What is a Forbearance Agreement?


This is undoubtedly a strange time for most Americans. The continued spread of the novel coronavirus has left thousands of people across the country out of work or living on a reduced salary. With all of this uncertainty, it has some homeowners worried about being able to make mortgage payments on time. Banks and lenders are increasing efforts to work with families and individuals that have fallen behind on their home loans by offering flexible forbearance agreements. 

Forbearance is a fancy term for loan forgiveness. It is a formal agreement between you and your mortgage lender or banking institution that allows property owners to temporarily skip a mortgage payment due to unforeseen hardships. There are also options for those that simply want to negotiate the terms of their mortgage and make reduced payments. 

This, however, is a temporary solution. Forbearance agreements are designed to postpone mortgage payments, not wipe them away entirely. Remember that banks want you to stay in your home. Most lenders are eager and willing to work with property owners, with the ultimate goal being that the debt will be repaid when your financial situation improves. Here, we will take a deeper dive into how forbearance agreements work and the impact that COVID-19 has had on mortgages and foreclosures. 

How Does a Forbearance Agreement Work?

Every lending institution approaches mortgage forbearance differently. But the common theme is that hardship must be proven and established, clearly explaining the reasons why you have fallen behind on your mortgage payments. 

A hardship is a situation or circumstance that is out of your control and that has resulted in your defaulting on your mortgage. For instance, losing your job due to a pandemic. That is absolutely out of your control. There are, however, a whole host of valid reasons that lenders will take into consideration if you are attempting to renegotiate the terms of your home loan. 

Medical debt, forced unemployment, a decrease in your total household income, and even divorce are all viable reasons that can make you eligible for loan forgiveness. Lending institutions like Fannie Mae and Freddie Mac are currently offering financial assistance to mortgage holders that are impacted by COVID-19. 

Again, a forbearance agreement is only a short-term solution and the terms will have to be worked out with your lender. Your lender may agree to decrease the payments or suspend them altogether. This will ultimately freeze any foreclosure proceedings and give you time to figure out your financial future. In exchange for the forbearance consideration, the borrower will have to agree to make all missed payments in the future, including all taxes and interest incurred during the forgiveness period. Some options include: 

  • Paying back the missed mortgage payments in one lump sum 
  • When payments resume, some homeowners opt to pay a higher mortgage payment every month until the debt is paid off
  • Enter into a loan modification, in which the bank will attach the unpaid amounts to the overall balance of the original home loan

Forbearance Agreements During COVID-19

As stated before, the spread of COVID-19 has left the majority of Americans in a financial lurch, and not just homeowners. Business owners have felt the strain of the virus due to multiple shutdowns and social distancing restrictions. In response to the varying hardships that have affected so many citizens, the government has enacted the federal Coronavirus Aid, Relief, and Economic Security Act, otherwise known are the CARES Act. 

Under the CARES Act, those that have fallen behind on their mortgage payments or have worked out a forbearance agreement with their lender will not get penalized on their credit reports. Instead, lenders are advised to report payments as ‘current,’ not ‘delinquent’ to the credit bureaus. This doesn’t keep you entirely safe and without penalty. While mortgage forbearance won’t damage your credit score, you still may have trouble getting another mortgage, home loan, or being able to refinance in the future. Here are some additional points to consider: 

  • While forbearance during any other time would typically last for 180 days, under the CARES Act, some lenders may grant an extension of an additional 180 days. 
  • Foreclosures and evictions have been suspended until at least Aug. 31, 2020. This is based on the guidance of the FHFA. 
  • Homeowners or property owners that have already secured a forbearance plan during the pandemic will not incur late fees. 
  • After the forbearance period has expired, your lender is obligated to work with you to map out a manageable payment plan.


OakTree Law is open for business during the COVID-19 crisis. If you’re in need of an experienced foreclosure attorney and #QuarantineLife has left you in limbo, reach out to us now. We’ll help explore your options, determine the kinds of payments you can afford, and whether alternatives to foreclosure may be available to you. Call us at 888-219-0654 for a free phone consultation today!