What Happens If I Can't Afford Mortgage Repayments Due to the Coronavirus?
In the last two weeks of March 2020, nearly 10 million Americans filed for unemployment benefits. Approximately 6.6 million filed for benefits in the week ending March 28, around double the 3.3 million who entered their claims in the week prior.
Business owners and gig workers are seeing their income nosedive as customers cancel. Many workers who still have jobs are seeing their hours get cut and are waiting to see if they’ll be laid off. Meanwhile, more than half of Americans — 53% according to CNBC — don’t have an emergency fund that can keep them going for three months without income.
Without a safety net, it’s easy to hear “stay at home” orders and wonder how long you’ll have a home to stay in. Will your mortgage lender foreclose? Will you be hit with late fees that you can’t afford?
Thanks to the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the answer to these questions — for now, at least — is no. There are coronavirus mortgage considerations in place to help.
How Is the Government Helping Homeowners?
The CARES Act became law on March 27, pouring $2 trillion into the devastated economy. In addition to direct stimulus payments, extended unemployment, and other provisions, it includes two protections for mortgages with federal backing.
1: No Foreclosures
Lenders and loan servicers are not allowed to foreclose on any properties for 60 days beginning on March 18, 2020. They can’t start foreclosure proceedings, and if you’re already in foreclosure, they can’t finalize the judgment or sale.
2: Right to Forbearance
If you know you’re going to have trouble paying your mortgage, don’t just stop making payments. The CARES Act gives you the right to a 180-day mortgage forbearance, which lets you pause payments or temporarily pay a smaller amount.
Finding Out If You Qualify
The CARES Act can only require forbearance and prevent foreclosure on loans that are owned or backed by the federal government. That includes:
- USDA loans
- FHA loans (including reverse mortgages)
- VA loans
- Housing and Urban Development loans
The CARES Act also applies to private mortgages with backing by Freddie Mac or Fannie Mae. This includes close to half of all US mortgages. Both the Fannie Mae and Freddie Mac websites have loan lookups that can tell you whether you qualify.
Applying for Forbearance
The moratorium on foreclosures is applied automatically, but forbearance is not. If you are having trouble paying your mortgage, you need to contact your loan servicer and explain your situation. Be prepared to share information about:
- Why you can’t make your payment
- Whether you expect the difficulty to be temporary (reduced hours) or permanent (job loss)
- Your income, expenses, and asset reserves
Ask your servicer to explain all of your options, not just forbearance. For some homeowners, loan modifications or other considerations may be more appropriate.
Inquire as to the terms of each option. For example, with forbearance, some agreements will require you to pay the balance of all skipped payments after the forbearance ends, while others will extend the term of your loan to make up for the missed payments.
Finally, before you get off the phone with your servicer, ask for a copy of your agreement in writing. Make sure that it includes all important terms including waived late fees, which should be a standard part of all CARES Act forbearance agreements.
If your mortgage is through a private lender and isn’t backed by the government, the CARES Act doesn’t require your lender to grant a forbearance. Fortunately, the Consumer Finance Protection Bureau and many state governments are encouraging loan servicers and banks to offer grace periods.
Many banks have also decided on their own to allow deferrals of mortgage payments. Several articles, including an April 1 publication by Business Insider, list currently participating banks. Always call your servicer directly to verify any information you get from third-party websites.
After the Emergency
The provisions available through the CARES Act will remain in place until the national state of emergency expires. You may not be able to apply for virus mortgage considerations after that date, so contact your lender as soon as you start having trouble with your payments.
If your mortgage falls under the CARES Act and you are granted forbearance, you have the right to apply for one 180-day extension after your initial forbearance expires. Extensions for private insurance will be at the discretion of lenders.
Keep an eye on your finances and know when your forbearance is set to expire. If you have a large lump sum coming due, or if you still can’t meet your payments and you don’t qualify for an extension, call your lender and find out what other options you may have.
Remember, coronavirus mortgage considerations are intended as temporary measures. You’re unlikely to see options like those described above after the crisis is over.
Still Can’t Afford Mortgage Payments?
The coronavirus will end and many people will get back to work, but some will still struggle to make mortgage payments. If you end up in this situation, there are resources that can help.
The US Department of Housing and Urban Development has approved counseling agencies across the United States. These counselors have been active since before virus mortgage forbearance was in place, and they’ll likely be active long after. If you expect long-term difficulty with your mortgage, consider looking for a counselor in your area.
There are private programs that can help as well. EasyKnock, for example, has a sale-leaseback program known as Sell and Stay that lets homeowners sell their properties and remain in place as tenants.
With Sell and Stay, you can rent your property as long as you’d like, provided you continue to pay an agreed-upon rent. When you’re ready, you can repurchase your home or move. Meanwhile, you can check things like mortgage payments and property tax off your worry list.
These are difficult times, and the only way to get through them is to work together and take advantage of available options. Stay healthy, take care of yourself and your family, and weather the storm with an appreciation for the home that you love.