The COVID-19 pandemic has had a crippling effect on the economy for individuals and businesses. With businesses closed and jobs lost, many faced the challenge of making loan payments.
Although the federal government’s loan forbearance program in 2020 helped, that ended in January this year. However, a new set of guidelines has been put in place, said Cindy Clampet, Oklahoma State University Extension family resource management assistant specialist.
“There are new rules concerning loan forbearance that will give people who have federally backed mortgages and student loans some additional relief,” Clampet said.
In order to qualify for the mortgage forbearance program, homeowners must:
- Be experiencing financial hardship due to the pandemic affecting themselves, immediate family members or their employment.
- Have a mortgage backed by federal agencies such as the Department of Housing and Urban Development or Federal Housing Administration (HUD/FHA), the U.S. Department of Agriculture, Department of Veterans Affairs, Fannie Mae or Freddy Mac.
“Other lenders may choose to offer similar forbearance offers, but they aren’t required to do so,” she said. “If you are experiencing difficulty meeting your loan obligations, contact your lender to see if they have a program that can help.”
The deadline for applying for HUD/FHA, VA and USDA loans is June 30. Currently, Freddy Mac and Fannie Mae do not have a deadline. The initial forbearance is typically three to six months, and consumers may ask for an extension. The forbearance can be extended for up to 12 or 18 months, depending on when the initial forbearance started.
Those holding Fannie Mae and Freddy Mac loans can request up to two additional, three-month extensions for a maximum of 18 months. However, Clampet said, the loan holders must have been in active forbearance as of Feb. 28 this year.
People paying on federally backed student loans automatically have been put into forbearance through Sept. 30, meaning loan payments are not due and no additional interest will be charged during the forbearance period.
“You are able to opt out of forbearance and continue to make payments if you choose to do so,” Clampet said. “The U.S. Department of Education has stopped collection actions on defaulted direct and FFELP (Federal Family Education Loan Program) loans, and it has expanded the 0% interest to defaulted loans retroactive to March 13, 2020.
"This also means borrowers with FFELP that went into default since March 13, 2020, will be returned to good standing and the Education Department is requesting credit bureaus to remove records of the defaults.”
Not all federal student loans qualify. Some are owned by commercial lenders or the school where the borrower attended. These lenders are not required to suspend the interest and payments, but may choose to do so on a voluntary basis. Contact the lender to see if this applies.
Clampet said credit card debt and car loans don’t usually qualify for loan forbearance.
“If you can’t make your loan payments, contact the lender immediately, explain your situation and ask if there’s anything they can do to help,” she said. “Some lenders may be able to restructure the loan in a way that can benefit your situation.”
While forbearance is something many families need right now, Clampet suggested trying to go ahead and make the payments if at all possible. Forbearance only lengthens the amount of time consumers will be paying the loan.
“This also is a time when scammers come out of the woodwork. If someone asks you to pay a fee in order to help suspend mortgage loan or student loan payments, don’t fall for it,” she said. “This scam should be reported to the Federal Trade Commission.”
Additional money management information is available through OSU Extension.