Mortgage Forbearance Agreement

Key takeaways
* A mortgage forbearance agreement is a temporary plan between a lender and a borrower that reduces or suspends mortgage payments and prevents foreclosure for a set period.
* Interest generally continues to accrue during forbearance; the borrower must repay missed amounts according to agreed terms after the period ends.
* Forbearance is intended for short‑term hardship; a loan modification is a permanent change to loan terms for long‑term affordability problems.
* Special COVID‑19 relief created additional forbearance protections for federally backed mortgages and set limits on fees and repayment requirements.

What is a mortgage forbearance agreement?

A mortgage forbearance agreement is an arrangement in which a lender agrees not to initiate foreclosure while the borrower is temporarily behind on payments. The lender typically reduces or suspends payments for a specified time, and the borrower agrees to a plan to resume full payments and become current by the end of the forbearance period.

How it works

• The lender agrees to a temporary reduction or suspension of monthly mortgage payments and will not start foreclosure during the agreed period.
• Interest usually continues to accrue on the loan balance unless the agreement specifies otherwise.
• When forbearance ends, the borrower must repay missed amounts according to the agreement. Repayment can take several forms (see “Repayment options” below).
• Lenders may, in some circumstances, extend or renew forbearance if the borrower’s hardship continues.

Who should use forbearance

Forbearance is intended for borrowers facing temporary, verifiable hardships such as short‑term unemployment, illness, or other unexpected financial disruptions. It is not a long‑term solution for structural affordability problems (for example, unaffordable payments due to a rate reset on an adjustable‑rate mortgage).

Forbearance vs. loan modification

• Forbearance: temporary relief that reduces or pauses payments for a set time; missed payments must be repaid later. Interest typically continues to accrue.
• Loan modification: a permanent restructuring of loan terms (lower rate, fixed rate conversion, extended term, or principal adjustments) to make monthly payments affordable. Modifications generally require documentation, proof of ability to pay the modified amount, and often a trial period.

COVID‑19 and federally backed loans

Legislation enacted during the COVID‑19 pandemic provided special forbearance protections for homeowners with federally backed mortgages (FHA/HUD, VA, USDA, Fannie Mae, Freddie Mac). Key features of that relief included:
* Eligibility: borrowers who experienced hardship directly or indirectly because of the pandemic (in many programs, no documentation of hardship was required).
* Initial forbearance terms typically ranged from 3 to 6 months, with the possibility of extensions. In some cases, total forbearance could be extended up to 12–18 months depending on the program and timing.
* Protections: deferred payments could not be capitalized into the loan without specific rules; additional fees or penalties were prohibited; servicers could not require borrowers to repay deferred amounts in a single lump sum.

Homeowner Assistance Fund

The American Rescue Plan created the Homeowner Assistance Fund to provide funds to states for preventing foreclosures, addressing delinquencies, and helping homeowners affected by pandemic‑related hardships. Assistance and eligibility criteria vary by state.

Repayment options when forbearance ends

Borrowers exiting forbearance are typically offered several options. Availability depends on the loan type and servicer, but common choices are:
* Repayment plan: missed payments are added to monthly payments over a set period.
* Deferral or partial claim: missed amounts are placed at the end of the loan or in a subordinate lien, paid when the loan is refinanced, sold, or paid off.
* Loan modification: the loan is restructured to add missed amounts and reduce the monthly payment.
* Lump sum: paying all missed amounts at once — servicers generally cannot require this option.

Legal protections and discrimination

Mortgage lending discrimination is illegal. If you believe you have been discriminated against because of race, religion, sex, marital status, use of public assistance, national origin, disability, or age, you can file a complaint with federal agencies such as the Consumer Financial Protection Bureau (CFPB) or the Department of Housing and Urban Development (HUD).

Practical steps for borrowers

• Contact your loan servicer as soon as you have trouble making payments. Servicers are generally required to discuss options with you.
• Ask about all available alternatives: forbearance, repayment plans, loan modification, or other assistance programs.
• Get the agreement in writing and review how interest, escrowed taxes, and insurance are handled.
• Keep documentation of your hardship and communications with the servicer.
• Explore state and federal homeowner assistance programs for additional support.

Conclusion

A mortgage forbearance agreement can provide temporary relief that prevents foreclosure during short‑term financial hardship. It is important to understand how interest and missed payments will be handled, to explore long‑term solutions if needed, and to communicate promptly with your loan servicer to choose the best option for your situation.