The COVID-19 pandemic is causing financial hardship for millions of American homeowners. If you, or someone you know, is experiencing financial hardship, you or they may have access to help under a new federal law known as the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). This guide has information to help you make important decisions about your financial obligations.
The Foreclosure Moratorium is set to expire on August 31, 2020.
You have the right to obtain a 180-day pause in paying your mortgage payments if you are a borrower on a federally backed mortgage loan and affirm that you are experiencing a financial hardship due to the COVID-19.
This program is called “forbearance.” Forbearance is a temporary reduction or suspension of your monthly payment to help you through a difficult period. You will need to repay any missed or reduced payments in the future through one of numerous options. While in forbearance, you can still choose to make partial payments, which will reduce the amount you would need to repay in the future.
The decision to request forbearance should be considered carefully; however, Congress has made the actual request process very easy.
At the end of the forbearance period you and your servicer will discuss repayment options. In most cases you should receive multiple options to repay the monthly payments that were not paid during forbearance over time.
There are no fees associated with obtaining forbearance. Be wary of anyone offering to help you with forbearance for a fee.
Frequently Asked Questions:
I'm worried I might not be able to make my mortgage payment. Will my mortgage company help?
In most cases yes. If the Federal Home Loan Mortgage Corp. (Freddie Mac) or the Federal National Mortgage Association (Fannie Mae) backs your mortgage — and they do for about 80 percent of all mortgages — the mortgage giants may waive your payments for up to 12 months (in 6 month increments). It's called forbearance: You and the lender agree to temporarily reduce or suspend mortgage payments, and the lender agrees not to foreclose during that time. Both Freddie Mac and Fannie Mae have also agreed to suspend evictions and foreclosure sales through August 31.
The U.S. Department of Housing and Urban Development has also imposed an immediate halt to evictions from Federal Housing Administration–insured single-family properties. What's more, it has halted new foreclosures and suspended those in process. The moratorium on foreclosures also applies to FHA-insured home-equity conversion mortgages (commonly known reverse mortgages). Both moratoriums end August 31.
Does forbearance mean I never need to make up the missed mortgage payments?
No, the deferred payments still need to be made in the future, as a lump sum or tacked on to the end of your mortgage. Forbearance is not the same as loan forgiveness.
How do I know who owns my mortgage?
You can check online to see if one of the mortgage giants owns your mortgage:
Or you can call your loan servicer. Your loan servicer’s contact information is listed on your mortgage statement.
What if my loan isn't owned by Freddie Mac or Fannie Mae or isn’t FHA, VA or USDA?
Contact your lender, explain the reason for your financial setback – perhaps you lost your job because of the Coronavirus outbreak — and try to negotiate a forbearance plan. While not obligated to follow the lead of Fannie and Freddie, many lenders may be willing to negotiate during this difficult time.
Are big banks offering mortgage relief?
Yes, on a case-by-case basis. Bank of America, for one, says that mortgage borrowers can request to defer payments, with payments added to the end of the loan. Wells Fargo is suspending residential property foreclosure sales and evictions. Wells Fargo is telling its mortgage customers, “If you’re unable to make your payment due to COVID-19 related hardships, we’re offering a 90-day payment suspension.” And Chase bank asks worried mortgage holders to call to work out a plan. If you need help, be proactive and give your bank a call.
How Do I Request the Forbearance?
The process is relatively simple. You can request a forbearance in 5 easy steps.
What Are The Terms of the Forbearance?
The CARES Act grants you the right to forbearance by submitting a request to your mortgage servicer for forbearance due to financial hardship during the COVID-19 emergency.
You are not required to submit documentation to prove your financial hardship to enter a forbearance under the CARES Act. And, you are eligible regardless of delinquency status, so it does not matter if you are delinquent at the time of application or were delinquent before the President’s March 13, 2020, emergency declaration.
Under the new law, forbearance shall be granted for up to 180 days at your request, and shall be extended for an additional 180 days at your request.
Remember to make the second 180-day request before the end of the first forbearance period. Most servicers are required under federal regulations to notify you about applying for other mortgage relief options.
You will not accrue fees, penalties, or interest beyond the amounts already scheduled or calculated based on the terms of your mortgage. However, you will have to pay the payments that were missed during forbearance, including taxes and insurance, back to the mortgage company in the future and after the forbearance period ends. At the end of your forbearance period, you and your servicer will determine how you will repay any missed payments or deficiencies related to reduced payments, especially in your escrow account. In most cases, you will be given multiple options for repaying the forbearance; a lump-sum repayment will typically not be the only option. Some options may include:
Establishing a repayment plan that would spread your missed payments over a specified number of months, which would increase your monthly payment until the missed forbearance payments were fully repaid and would be based on your ability to make the new monthly payments.
Extending the term of the loan for some amount of time to pay back the missed payments. For example, if provided a six-month period where you don’t make a mortgage payment, your mortgage servicer could add six months of payments on to the date when the loan is scheduled to be paid off (the maturity date). This would be one form of a loan modification.
Modifying your loan to catch up the missed payments over time through a specified modification program offered by the owner of your loan.
How Do I Know Whether I Should Request a Forbearance? (Don’t Throw Away The Life Raft)
If your loan is eligible for relief and you are having financial hardship due to COVID-19, you are entitled to lower payments or forbearance that is provided in the CARES Act. If you are still able to make your full monthly payment, you may wish to keep doing so because interest continues to grow as scheduled and you will eventually have to repay the amount of any forbearance.
When discussing forbearance with your mortgage servicer, be sure to discuss all repayment options available to you before entering a forbearance program. Repayment options may differ depending on your loan type, and you should know before entering forbearance how you will be expected to repay your paused payments.
If you and your servicer disagree on forbearance relief options, please remember that the CARES Act entitles you to a forbearance of up to 180 days at your request, and an extension of an additional 180 days at your request. Keep detailed notes on your conversations and check any documentation sent by your servicer to make sure the terms of your forbearance are clear.
Will making mortgage payments late affect my credit rating?
Under the Freddie Mac and Fannie Mae plans, loan servicers will not report late payments resulting from forbearance to credit bureaus. They will also waive all late fees and penalties. Again, if you don't have a loan with Fannie or Freddie, you'll have to negotiate directly with your loan services. In any case, if you're struggling, be sure to contact your loan servicer sooner rather than later, and be sure to document your coronavirus hardship, such as proof of job loss.