How new legislation, CARES Act will affect mortgages on your home during COVID-19 pandemic
The stimulus cash will soon be flowing into tens of millions of bank accounts. But your best bet might be to look at that extra $1,200 or more as nothing but a safety cushion and, perhaps, a mortgage payment.
If you don’t need the money to pay the mortgage now, you might in the weeks ahead if paychecks get even slimmer during a recession.
While many economists continue to maintain that the recession isn’t likely to be as devastating as the lengthy 2008-09 downfall, many people won’t recover quickly. And many will lose their homes.
The April mortgage payment is viewed as being officially late on April 15, according to the Mortgage Bankers Association. And hundreds of thousands of homeowners who lost jobs during the pandemic are already scrambling to seek some sort of mortgage relief.
Foreclosures likely to trend up in 2021
Mark Zandi, chief economist at Moody’s, is forecasting the U.S. recession, which many say began in March, will likely end in July.
“Any recovery will remain weak until there is a vaccine or effective treatment for the virus,” Zandi said.
Home foreclosures will increase, Zandi said but he does not expect anything close to what homeowners experienced in the financial crisis in 2008-09.
“Some 7 million people lost their homes in the financial crisis, and I expect ultimately closer to 2 million in this crisis,” Zandi said. There were just over 500,000 foreclosures started in 2019.
“The foreclosures will be limited over the next six to 12 months by the various forbearance policies of the FHA, Fannie Mae and Freddie Mac and more stable house prices, but will increase substantially beginning this time next year,” he said.
Zandi said the most important thing policy makers can do now is provide financial support to mortgage servicers, many of whom are set to fail if they don’t get some help. The government needs to figure out a way, he said, to advance principal and interest to mortgage investors even if they don’t receive payments from homeowners.
Servicing companies are obligated to advance payments to investors in securities markets, even when a homeowner misses a payment.
“Many are small institutions that won’t survive for very long,” Zandi said. “If they fail, then mortgage servicing will become a mess and homeowners trying to receive forbearance will be lost in Alice in Wonderland.”
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We don’t know how long millions of jobs will be “put on pause,” as some economists say, during a noble attempt to shut things down during a pandemic to save lives.
How soon will your wallet really recover?
Coronavirus mortgage relief helps, but dig into details
Like many things today, we are hearing more about lenders and mortgage servicers offering “coronavirus mortgage relief” programs. But we’re also discovering that some early efforts aren’t straightforward and could even trip you up somewhere down the line in the months ahead.
Lenders might offer to let you postpone 90 days of mortgage payments through a forbearance agreement. But the debt isn’t forgiven and the interest keeps building. In some cases, consumers report that some banks have been telling them that they’d be required to repay the money in a lump sum when the three months are up. Who, really, could afford to do that?
Or a lender may offer to let you pay a higher monthly mortgage payment in the future at the forbearance agreement. But how much extra are we talking about here? Or the lender might be able to tack on more payments at the end of the mortgage. You have to fully understand what might be allowed.
Before you make any such moves, you’ve got to protect yourself first, do your research and double check anything a lender or mortgage servicer is telling you.
Requests for mortgage relief are likely to “skyrocket at an unsustainable pace in the coming weeks,” according to a statement by Mike Fratantoni, senior vice president and chief economist for the Mortgage Bankers Association.
Forbearance requests grew by 1,270% between the week of March 2 and the week of March 16, and another 1,896% between the week of March 16 and the week of March 30, according to the group’s data.
The total number of loans in forbearance grew from 0.25% to 2.66% from March 2 to April 1, according to the real estate finance industry trade group.
Kathy Kraninger, director of the Consumer Financial Protection Bureau, told the Detroit Free Press, part of the USA TODAY Network, in a phone interview that the federal agency is gathering data now to analyze what kind of servicing programs are being offered to borrowers – including the typical length of time being offered for forbearance and what the repayment schedules will look like once people need to resume paying their mortgages.
The mortgage debt relief programs themselves are designed to deal with the lost pay associated temporarily with the shuttering of restaurants, shopping malls and factories to combat the spread of COVID-19.
“You really do have people in very different positions,” Kraninger said.
So what works well for one person’s situation might not work for another.
Offering borrowers the chance to delay mortgage payments for up to 180 days in some cases is an unprecedented accommodation by lenders, Kraninger said, given that relief is granted simply “based on the individual’s assertion that they are in a financial hardship associated with the coronavirus pandemic.”
No documentation – repeat, no documentation – is required to request a coronavirus-related deferral of mortgage payments. Remember, you’re not waiving any payments or seeing your mortgage debt forgiven here. You’ll need to pay up in the future.
If you know you can’t pay now, review all your options
Even so, Kraninger acknowledged that borrowers need to do their homework and carefully understand the specific options and repayment terms involved.
“If they can pay something, that’s something they should work out with the servicer,” Kraninger said.
“That’s why we’re saying call the servicer because there is flexibility here. Some payment is going to be better than making no payment.”
You cannot simply send $1,000 one month when your mortgage is $2,000 a month, though, because that’s going to be viewed as an incomplete payment. You need to work out an agreement up front.
Going forward, Kraninger said lenders and servicers have a lot of opportunity to work with the consumer to make sure an offer will make sense for that individual.
Consumers can complain about servicers or lenders at www.consumerfinance.gov.
“If you’re experiencing a problem, we are here,” Kraninger said.
The Consumer Financial Protection Bureau was created after the financial fiasco of 2008-09 and part of the Dodd-Frank Wall Street reform law passed by Congress in 2010. The agency exists to promote fairness and transparency for mortgages, credit cards and other consumer financial products and services.
On April 6, the CFPB also posted information online to offer consumers a guide to understanding coronavirus mortgage relief options.
“If you can pay your mortgage, pay your mortgage,” the site says.
If not, contact your mortgage servicer immediately.
The Coronavirus Aid, Relief and Economic Security Act protects homeowners with federally backed mortgages by offering a foreclosure moratorium and giving homeowners a right to forbearance if they are experiencing a financial hardship because of the COVID-19 emergency.
First, your lender or loan servicer may not foreclose on you for 60 days after March 18. Specifically, the CARES Act prohibits lenders and servicers from beginning a judicial or non-judicial foreclosure against you, or from finalizing a foreclosure judgment or sale, during this period of time.
If you don’t have a federally backed mortgage, you still may have relief options through your mortgage servicer or from your state.
Bank of America, for example, notes that its customers can defer making mortgage payments online at BankofAmerica.com/coronavirus.
As of April 1, Bank of America had deferred mortgage payments for more than 50,000 homeowners, according to Bill Halldin, a Bank of America spokesperson.
Mortgages aren’t the only bills that cash-strapped consumers are juggling these days, of course. So if you have trouble with a car loan or a credit card, you’d want to talk with your lender, too.
Many, including Kraninger, maintain that the U.S. economy was in strong shape before the pandemic hit and we might recover more easily as a result.
Everyone, of course, faces different bills and a string of possible options. But preparing for the possibility that the economic shutdown could drag out even a few weeks into May seems prudent.
Jumping at your first chance to spend that stimulus cash isn’t the best way to go. Ditto for jumping at any chance to delay paying your bills before you can document what’s really being offered.
Follow Detroit Free Press reporter Susan Tompor on Twitter @tompor.
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