As the coronavirus pandemic continues, homeowners who are out of work or at a reduced rate of work may find it difficult to make mortgage payments. As homeowners ourselves and as the professionals who help fulfill and maintain the American dream of homeownership, we may be asked about what homeowners can do in these uncertain times.
If you, or a past client or customer, finds it difficult to make decisions about how to cover mortgage payments there are many resources and options available. For owners who are out of work, unemployment insurance (UI) or pandemic unemployment assistance (PUA) may be available. The Coronavirus Aid, Relief, and Economic Security (CARES) Act has provided an opportunity for independent contractors and self-employed individuals to apply for PUA. In some cases, between UI and PUA benefits and the additional Federal Pandemic Unemployment Compensation (FPUC) benefits, a homeowner may — in the short run — have the funding necessary to cover mortgage payments.
In the event the homeowner cannot make full mortgage payments, the CARES Act may offer potential protections and options. Homeowners with federally backed mortgages — FHA, VA, USDA, Fannie Mae and Freddie Mac — have two potential protections. First, if the homeowner is late with payments, the lender may not initiate foreclosure actions for 60 days after March 18. Second, homeowners experiencing financial hardship due to the coronavirus pandemic have the right to request a forbearance of up to 180 days, possibly with an additional 180-day period. Receiving a forbearance is not automatic, nor is it a forgiveness of debt. The homeowners must reach out to the lender or servicer to initiate the process.
How do you determine if you have a federally backed loan? Homeowners can reach out to the lender or servicer directly or visit the Consumer Financial Protection Bureau website for information at www.consumerfinance.gov/ask-cfpb/how-can-i-tell-who-owns-my-mortgage-en-214.
Other homeowners and lenders who are not covered by the CARES Act provisions may have similar options including forbearance. It is up to the homeowner to make contact with the lender to discuss criteria and options available to them. Being proactive to maintain a good working relationship with the lender or servicer is in a borrower’s best interest.
When a homeowner cannot make full payments or any payment, there are many opportunities to avoid the potential for foreclosure. What are some of the alternatives to foreclosure? A forbearance, renegotiation of payment and/or of length of loan, refinancing with a different loan or lender, the sale of the property, or a deed in lieu of foreclosure are all possibilities.
Forbearance of mortgage payments may be a positive long-term option allowing for the homeowner to remain in the home. What is forbearance? It is a process that gives the homeowner time. A homeowner may request that the mortgage servicer or lender pause or reduce payments for a period of time. This is not a forgiveness of the debt but a postponement or renegotiation of the debt obligation. For example, the homeowner may pay a portion of the mortgage now and add additional payments to the end of the loan or a lump sum when the forbearance period or loan term ends. Alternately, the homeowner and lender could renegotiate payments to cover the current shortfall over the remaining term of the loan once the homeowner can make payments. Any missed or reduced payments will still be made in the future. Again, it takes an affirmative approach to reach out to the lender to discuss options.
For loans covered by the CARES Act provisions, a homeowner has the right to request the forbearance. You must contact the lender. The good news is there will be no added fees or penalties for requesting a forbearance; the interest on the loan will accrue but no other additional fees will be imposed.
Who does the homeowner need to talk to? Start with the lender who made the loan. Alternately, it may be the loan servicer who collects the payments on the lender’s behalf. Check the mortgage statement for information about who the loan servicer is.
When should an owner call? Owners should contact their lender when they will miss a payment or make a partial payment. Lenders will be experiencing higher than normal call volumes, so owners should be prepared when they call. Have lender information, the loan number and payment amount as well as current and expected household income and expenses. Determining the homeowner’s current debts and expenses will help with negotiating what payment plan or forbearance option might be best. Each situation is different, so the plan for each homeowner may be different. Be honest to make a plan for optimal success. Again, before reaching out, prepare to be patient; there are thousands of homeowners attempting
to reach out to lenders.
In preparation, have an idea of what the owner is looking for, and have paperwork and request prepared. Put requests in writing. Given the potential for many borrowers seeking adjustments, it is best practice to create a paper trail. Ask the lender to put their responses in writing too. If the owner is not able to obtain straight answers, ask to speak to a manager. Document who the owner talks to and ask for contact information to follow up.
Ask about the terms of a repayment plan. Understand whether the plan includes a lump sum, loan term extension, payment adjustments or more; and get the plan in writing from the lender. Read the paperwork. Know what you are signing and have a second set of eyes on the documents. Then follow through. If circumstances change again, reach out to the lender again if necessary to make modifications. Taking the affirmative steps now can prevent or reduce the chances of the lender initiating a foreclosure action.
As in any crisis, there may be scams and those attempting to take advantage of homeowners. Be wary of “cash for houses” offers, and always know who you are talking to; reputable lenders will not charge fees for a forbearance. Homeowners don’t have to do it alone. Finding and working with reputable counseling agencies is another path.
For more information, visit www.consumerfinance.gov/coronavirus. Also refer to the Homeownership Preservation Foundation at 888-995-HOME or 995hope.org/the-call. The Housing and Urban Development (HUD) list of approved counselors is available at www.hud.gov/counseling. The Consumer Financial Protection Bureau (CFPB) offers a Guide to coronavirus mortgage relief options at www.consumerfinance.gov/about-us/blog/guide-coronavirus-mortgage-relief-options.
For comprehensive information from the Consumer Financial Protection Bureau, refer to www.consumerfinance.gov/coronavirus/mortgage-and-housing-assistance.
Tracy Rucka is Director of Professional Standards and Practices for the WRA.