BREAKING NEWS: Mortgage Forbearance During Coronavirus Pandemic
The coronavirus pandemic has hit the Nation hard in various ways.
- The pandemic has devastated the U.S. economy literally overnight
- In just a period of several weeks, the U.S. economy was at a standstill
- Non-essential businesses were ordered closed and/or were limited on how they can operate
- Social distancing guidelines were implemented
- The restaurant and hospitality industry is the country’s second-largest employer
- Restaurants and bars were only allowed to take out orders only
- This has devastated the restaurant industry
- Large chain restaurants like the Cheesecake Factory and other big-name stores suspended paying rent
- The ripple effect on other industries was devastating
- Real estate owners were hard hit due to both individual and commercial tenants not paying rent
- Unemployment claims for the past four weeks topped 26 million Americans
- Unemployment rates are expected to rise in the coming weeks
A major economic and housing collapse far greater than the 2008 Great Recession was right around the corner. Analysts and housing economists were expecting a flood of foreclosure far greater than the 2008 housing crisis.
Mortgage Forbearance During Coronavirus Pandemic On Government Backed-Loans To Avoid Flood Of Foreclosure
The U.S. Department of Labor is expecting U.S. unemployment rates to surpass 20%.
- The economic shutdown is crushing the once strong U.S. economy
- The longer the economy remains closed, the longer it will take for the economy to return to normalcy
- Over 50% of qualified and pre-approved homebuyers have suspended their home buying process
- The country was in a panic mode
- Many unemployed homeowners were fearing facing foreclosure
- The Trump Administration and mortgage companies knew that if the pandemic continues and unemployment numbers keep increasing, a major housing crisis will be imminent
- Far worse than the 2008 housing crisis
- The Trump Administration foresaw this and acted quickly
- President Trump agreed the government needed to intervene and pass the coronavirus economic stimulus package in several phases
- Included in phase three of the stimulus package was a relief for homeowners to qualify for forbearance if they have been impacted due to the pandemic
- What this means is homeowners who are financially impacted due to the economic crisis can get up to 12 months reprieve from paying their mortgage payments
In this article, we will discuss and cover going through Mortgage Forbearance During Coronavirus Pandemic.
Government Mortgage Forbearance During Coronavirus Pandemic Program
President Trump and his administration understand how pandemic can affect the housing market.
- Look back to 2008
- The Great Recession of 2008 has devastated the housing and mortgage industry
- The majority of homeowners have mortgages
- A home is one’s largest investment
- If a homeowner has no income coming in, they cannot make their mortgage payments
- If the lender does not receive the minimum monthly payments by homeowners, they will start foreclosure proceedings
- Due to the devastating effects of the 2008 housing crisis, President Trump included a government mortgage forbearance program for homeowners affected by the economic crisis due to the pandemic
- Any lender who has a federally-backed government mortgage loan is permitted to offer financially stressed homeowners forbearance for at least six months
- The six months can be extended to twelve months if it takes homeowners longer to get back on their feet
- Over 25% of homeowners are expected to take advantage of the government mortgage forbearance mortgage program
- Once the forbearance has expired, lenders will work on a repayment plan if they cannot pay the full amount due
Homeowners need to realize that forbearance is not forgiveness. All skipped payments, including accrued interest and missed escrow payments, need to get repaid.
Income Changes During Mortgage Forbearance
Over 26 million Americans have filed unemployment claims in the past 4 weeks.
- Economists expect higher unemployment numbers in the coming weeks
- One important factor to be considered with the 2020 coronavirus pandemic recession is the U.S. economy was doing great and was stronger than ever prior to the pandemic
- This pandemic was caused by a global health crisis and not a financial crisis
- Many analysts expect the economy to recover
- How fast can we get back to a strong economy depends on how long the economy will be shut down
- As time passes, the shut down of the economy is having more of a devastating impact
- A large percentage of businesses that have been shut down will never reopen
- Many already filed for bankruptcy
- Unemployment rates can reach over 20% according to the U.S. Department of Labor
- Many workers may not get a new job that was paying the same as the prior job
- So what happens when the forbearance term is over?
- What if the homeowner’s income has drastically declined?
- Does this mean that the homeowner needs to lose their home?
In the next paragraph, we will discuss the difference between mortgage forbearance versus a loan modification.
Understanding The Difference Between Forbearance Versus A Loan Modification
The last thing a lender wants to do is to foreclose on a home. Even though lenders are in the first-lien position, they rather work out a restructure and/or modification of a mortgage than foreclose. Forbearance is not forgiveness. However, a loan modification is. Many homeowners under forbearance can qualify for a loan modification after the forbearance term is over. To be eligible for a loan modification, the homeowner needs to have a substantial loss of income. The homeowner needs to be employed. Financial documents need to be reviewed by the lender. The lender will try to make the mortgage payment affordable with the household income versus expenses of the homeowner. The missed payments can be rolled back to the balance of the loan. Or it may be forgiven. The interest rate can be reduced and the term of the mortgage extended. Part of the loan balance can also be discounted. All loan modifications are individualized. There are no set loan modification guidelines. Each lender will work out the loan modification on a one-to-one basis with their borrowers. A trial period is normally required prior to the mortgage loan modification becoming finalized.
April 29, 2020 - 4 min read