Foreclosure, Short Sale Real Estate

If you are struggling to pay your mortgage, but can see a light at the end of the tunnel, don't overlook the forbearance option.

Freddie Mac recently gave mortgage servicers of its loans authority to provide you with up to a year of forbearance - as much as four times the previous term.

Along with a mortgage modification, short sale, special refinance or other approach to give you relief from a mortgage that's squeezing your wallet, a forbearance could see you through a rough spot and help keep you in your home.

With a forbearance, you and your mortgage company agree to temporarily suspend or reduce your monthly mortgage payments for a specific period of time. In the past, that's typically been only for a few months.

The option is designed to give you some financial breathing room so you can handle your short-term financial problem, often unemployment or under-employment, and get back on your feet.

Also, a forbearance is less damaging to your credit score than a foreclosure or short sale.

Freddie Mac gives mortgage servicers an expanded authority to provide six months of forbearance to unemployed borrowers without Freddie Mac's prior approval and up to an additional six months, or a full year, with Freddie Mac's prior approval.

Previously Freddie Mac allowed servicers to grant up to three months of forbearance with no payment and without prior approval, or six months at a reduced payment with prior approval. 

Longer forbearance required prior approval and was generally restricted to events such as natural disasters, permanent disability or long-term medical emergencies.

Under Freddie Mac's deal, delinquent borrowers in an existing short term forbearance plan can be evaluated for an extended forbearance under the new policy.

"These expanded forbearance periods will provide families facing prolonged periods of unemployment with a greater measure of security by giving them more time to find new employment and resolve their delinquencies. We believe this will put more families back on track to successful long-term homeownership," said Tracy Mooney, a senior vice president with Freddie Mac.

The Federal Housing Finance Agency (FHFA) is directing the expanded forbearance to take effect on February 1, 2012.

Just as other lenders, government and private, offered foreclosure moratoriums during the holidays, expect forbearance relief from a variety of lenders.

Fannie Mae has it's own forbearance program and the Federal Housing Administration (FHA) and Making Home Affordable (MHA) programs similarly expanded their forbearance programs last year.

Private lenders also strike forbearance deals.

You'll have to prove your hardship by documenting your basic financial status with mortgage statements, proof of other debts, and income status (pink slip, pay stubs tax returns).

Fannie Mae offers some forms to help you gather information.

Once the forbearance period ends, you will need to repay the amount that was reduced or suspended.

You typically have several ways to accomplish this - by moving payments to the end of your mortgage, which will lengthen the term; by making a one-time payment for the amount; or by adding a specific amount to your payments each month until the entire amount is repaid.

If you are still struggling with your mortgage after the forbearance period ends, you may qualify for and be directed to a mortgage modification or another solution.

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