with us and the rest of the industry.

The Mortgage Finance Gazette Awards recognise the great and the good within the mortgage sector and there is a range of categories to cover different areas. These include innovation, community service, corporate social responsibility, customer service, best use of arrears management, best use of technology, best anti-fraud service as well as legal and conveyancing categories.

From an individual perspective there is the Leadership Award for a stalwart within the industry who is at the forefront of business; the Individual Achievement Award for anyone within the sector who goes beyond the call of duty; and the Lifetime Achievement Award.

The MFG Awards are open to all lenders – large, medium and small. Traditional banks and building societies are welcome and we would also like to hear from specialist lenders, including equity release, buy-to-let, second charge, new lenders, challenger banks and any other niche players. The categories are divided into smaller and larger lenders at the judging stage.

Is it normal for banks to continue charging late fees while a mortgage is in forbearance?

I have a forbearance agreement with Wells Fargo for one year so I can catch up on my mortgage payments. They are continuing to charge me a late fees on the 17th of each month. Is this normal practice or just plain evil?

If they are charging late fees, there or 3 possiblities:
1. Your payments are not being made in accordance with the forbearance agreement.
2. You only THINK you have a forbearance agreement.
3. Wells Fargo is incompetent.

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