With the coronavirus pandemic devastating the US economy, many homeowners are unable to work and unable to meet their financial obligations. Fortunately, Congress passed The Coronavirus Aid, Relief, and Economic Security Act – or CARES Act – which offers mortgage help to those affected by the outbreak.
Specifically, section 4022 of the act requires servicers of federally backed mortgages to postpone mortgage payments at the request of the borrower, provided the borrower affirms financial hardship either directly or indirectly due to COVID-19. The postponement must be granted for up to 180 days. It must also be extended for an additional period of up to 180 days at the request of the borrower.
No fees, penalties, or interest beyond interest already scheduled can accrue during the forbearance period.
Additionally, servicers must grant forbearance without requiring any documentation except one. They must only require a borrower’s “attestation to a financial hardship caused by the COVID-19 emergency.”
The act also forbids the servicer of a federally backed mortgage loan to initiate any foreclosure process for at least 60 days beginning on March 18, 2020.
The process seems straightforward – simply calling your servicer and asking for relief. However, cases where servicers added extra hoops to jump through also exist. Some also made their own rules for how the skipped payments would be recouped.
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Jim and Julia Hansen lost their incomes when the tourism industry shut down in their home state of Hawaii.
They reached out to their lender to ask about deferring their mortgage payment. While they were told they could delay their payment for three months, there was one massive catch: at the end of those three months, they would need to come up with a lump-sum amount totalling four-months of mortgage payments to bring the loan current.
That’s not what guidelines indicate, and the Hansen’s are currently weighing their options to seek appropriate relief.
Servicers making their own rules is a major concern for Richard Cordray, former director of the Consumer Financial Protection Bureau. He recently co-authored a letter to the current CFPB board. In it, he implored them to do everything they can to make the servicers follow the rules.
“We saw in the last crisis how their indifference and ineptitude led many mortgage servicers to push homeowners into needless foreclosures that undermined our communities. Already, there are worrying signs that people are getting the runaround as they seek forbearance or other relief. New rules were put in place several years ago to address these problems, and the mortgage servicers cannot now be excused from complying with these rules when consumers need them the most. Servicers also must live up to the letter and spirit of the CARES Act by helping consumers avoid foreclosures wherever possible, rather than using the money made available by Treasury and the Fed simply to pad their bottom lines.”
Follow These Steps When Seeking Mortgage Relief
Are you looking for mortgage relief due to the coronavirus pandemic? Follow these steps to give yourself the best chance at a successful outcome:
- Determine who your service provider is. This may or may not be the bank or lender who holds the actual mortgage on your home. They will be the ones you need to contact to start the discussion.
- Find out if your loan qualifies for relief. Your lender should be able to tell you if either Fannie Mae or Freddie Mac backs your loan. If one of the government-sponsored enterprises backs your loan, you are eligible. If they don’t, you may still have options.
- Find out how the servicers will handle the skipped payments. Will you see them included at the end of your loan term? Can they be spread out over future payments? Get a clear answer, ideally in writing, before moving forward. You don’t want any misunderstandings down the road.
- Determine how real estate taxes and insurance will be paid. Do you have an escrow account that pays your taxes and insurance? Those two accounts likely won’t continue to be funded by your monthly payments, since they are being skipped. Find out from the lender how the taxes and insurance will be paid if the balances are short.
“If your lender pays it, find out what’s going to happen during the time you’re not making payments and what happens if they pay,” says Barry Zigas, senior fellow at the Consumer Federation of America. “How does it all get figured out at the end?”
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