Mortgage Forbearance

Mortgage forbearance is not an uncommon arrangement between a loan servicer and their borrower, in which the borrower is granted a brief payment deferral, getting mortgage relief to overcome a temporary hardship. When the mortgage payment act of 2020 passed, officially known as the CARES Act, this allowed millions of homeowners to defer mortgage payments, immediately getting the mortgage relief they needed.

Thanks to this mortgage relief act 2020, according the Mortgage Banker’s Association, as many as 9.24% of homeowners reached out to their loan servicers and were granted coronavirus mortgage relief during this pandemic. This unprecedented reaction by homeowners to government legislation had far reaching consequences to our system of credit for borrowers getting mortgages.

What does this mean for our Veterans who are now trying to get VA loans when they have been granted a mortgage payment forbearance as a result of what is often called the mortgage relief act of 2020? Well, now there is finally some good news!

New Guidelines for Getting a VA Loan After a Mortgage Forbearance:

Veterans, just because you have a mortgage payment forbearance on your current VA Loan, does not stop you from getting a new VA loan or refinancing your current VA loan.  Lenders cannot use the mortgage payment act of 2020 or CARES Act forbearance as a reason to deny you a VA-guaranteed loan.  Due to the economic hardships caused by COVID-19, the VA has established new requirements to help Veterans get a new VA purchase loan or refinance their current VA loan.

VA Purchase and Refinance Loans

VA lenders have been given the go ahead to disregard deferred payments, so borrowers taking advantage of the CARES Act mortgage forbearance can still qualify and get a great VA loan.

However, the borrower must provide reasons for enacting the deferred payments and information showing the “cause of the delinquency has been corrected,” according to new guidelines surrounding mortgage forbearance requirements, issued by the VA.

The VA borrower needs to know the lender will continue to review all other qualifying information including income, debt-to-income ratios, credit and assets.  And, generally, the lender will not require an appraisal for an IRRRL.

VA IRRRLs - Interest Rate, Reduction, Refinance Loans

According to the VA, when TWO deferred payments or more have been missed, VA’s prior approval is not required if: the borrower has taken advantage of a CARES Act forbearance, relating to the loan being refinanced.  In this case, the borrower must provide information demonstrating that they are no longer experiencing a financial hardship caused by COVID-19. The borrower must still qualify for the VA IRRRL under the standard IRRRL credit requirements. See all VA IRRRL requirements.

VA IRRRL Maximum Loan Amount

In the context of a mortgage loan forbearance due the CARES Act, lenders continue to follow VA guidelines in determining the maximum loan amount of an IRRRL. However, the VA states that they may include these two important elements in the new loan amount:

• Any past due installment payments, including those a borrower deferred under a CARES Act forbearance.
• Allowable late charges, consistent with the note, the CARES Act, and all other applicable laws.

VA IRRRL Seasoning and Forbearance

Mortgage payment forbearance under the Mortgage Relief Act 2020 or CARES Act, does not alone, cause the loan to not meet the seasoning requirements. But for Veterans, deferred payments cannot count towards seasoning. If a loan being refinanced met seasoning requirements before a Veteran began his or her mortgage forbearance, the seasoning requirement remains satisfied.  A VA loan being refinanced is considered properly seasoned if both of the following conditions are met:

1. The Veteran has made at least six consecutive payments, after invoking a CARES Act mortgage forbearance on the loan being refinanced.
2. The date of closing for the refinance loan is 210 or more days after the first payment due date of current loan being refinanced.

SoCal VA Homes can help you navigate the task of getting a new VA loan after you’ve received payment relief. Call one of or Sr. VA Loan Professionals today at 949-268-7742!