In today’s world, the COVID-19 pandemic has caused extreme economic upheaval. Millions of people lost their jobs or experienced income disruption due to their work hours being cut. While there is some hope on the horizon thanks to newly approved vaccines, it will take a long time before many people are able to afford their mortgage payments.
The government stepped up in March 2020 and enacted the CARES (Coronavirus Aid, Relief, and Economic Security) Act, providing direct economic stimulus to families and temporary rule changes for government-backed mortgages. The Act also provided payroll loan assistance for small businesses and extra unemployment benefits, as well as protecting renters from eviction.
Under the CARES Act, foreclosure procedures on government-backed loans would be halted for a certain period of time. The moratoriums expire on January 31, 2021, for Fannie Mae or Freddie Mac loans or until February 28, 2021, for all other federally-backed loans.
At the time when Congress initially passed the CARES Act, many people were sure that the pandemic would have run its course by the end of 2020. As of December 2020, its impacts are still strong around the world and many people have not returned to work, especially in the hardest-hit economic sectors like hospitality. As the moratorium expiration dates approach, many homeowners are distressed and looking for more ways in which they can prevent foreclosure on their homes.
Brian Mingham, the Founder and CEO of CFSI Loan Management, explains the options that homeowners have during the moratorium and after it ends.
The CARES Act provides for mortgage forbearance, or the ability to have loan payments reduced, paused, or suspended for a limited period of time.
In order to receive mortgage forbearance, you must request it directly from your lender. Documentation proving your financial hardship does not have to be provided. Forbearance is granted in three-month increments, with additional three-month extensions available for up to one year.
Many other loan servicers who are not backed by the federal government are also offering similar terms of forbearance for their borrowers during the COVID pandemic. Be sure to check with your lender, even if they are not federally backed, to see if they offer such a program.
Under mortgage forbearance, the payments still need to be made at some point in the future. It is important to understand that these payments have not been canceled indefinitely. At the end of the forbearance period, the loan servicer will contact you and explain how the missed payments must be repaid.
The CARES Act does not regulate how these payments must be paid back. Loan servicers have a variety of options when it comes to recouping their money. One option is the lump sum payment, where all of the missed payments are due at the end of the forbearance period. Capitalized missed payments are added to your loan balance. Loan terms may also be extended, or payments may be prorated. Prorated payments involve paying a portion of the missed payments each month after the forbearance period ends.
If your income is restored before your forbearance period ends, you should contact your loan servicer and resume making payments so that your future obligation is limited.
Many American families have been helped by the CARES Act’s foreclosure moratoriums and similar state and local programs. Under federal law, loan servicers cannot start a state foreclosure process until the payments are more than 120 days past due. Exceptions may be made based on your forbearance program.
Homeowners who were facing foreclosure when the pandemic hit are covered under the CARES Act. Lenders servicing federally backed mortgage loans, except in the case of vacant or abandoned property, may not initiate any foreclosure proceedings, order sales, or execute foreclosure-related evictions or foreclosure sales.
State and Local Programs
It is important to check with your state and local governments to find out whether they have their own provisions for forbearance programs and foreclosure protections. There may be extra months of protection available in certain states.
While these programs have been extended multiple times, eventually they will expire. Homeowners may need relief from mortgage payments and foreclosure well into the future, especially if they are involved in a hard-hit industry.
After the programs expire, there are other ways to prevent foreclosure. These tips from Brian Mingham may be able to help you stave off foreclosure.
Being organized and making sure that you have all of your documentation up to date is the first step. You will need to assemble monthly statements, a record of the payments you have made, your escrow statements, property tax and insurance information, and any and all correspondence from your servicer.
Next, you should learn about your legal rights. Examine your loan documents and find out whether you can reinstate your loan by catching up on past due amounts. Find out what the monthly late charge amount may be and the other kinds of fees the servicer can charge if you fall behind.
You should organize all of your financial information. Make sure that your tax returns, pay stubs, and self-employment documentation are up to date.
Review your budget and decide on the realistic amount that you can spend. Take care to reduce your expenses as much as possible.
Loss Mitigation Options
Even after the CARES Act has expired, many loan servicers offer mitigation options. Loan modification can change your terms permanently. A modification may extend the terms of your loan or reduce your interest rate. With loan modifications, your lender may add past due amounts to your balance. You may also qualify for a Freddie Mac or Fannie Mae flex modification.
Recovery from the COVID-19 pandemic may be a slow process. Homeowners who need help have many options both during and after the provisions of the CARES Act have expired. Brian Mingham and other loan servicers want to make sure that their borrowers have the relief they need.