Do I Have to Make a Lump-Sum Payment When My CARES Act Forbearance Ends?

In most cases, you don't have to make a lump-sum repayment at the end of a CARES forbearance—even if your loan servicer tells you otherwise.

Under the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act, a homeowner with a federally backed mortgage loan, regardless of delinquency status, who's experiencing a financial hardship that's due directly or indirectly to COVID-19, can get a forbearance—a suspension or reduction of mortgage payments. Some servicers are telling borrowers they'll have to come up with a lump sum to repay the skipped payments when a forbearance ends, which means you’d have to come up with thousands of dollars to cover the overdue amounts or face a foreclosure.

But your options actually depend on what entity, like FHA, VA, USDA, Fannie Mae, or Freddie Mac, owns or guarantees your loan, and you most likely have alternatives other than shelling out all of the missed payments at once. Under official loan servicing guidelines, if you have a Fannie Mae, Freddie Mac, USDA, or VA loan, the servicer can't require you to get caught up with a lump sum if you're unable to afford it. If you have an FHA loan, the servicer has to go through what's called a loss mitigation "waterfall" process to help you avoid a foreclosure, and FHA has explicitly stated that a lump sum is not required immediately at the end of the forbearance period.

How a CARES Act Forbearance Works

A CARES Act forbearance will last up to 180 days and can be extended up to 180 additional days (360 days, almost a year, in total). Some servicers are starting borrowers with a 90 day forbearance, but keep in mind you have the right to a forbearance of up to 360 days.

To get the forbearance, you must make a request to your servicer within the covered period and affirm that you've suffered a financial hardship due to the COVID-19 emergency. But the servicer can't require any additional documentation beyond your attestation. (To learn more about how to get mortgage help under the CARES Act, read Mortgage Payment Relief During the Coronavirus Outbeak.)

Options When a Forbearance Ends—Other Than Making Up All Missed Payments At Once

Forbearance isn’t the same as forgiveness, so you’ll have to repay the amounts you didn't pay while the forbearance was ongoing. Generally, loan servicing guidelines permit borrowers to get caught up with a lump-sum payment (sometimes called a "reinstatement"), through a repayment plan, or with a loan modification in which the servicer adds the overdue amount to the mortgage balance.

Some servicers, however, are telling borrowers they must pay a lump sum to bring the loan current once the forbearance is over—or they'll go into foreclosure. Because this would mean coming up with thousands of dollars out of pocket, many homeowners are afraid to proceed with a forbearance. But official guidance from the various entities that guarantee and insure federally backed mortgage loans expressly says that servicers cannot demand a lump-sum payment once a CARES forbearance concludes.

Fannie Mae and Freddie Mac Loans

The Federal Housing Finance Agency (FHFA), which regulates Fannie Mae and Freddie Mac, has stated that borrowers with an enterprise-backed loan aren’t required to make a lump-sum payment at the end of a forbearance if they can't afford it. Freddie Mac CEO David Brickman said, "Simply put, if you are a homeowner seeking forbearance and Freddie Mac owns your loan, you are never required to make up missed payments in a lump sum." Likewise, Fannie Mae put out a statement saying that it would not require a homeowner to repay the missed payments all at once at the end of the forbearance plan, unless the homeowner chooses to do so.

Under Fannie Mae and Freddie Mac guidelines, the servicer must contact borrowers and evaluate them for other options, no later than 30 days before the forbearance ends. You might qualify for:

  • a repayment plan if your financial hardship has been resolved
  • a modification that adds the missed payments to balance of the outstanding loan (and you resume paying your regular monthly payment), or
  • a modification that reduces your monthly payment.

Both Fannie Mae and Freddie Mac have published scripts for servicers to use when talking to borrowers who've been affected by COVID-19. The scripts advise the servicer to say that, "You are still required to eventually fully repay your forbearance, but you won’t have to repay it all at once—unless you are able to do so." But servicers might not stick to the scripts or could give you incorrect information. So, you need to know your rights and assert them. If you need help enforcing your rights, consider hiring a foreclosure lawyer to help you.

VA Loans

If you have a VA loan, VA has issued Circular 26-20-12 explaining what servicers should do following a CARES Act forbearance. (Circulars describe current policies and procedures for servicing VA loans). This Circular says "Servicers are not to require a borrower who receives a CARES Act forbearance to make a lump sum payment." The guidance also states that servicers must review loan files for all possible loss mitigation options no later than 30 days before the forbearance period is scheduled to end.

