COVID + Credit: Home Foreclosures and the COVID-19 Pandemic
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During the last recession, millions of Americans asked for loan modifications or went into foreclosure because they couldn't make their mortgage payments. Today, as the Coronavirus/Covid-19 pandemic wears on, millions of homeowners are facing even greater financial hardship. This time, however, there are many more relief options available for those who are struggling to make their mortgage payments, including forbearance, foreclosure suspension and new loan modification programs.
To help people struggling to make their house payments, the U.S. government is offering mortgage forbearance for borrowers with federally backed loans.
The CARES Act, passed by Congress in March 2020 to address the economic fallout from the Covid-19 pandemic, requires federal loan servicers to offer borrowers forbearance on their mortgage payments for up to 180 days. This means you can have your monthly payments reduced or deferred for up to six months and you can request an additional 180 days if necessary. But you must call your mortgage servicer directly and ask for help. Unlike the automatic student loan forbearance that was offered to nearly all borrowers with federal student loans, there is no automatic mortgage forbearance.
You can qualify for mortgage forbearance even if you're already behind on payments, but the temporary relief does not excuse previous late payments. For example, if you're already 60 days late in paying your mortgage, you will still be 60 days late at the end of the forbearance period. (It's worth noting that mortgage servicers generally cannot move forward with foreclosure until you're at least 120 days late on your payments.)
Mortgage forbearance is generally available for those who have experienced financial hardship due to the the COVID-19 pandemic. To learn more about how this forbearance works and whether or not you qualify, visit consumerfinance.gov.
Do you have a government-backed mortgage?
You likely have a federally backed loan if your mortgage is guaranteed by one of these institutions:
- Federal Housing Administration (FHA), which is part of the U.S. Department of Housing and Urban Development (HUD)
- U.S. Department of Veterans Affairs (VA)
- U.S. Department of Agriculture (USDA)
- Fannie Mae
- Freddie Mac
While the majority of residential mortgages are backed by the federal government, Fannie Mae or Freddie Mac, 30 percent are privately owned. If you have a private home loan, then you will have a different set of relief options.
Consult consumerfinance.gov for detailed and up-to-date and specific information about foreclosure suspensions, forbearance and other aide.
To find out if your loan is backed by Fannie Mae, Freddie Mac or Ginnie Mae (for FHA, VA and USDA loans), go to CFPB.gov/housing.
Mortgage foreclosure suspension
According to the Federal Housing Finance Agency, the foreclosure moratorium mandated by the CARES Act only applies to government-backed single-family mortgages.
However, there are also laws being passed at the state and local level to suspend foreclosures and allow people to stay in their homes for an extended amount of time while they recover financially (discussed in more detail below).
Post-forbearance mortgage options
At the end of the mortgage forbearance period, your lender is supposed to provide you with four options designed to help you through this difficult period:
- Reinstatement. One option is to pay the total amount of missed payments in one lump sum. You would then be considered “caught up” and would resume making your regular monthly mortgage payments.
- Repayment plan. The second option is to set up a repayment plan with your lender to repay a portion of the total amount of missed payments along with each regular payment. This will temporarily boost the amount you owe each month, so be sure to review your budget carefully to determine if you'll be able to afford that higher amount during the repayment period.
- Payment deferral. With this option, you would resume making your regular payments, but the missed amount will be added to the end of the loan term, without any additional interest. The deferred amount would be due on the last payment date of the regular loan term, or when the loan is paid off because you refinance or sell the property.
- Loan modification. If none of these options make sense for you, your lender may be willing to work with you to find a lower monthly payment amount that is affordable. You'll start with a trial period, during which you'll need to make these payments on time, and then your loan will be permanently modified.
If you have a private mortgage
If you have a mortgage that is backed by a private investor, you do not automatically have the same forbearance and loan modification options provided for under the CARES Act. However, the Consumer Financial Protection Bureau has encouraged private lenders to be helpful to their customers who are struggling financially during the Covid-19 pandemic.
You can check your lender's website to learn about their specific forbearance options. If you're in immediate danger of missing a mortgage payment or have already missed a payment or two, you should call your lender directly and ask for a modified payment plan. If you're at risk of foreclosure, consider calling to explain your situation and ask for flexibility.
State and local mortgage assistance
Depending on where you live, you might qualify for additional forbearance or foreclosure relief. Many states and local governments have instituted their own initiatives on top of the federally implemented assistance. Check here or visit your local government's website to see if your state has passed additional measures.
Please note that none of these mortgage relief programs will be automatically applied to your account. If you want to take advantage of them, reach out to your mortgage servicer to see what options are available. Expect long wait times as most lenders are overwhelmed with requests.
What you can do now
Forbearance is a short-term solution and does not absolve you from any of your debt. Eventually, the relief measures prompted by the Covid-19 pandemic will end. You will then have to resume monthly payments and make up the ones you missed — whether through a lump sum payment or staggered payments throughout the year. Again, talk to your lender directly to learn what options are available to you.
Additionally, be wary of companies promising to get you out of foreclosure for a fee, as many of these offers are scams. They might take an up-front payment and then never respond or offer to “audit” your mortgage documents for a fee. The Federal Trade Commission has said that any companies asking for money immediately or that guarantee they can prevent foreclosure are likely perpetrating a scam.
If foreclosure after the Covid-19 pandemic is unavoidable, contact the Department of Housing and Urban Development. They can connect you to HUD-approved counselors who can help you find affordable housing options.
This is an undeniably challenging time for many Americans, but there are a number of mortgage relief options available if you are at risk of foreclosure. Be sure to determine whether you qualify for assistance under the CARES Act or contact your lender to find a plan that works for you.