The $2.3 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act provides mortgage and foreclosure relief to Americans suffering financial hardship in the wake of the coronavirus pandemic. Here are the answers to some of the most frequently asked questions on this topic.
1. WHAT DOES THE CARES ACT PROVIDE FOR MORTGAGE RELIEF?
The CARES Act offers various types of mortgage relief, including giving homeowners the right to request two periods of forbearance of mortgage payments if they are experiencing financial difficulty because of the pandemic. These periods collectively total 360 days of non-payment. During a forbearance period, no additional fees, interest, or penalties that may be assessed for the forbearance.
This mortgage relief is provided to borrowers who have government-backed mortgages including those insured by:
• Fannie Mae
• Freddie Mac
• Veterans Administration
Multifamily property owners who were current on their federally-backed mortgages on February 1, 2020 may request forbearance for 30 days and possible extensions that equal another 90 days. If you receive a forbearance, you cannot evict a tenant from your property. The CARES Act also provides for a foreclosure moratorium.
2. WHAT IS A FORBEARANCE?
A forbearance temporarily suspends a debt obligation. Payments will still need to be paid on the debt, but they are delayed.
3. WHAT IS A FORECLOSURE MORATORIUM?
The CARES Act establishes a foreclosure moratorium for 60 days, commencing on March 18, 2020. During this moratorium, servicers of a federally backed mortgage are not allowed to initiate any foreclosure process unless the property is vacant or has been abandoned.
4. DO I QUALIFY FOR A FORECLOSURE MORATORIUM?
If you have a mortgage that is insured by the federal government, the foreclosure moratorium will automatically apply as long as you have not vacated the property or abandoned it. You do not need to take any further action.
5. HOW DO I GET CARES ACT MORTGAGE RELIEF?
Any forbearance will not be automatic. You will need to contact your mortgage service provider directly. Many loan service providers are experiencing a high number of requests of this nature, so it may be initially difficult to make contact with the provider. You can request an initial forbearance for up to 180 days if the pandemic has caused you to suffer financial hardship. You can also request an extension for up to an additional 180 days.
6. WHAT QUESTIONS WILL I NEED TO BE ABLE TO ANSWERTO OBTAIN MORTGAGE RELIEF IF I AM ELIGIBLE?
While you will not be required to provide additional documentation to be eligible for a forbearance, you should be prepared to answer certain questions from your mortgage service provider, including:
• How has the coronavirus affected your ability to make payments?
• Do you anticipate this problem to be permanent or temporary?
• What are your current income, expenses, and assets?
• Are you a service member who is subject to a permanent change of station order?
7. ARE THERE ANY RED FLAGS I SHOULD LOOK OUT FOR?
If you are experiencing financial hardship and would like to look for options to ease your mortgage obligation, it is important that you carefully evaluate your options and watch out for scams. Some red flags to look out for include:
A). ASSURANCES NOT IN WRITING
You should get your agreement in writing. The representative you speak with may not remember the promises he or she made to you. Without a written agreement, you may find yourself a party to a foreclosure action as your forbearance period is completely ignored. Ask your service provider to give you written documentation that explains the details of your agreement.
B). HIGH FEES
The CARES Act specifically prohibits additional fees being assessed to mortgages due to a forbearance. Carefully review the documentation to ensure that you are not charged a high upfront fee.
C). BALLOON PAYMENTS
Watch out for a large balloon payment that applies immediately after the forbearance period. You may not be in a position to pay for six months or a year's worth of suspended payments all at one time. Even though borrowers can offer a balloon payment as an option, there is no requirement that you accept this option. Instead, try to negotiate repayment options that will work for you and your budget.
D). SCAM TACTICS
Also, watch out for red flags that you may be dealing with a scammer, such as:
• The representative reaches out to you.
• The representative promises to secure a loan modification for you.
• You are asked to sign papers you do not understand.
• You are asked to sign the deed over.
• You are instructed to make payments to another entity than your service provider.
• You are asked for credit card numbers.
8. HOW DO I REPAY MY FORBEARANCE?
The payments that were suspended will need to be repaid. You may have many options to pay these delayed payments. Your options depend on who your loan service provider is and what your agreement with it is.
Some options for repaying your suspended payments include:
• Adding to the length of your loan. For example, if you have a mortgage for 10 years and have a forbearance of four months, your new arrangement may be to have a mortgage for 10 years and four months.