You can, however, if you can afford to do so, choose to make a lump-sum payment instead of pursuing other loss mitigation options available for borrowers with VA loans. Also, a lump sum payment is acceptable if it is to be paid back at the end of the loan.

FHA Loans

In a Q&A for homeowners dated April 17, 2020, FHA stated "a lump sum repayment for the total missed payments is not required immediately at the end of the COVID-19 forbearance period." Instead, pursuant to Mortgagee Letter 2020-06, your servicer must evaluate you to see what loss mitigation options might be available. First, it has to evaluate you for a COVID-19 National Emergency Standalone Partial Claim no later than the end of the forbearance period. (A partial claim is an interest-free loan from HUD that brings a mortgage current by paying the overdue amounts. You don’t have to repay the loan until the first mortgage is paid off, like when you sell the property.)

If you don't qualify, the servicer has to evaluate you for other loss mitigation options through its waterfall process. This process involves evaluating the borrower for different options, like a repayment plan or modification, for example, to determine the best way to prevent a foreclosure.

So, assuming you can't afford to do so, you can probably avoid having to make an out-of-pocket lump-sum payment when the forbearance ends. If the servicer won't comply with FHA's servicing requirements, consider finding a foreclosure attorney who can help you.

USDA Loans

According to the Consumer Financial Protection Bureau, if you have a USDA loan, you won’t have to pay back the amount that was subject to a forbearance all at once, unless you're able to do so.

For USDA guaranteed loans, an announcement dated April 15, 2020, states that, upon completion of the forbearance, the lender has to communicate with the borrower and determine if the borrower is able to resume making regular contractual payments. If so, the lender must:

  • offer the borrower a written repayment plan to resolve any amount due or
  • at the borrower’s request, extend the loan term for a period that is at least the length of the forbearance.

If the lender determines the borrower is financially unable to resume making contractual payments at the end of the forbearance, the borrower must be evaluated for all available loss mitigation options.

Getting Help With Your Mortgage

Because servicers sometimes give borrowers bad information, it's essential to find out who owns or guarantees your loan—and learn about your rights—before you ask for a forbearance or other assistance. If you get incorrect information from your servicer and need someone to help you enforce these rights, hire a foreclosure lawyer. If you can't afford an attorney, a HUD-approved housing counselor can provide assistance at no cost.

Borrowers who think they’re not being offered proper repayment options can also file a complaint with the CFPB and their state attorney general’s office.

Fannie Mae Loans

If you have a Fannie Mae loan, you can also seek assistance from Fannie Mae's Disaster Response Network. If you confirm you have a Fannie Mae-owned loan by using this Loan Lookup Tool, you’ll get access to this network of HUD-approved housing counselors, who can help you navigate your options and the process of getting assistance. You can find housing resources, including details on disaster relief, on Fannie Mae’s Know Your Options website. You can also go to www.knowyouroptions.com/relief to learn about the benefits that Fannie Mae’s Disaster Response Network offers.

Freddie Mac Loans

If you find out through this Loan Lookup Tool that you have a Freddie Mac loan, you can go to its My Home website to learn about available help for homeowners impacted by COVID-19.

VA Loans

If you have a VA-guaranteed loan, the VA can provide a technician to work with your loan servicer on your behalf, as well as provide you with financial counseling. To locate the nearest VA Regional Loan Center near you, go to the VA’s Regional Loan Center Contact Information website.

FHA Loans

If you have an FHA loan, you may contact a free HUD-approved housing counselor to get information about ways to avoid foreclosure. (Borrowers with other kinds of loans can also get help from a HUD-approved housing counselor at no cost.) To find out if your loan is FHA-insured, call the HUD National Servicing Center at 877-622-8525.

USDA Loans

Borrowers with mortgages directly extended by the USDA's Rural Housing Service (RHS) should be aware that they have this kind of loan. But homeowners with privately serviced RHS-guaranteed loans might not be aware of their loan’s status. To find out if you have an RHS-guaranteed loan, ask the servicer or check your closing documents from when you took out the loan. To learn more, go to the USDA Rural Development website.

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