Definition
A forbearance is an agreement by a lender to temporarily reduce or postpone required payments in order to help a borrower to cure a delinquency.
Analysis
One type of forbearance involves student loans. Federally guaranteed student loans may allow for a forbearance when the borrower faces documented financial hardship, such as unemployment or partial disability. Private student loan companies may also allow similar provisions, although they may be less flexible.
A homeowner that is at least 90 days or more delinquent may be able to receive a written agreement from their mortgage lender for a special forbearance. The forbearance can continue for a period of time longer than 12 months, but it cannot allow the borrower to fall more than 12 months behind.
A special forebearance may be renegotiated as the borrowers needs change. It can allow a borrower to keep the home and avoid foreclosure.
Lender concessions may include:
- Reduced or postponed payments for certain number of months
- Borrower may make higher payments to catch-up on arrears
- Lower interest rate or waived late fees may be included
In order to meet eligibility requirements:
- The property may not already be in foreclosure
- The borrower must live in the home
- The borrower must maintain the home
- The loan must be at least 90 days delinquent
- The borrower can reasonably afford the terms of the forbearance
A home in foreclosure is not eligible for a special forbearance. However, a distressed homeowner that reaches a forbearance agreement with their mortgage lender may avoid foreclosure as long as they follow the terms of the agreement.
