FORBEARANCE AGREEMENT/CONTRACT, (What is it)
Forbearance is a default prevention tool that is
offered to borrowers that permits an extension of time. It
allows the borrower to repay past due payments within a
structured period of time. A borrower who
is behind in his or her loan payments should call or write the lender and
explain his or her economic situation. The lender can set up a repayment plan
based upon the client’s finances and may even temporarily reduce or suspend the
mortgage payments. There is no
restriction as to the length of the Forbearance Agreement/contract. The
borrower must resume regular monthly payments as well as pay additional funds
toward the delinquency at scheduled intervals.
The forbearance agreement/contract must be in writing. It will clearly
set out the period of reduced or suspended payments, the schedule for making
additional payments when the borrower resumes regular monthly payments, and the
date on which the forbearance will end.
Forbearance is the least costly workout alternative, and a borrower must
always consider it first. Forbearance should be used in situations in which a
borrower is experiencing a temporary reduction in income or financial hardship,
but who expects at a later date to be able to resume regularly scheduled
payments and to pay additional amounts at scheduled intervals to cure the
delinquency.