Foreclosure During Pandemic For Unemployed Homeowners
Bankruptcy And Foreclosure During Pandemic Expected To Soar
Avoiding Foreclosure During Pandemic
One of the main reasons why homeowners go through a mortgage foreclosure is because they have a financial disruption due to a job and/or business loss. The coronavirus pandemic devasted the U.S. economy. The U.S. economy has been shut down for the past 7 weeks. Millions of businesses closed. Over 30 million Americans have filed unemployment claims in the past 7 weeks.
Many experts and analysts are expecting foreclosure and bankruptcy rates to skyrocket like never before. To avoid another housing crash like the 2008 financial crisis, President Trump and Congress passed the coronavirus stimulus economic package. Included in the stimulus economic package is for borrowers with federally-backed mortgages to qualify for mortgage forbearance. What this means is any homeowners with an FHA, VA, USDA, Fannie Mae, Freddie Mac backed-mortgages are eligible to miss their mortgage payments for up to six months. However, borrowers can extend the forbearance for an additional six-month if the initial 6-month are not long enough. Forbearance is not mortgage payment forgiveness. The missed mortgage payments need to be paid back once the forbearance period is over. Many lenders will spread the amount due over a course of six to twelve months.
Banks, lawmakers, and regulators are working together to keep the coronavirus pandemic from turning into the next housing crisis by rolling out a number of assistance programs aimed at giving Americans a break on their mortgages. But it can be confusing to navigate what relief you’re eligible for and how these programs may apply to your situation. Congress enacted the CARES Act, which gave two major types of relief to homeowners with federally backed loans. First, it blocks lenders from starting foreclosure proceedings on federally backed loans for at least 60 days starting on March 18. Second, it gives homeowners who are experiencing financial hardships because of COVID-19 the option to request up to 180 days of forbearance on their mortgage. That forbearance allows you to pause or reduce your mortgage payments, but it’s not loan forgiveness. If, after six months, you’re still experiencing financial difficulties, you can request up to another 180 days. Those with mortgages owned by private lenders, such as banks, are not included in this relief. However, some states and banks have also rolled out relief for homeowners. California reached a deal with a number of big banks to provide affected homeowners with a 90-day grace period for all mortgage payments and suspend foreclosures. Connecticut reached a similar agreement and has a list of participating banks. New York Gov. Andrew Cuomo said last month that the state was “going to have the banks and financial institutions waive mortgage payments for 90 days.” The state’s Department of Financial Services sent guidance urging banks and loan servicers to offer 90-day forbearance on mortgage payments. The options for relief do vary from agency to agency. While the CARES Act provides a certain degree of uniformity at the federal level, there still may be differences in how the relief is structured.
Qualifying For Forbearance During Pandemic
Qualifying for forbearance during pandemic has been streamlined and should be easy for unemployed homeowners. Per the coronavirus stimulus package, only federally-backed mortgages qualify. What this means is a loan that is guaranteed, insured, and backed by FHA, VA, USDA, Fannie Mae, Freddie Mac should qualify. Find out who owns your home loans and contact their loan servicer.
The mortgage servicer is the agency that collects mortgage payments from borrowers and pays them to the investor. The mortgage servicer is also responsible to distribute the escrow and pay property taxes and insurance.
Piotr Bieda of Gustan Cho Associates said the following:
How do you know if you have a federally backed mortgage? You can check your mortgage documents or call your loan servicer (who you make payments to) and ask. They are required to give you this information. Fannie Mae and Freddie Mac also have loan lookup tools that can help you quickly determine if either of these major lenders owns your loan.
For federally-backed mortgages, the mortgage loans made by the following agencies are eligible for relief under the CARES Act:
- Federal Housing Administration
- Department of Housing and Urban Development
- Department of Agriculture
- Department of Veterans Affairs
- Freddie Mac
- Fannie Mae
Just under 70% of all residential loans in the U.S. are mortgage loans that are federally-backed by one of the agencies that are listed above (FHA, VA, USDA, Fannie Mae, Freddie Mac).
What Happens For Non-Federally-Backed Mortgages
Whether the mortgage is backed by FHA, VA, USDA, FANNIE MAE, FREDDIE MAC, most mortgage servicers will grant forbearance to homeowners. This also holds true for non-owner-occupant properties such as rental properties. Lenders do not want to foreclose. They are not in the business to own properties.
Lenders will do everything possible to help their borrowers do a workout where they have the ability to repay their mortgage. Remember that forbearance is not forgiveness. The missed payments need to be paid. Lenders will work out spreading the balance of missed payments over a six to twelve-month payment plan once the forbearance period is over. Forbearance will only work if the borrower will return to work soon. If the borrower remains unemployed for a long period of time, the lender may proceed with foreclosure proceedings.