• Amortizing the balance over the life of the loan. In this scenario, you would have a slightly larger monthly payment once your payments resume. You would pay your regular mortgage payment, plus a little more toward the missed payments.
• Amortizing the balance over a limited duration. In this situation, you would pay more for a certain number of months to catch up on your payments.
•Entering into a repayment plan. For example, you may agree to repay past due amounts within six months after the forbearance ends.
• Paying a balloon payment. You may pay a lump-sum once your forbearance ends or at the end of your loan. If you have a government-backed mortgage, you are not required to make a balloon payment.
You have the right to request information on who owns the mortgage to determine what relief options may be available to you. Your loan service provider must respond to this request within ten business days.
9. WHAT INFORMATION DO I NEED TO KEEP TRACK OF IF I GET MORTGAGE RELIEF?
If you do receive a forbearance or other mortgage relief, take steps to protect your interests. Keep information in an organized location and take the following steps to protect yourself:
• Keep your new agreement in case your mortgage statement contains an error.
• Review your monthly mortgage statement to check for any potential errors.
• Stop auto-debit for your mortgage. Remove your payment information so that the amount is not automatically taken out of your account while you are in forbearance.
• Continue to pay your property taxes and insurance.
• Contact your service provider once your income is restored to resume making your payments.
• Monitor your credit to check for any errors.
10. HOW WILL CARES ACT MORTGAGE RELIEF AFFECT MY CREDIT?
Another aspect of the CARES Act temporarily amends the Fair Credit Reporting Act so that an accommodation that a consumer receives from the lender will be reported as “current” on the consumer's credit report if the consumer experiences financial hardship due to the pandemic, enters into a hardship provision with the lender, and follows the terms of the agreement.
11. ARE THERE ADDITIONAL FORMS OF RELIEF UNDER A FREDDIE MAC OR FANNIE MAY LOAN?
You may be able to receive a loan modification that lowers your payments or keeps the payments the same after your forbearance. Contact your loan service provider to explore all available options.
12. ARE THERE ANY PROTECTIONS UNDER THE CARES ACT FOR RENTERS?
The CARES Act also prevents landlords with federally backed mortgages from evicting tenants for 120 days from March 27, 2020. Additionally, they cannot charge fees or penalties because of non-payment of rent during this period.
13. WHAT OTHER OPTIONS ARE THERE FOR MORTGAGE RELIEF?
If you do not have a federally-backed mortgage, you can still check with your mortgage service provider to see if you can receive a forbearance or other mortgage relief. Many states are offering additional mortgage relief. You may also be able to take advantage of repayment options, such as entering into a repayment plan to catch up on your mortgage over time or modifying your loan so that you can reduce your monthly payment. Refinancing your mortgage may also be another option.
14. CAN I REFINANCE MY MORTGAGE?
You may be able to refinance your mortgage to obtain more favorable terms. With interest rates at historic lows, it may be a good time to lock in a better rate. However, the pandemic has also created a mortgage crisis because so many people are struggling to keep up their payments, so borrowing terms may be stricter. You may need a higher credit score or a larger down payment than you may have been required to have in the past.
15. CAN I GET A LOAN MODIFICATION?
A loan modification permanently changes the terms of your mortgage. The change may include the
• Type of loan.
• Duration of loan.
• Interest rate.
• Payment amount.
A loan modification often results in the property owner enjoying a more affordable payment. If a loan modification is achieved, you can resolve your delinquency status with your service provider and get a fresh start. While a loan modification may harm your credit, it is not as problematic to your credit as having a foreclosure.
By modifying your loan, you can stay in your home and potentially avoid the foreclosure process if you have recently suffered a financial hardship. However, your mortgage service provider will need to agree to modify your loan.
When requesting a loan modification, you should have the following documents:
• Your mortgage statements.
• Other statements showing your other debt payments and expenses.
• Income documentation, such as pay stubs and income tax returns.
• Documentation that shows you are suffering financial hardship.
Loan modifications are not specifically provided for under the CARES Act, so be aware that you may be charged fees for this service, which is an independent agreement between you and your mortgage service provider.
16. WHERE CAN I GET MORE INFORMATION?
If you would like to explore your options for mortgage relief, you can contact your loan service provider. However, it is important to acknowledge that your loan service provider's interests and yours may not be aligned, so you may want additional help. You may wish to speak with a HUD-approved housing counselor, a credit counselor from a reputable credit counseling organization, or a consumer rights lawyer.
This blog is intended for information purposes only and does not establish legal representation or financial guidance.