With the passage and signing of the CARES Act into law on March 27, 2020, the federal government set into motion a massive $2.2 trillion covid-19 relief bill and the largest single economic rescue plan in the history of the US. And in this act are plans to help homeowners with mortgage relief options for those impacted by covid-19. We’ll share some of these options.
First things first
Before proceeding with any possible consideration, the most important thing to know is that If you are able to pay your mortgage, then by all means please continue to pay your mortgage.
Don’t call your mortgage lender, if you aren’t facing an immediate issue. Mortgage lenders are swamped with requests and calls and need to assist people who are in dire need of assistance and aren’t able to pay their mortgages first. if possible, check your lender’s website for options before attempting to reach a human.
If you’re unable to make your monthly mortgage payments, or can only pay a portion, then by all means contact your mortgage lender immediately. Again, it may take some time to reach your mortgage lender, as they are experiencing a high volume of requests and their business and employees may also be affected by this pandemic, so it’s best to be patient.
What are the major mortgage relief options available?
The CARES (Coronavirus Aid, Relief, and Economic Security) Act provided 2 protective options for those with federally backed mortgages.
Federally backed mortgages
- Foreclosure – Your lender or loan servicer could not foreclose on you for 60 days after March 18, 2020. Specifically, the CARES Act prohibited lenders from beginning a foreclosure against you, or from finalizing a foreclosure judgment or sale, during this period of time. Unfortunately, that period of time has now lapsed.
- Forbearance – The second option is still available however. If you are experiencing financial hardship due to the coronavirus, you have a right to request a forbearance or payment deferral for up to 180 days. You also have the right to request an extension for up to another 180 days beyond that first 180 days. But you must contact your lender to request this forbearance. There will be no additional fees, penalties or additional interest added to your account. And you don’t need to submit additional documentation to qualify other than your claim to have a pandemic-related financial hardship.
What is meant by the term “forbearance?”
A forbearance agreement is when your mortgage lender allows you to suspend or reduce your mortgage payments for a limited period of time while you get back on your feet financially. It doesn’t mean your payments are forgiven or erased during the forbearance period. You are still required to repay any missed or reduced payments in the future.
If and when your income returns to normal, reach out to your lender and resume making payments with a repayment plan as soon as you are able, so your future obligation is easier to get past.
And depending on the kind of loan you have, there may be different forbearance options. For example, if you have a Fannie Mae, Freddie Mac, FHA, VA, or USDA etc loan, you won’t have to pay back the amount that was suspended all at once.
Finally, at the end of your forbearance period, you have multiple options for your loan modification: repayment may be expected as a lump sum at the end of forbearance, sometimes called a “balloon payment.” If a lump-sum payment isn’t feasible, try to negotiate for another option. It may be possible to spread out the cost of the forbearance over months’ worth of regular payments or add skipped payments to the end of your mortgage term.
What mortgages are federally backed?
- FHA – Loans insured by the Federal Housing Administration are backed
- HECM – Loans insured under section 255 of the National Housing Act that qualify as Home Equity Conversion Mortgages for elderly homeowners are backed
- IHLGP – Loans guaranteed under section 184 or 184A of the Housing and Community Development Act of 1992 protecting Native American borrowers under the Indian Home Loan Guarantee Program are backed
- VA – Loans guaranteed or insured by the Department of Veterans Affairs
- USDA – Guaranteed, insured, or made by the Department of Agriculture, these loans are backed
- Freddie Mac and Fannie Mae – Purchased or securitized by the Federal Home Loan Mortgage Corporation or the Federal National Mortgage Association, these loans, which make up at least 50% of all US mortgage loans, are backed
Non-federally backed mortgages
If you don’t have a federally backed mortgage and your loan is not covered by the CARES Act, you still may have payment relief options through your mortgage lender, but this is not guaranteed, and you’ll need to contact your lender.
If you don’t know how to contact your lender, you can find their name on your mortgage statement or by searching the Mortgage Electronic Registration Systems (MERS) website.
Federal regulators believe most non-government-backed lenders will adopt policies similar to those mandated by the CARES Act. To find out, contact your lender, ask what programs they have in place to help homeowners impacted by the coronavirus outbreak and follow any instructions you are given.
Although the CARES Act does not require private lenders to offer relief, if you and your lender come to any type of loan modification agreement, the law regarding lenders not reporting reduced or paused payments to credit bureaus does apply to you.
Your state may also offer additional mortgage relief options
Many states are implementing or considering various mortgage relief options that are in addition to federal initiatives, including the suspension of foreclosures, as well as additional assistance for homeowners. For example, for citizens of Colorado working with a Colorado Housing and Finance Authority (CHFA) loan, there are additional support measures such as an online application for hardship assistance that will save time for everybody by helping you set up your documentation prior to speaking with a mortgage representative on the phone.
Refinancing your loan may allow you to get a new loan at a lower interest rate and potentially reduce your monthly payments too. This may also be a good option if you’d like to go from an adjustable-rate to a fixed-rate loan. And refinancing while paying your current mortgage loan down regularly should be straightforward, as long as, of course, you are able to reach your lender to renegotiate.
But it should also be noted however that attempting to refinance under forbearance could prove to be extremely difficult. As noted before, lenders are already receiving many requests, and some might currently be unable to comply with your desires.
Don’t just stop making payments
Regardless of whether your mortgage loan is backed by the federal government or a private lender, one thing you should never do is just stop making payments without notifying anybody. You need to first contact your lender to let the company know you are having trouble making payments. Failure to contact your lender could result in penalties, bad credit scores, and ultimately, perhaps, foreclosure and eviction too.
Consider Gemtrago and Signloc
During these difficult times, saving any amount of money while protecting your finances is critical. Buyers and home-owners can minimize costs working with lenders like Gemtrago that don’t charge origination, application, or appraisal fees while still offering the lowest rates and highest level of service. And Signloc has some of the lowest title and escrow rates in the country.
Brady Miller, CFA is Chief Executive Officer at Trelora, Inc. Brady joined Trelora in August, 2018 as Chief Financial Officer. He moved into his current role later that year and is responsible for all daily operations and growth of the broader real estate business. Prior to joining Trelora, Brady was Chief Financial Officer of Leeds West Groups which is one of the largest, and fastest growing automotive retailers in America. Brady managed their real estate portfolio, financing, human resources, and accounting. He earned a Charted from the CFA Institute in 2016 and holds a bachelor’s degree from the University of Colorado, Boulder where he majored in Finance and Real Estate.