Mortgage Forbearance During Pandemic Mortgage Crisis

Mortgage Forbearance During Pandemic Mortgage Crisis

Gustan Cho Associates are mortgage brokers licensed in 48 states
BREAKING NEWS: Mortgage Forbearance During Pandemic Mortgage Crisis

How Does Mortgage Forbearance During Pandemic Work:

  • The COVID-19 pandemic has halted the US economy
  • The pandemic also has turned the mortgage industry upside down where it is affecting mortgage borrowers
  • Included in the phase three $2 trillion dollars coronavirus pandemic economic package is the ability of homeowners to be eligible for forbearance for six months and renewable up to 12 months
  • Auto and federally-backed student loans are also available for forbearance
  • The government is expected to pump more than $6 trillion in stimulus money to keep the economy from tanking further than it already has
  • The economic crisis was caused by the coronavirus and not the economy
  • The coronavirus pandemic is a global pandemic that started in Wuhan, China in December 2019

The US economy went from being the strongest ever to the worst in a matter of a few weeks.

Understanding Forbearance Mortgage Process By Lenders

Forbearance is when a lender will let you missed monthly mortgage payments for a specific period of time.

  • During the forbearance period, the interest still accrues
  • Once the forbearance term is over, all missed mortgage payments are due at once
  • However, lenders can set up a period where the missed payments can be spread out
  • The spread-out missed payments need to be paid along with the regular mortgage payments plus escrow payments
  • The coronavirus pandemic has devastated the U.S. economy
  • Over 26 million Americans have filed unemployment claims over the past four weeks
  • Millions of small businesses have closed
  • Many of the closed businesses may never reopen while those fortunate enough to reopen, it will take time for these businesses to return to normalcy
  • Mortgage forbearance is not mortgage payment forgiveness
  • The missed payments need to be paid back
  • Lenders normally want the full missed payments once the forbearance term expires. But how can borrowers come up with that lump sum at once
  • Depending on the lender, the missed payments can be worked out over a certain period of time
  • Borrowers need to realize that the mortgage payments after forbearance will be higher than the regularly scheduled payment
  • This is because the payment plan on the missed payment will be on top of the regularly scheduled mortgage payment
  • This may create a problem if the borrower’s income is not the same as it was prior to the start of the forbearance

There are instances where the borrower will make less money than they did prior to the forbearance. If the mortgage payments after the forbearance period are too much, the borrower can request a loan modification. A loan modification is a restructuring of the current loan.

Understanding Forbearance And How It Works

Industry experts estimate an estimated 25% of homeowners will have trouble making their mortgage payments due to the coronavirus pandemic impact on American wage earners and businesses.

  • Some homeowners fully understanding forbearance still want to plug away with making their monthly scheduled mortgage payments without seeking forbearance
  • However, nobody knows the actual damage of the pandemic and when how the economy will recover
  • Dozens of states are still in a stay at home order by their state governors
  • Many state governors issued a state of emergency for all non-essential businesses and workers to stay at home
  • There are workers who have lost their jobs permanently
  • Others may take extreme wage reductions when the economy opens
  • Many closed businesses may never reopen
  • Most economists are predicting the coronavirus recession is going to be worse than the 2008 financial crisis and so is the unemployment rate
  • Bankruptcy and foreclosure rates are expected to skyrocket
  • The spread by COVID-19 has left many homeowners scrambling to figure out how to pay their mortgages
  • Many homeowners thought it was a gift from God when they found out about the forbearance mortgage program until they researched it more

The forbearance system is flawed. How are homeowners expected to come up with a large sum of missed payments at once when the term is over. Even if the aggregate missed payments are spread out over a year. The interest is accrued and not forgiven.

Steps To Qualifying For Mortgage Forbearance

What are the steps to qualify for forbearance mortgage

The coronavirus pandemic economic meltdown has affected the housing markets nationwide.

  • In many areas like New York, home prices have dropped dramatically
  • Homeowners affected by the economic impact of the coronavirus need to contact their mortgage servicer
  • The mortgage servicer is the company you pay your mortgage payments every month
  • The process is supposed to be simple with no red tape according to the Trump Administration
  • Lenders are supposed to cooperate with borrowers and not give them a hard time

Homeowners Mortgage Forbearance During Pandemic To Avoid Massive Foreclosure

  • Any homeowners who have been laid-off from work and/or economically affected by the coronavirus pandemic are eligible for mortgage forbearance
  • Forbearance is not forgiveness
  • The homeowner needs to pay the amount in arrears after the forbearance period is over
  • The loan is not modified and the rates and term of the mortgage remains the same

In this breaking news article, we will discuss and cover Mortgage Forbearance During Pandemic Mortgage Crisis. Another important thing homeowners need to understand is the difference between forbearance and mortgage loan modification.

Understanding Mortgage Forbearance During Pandemic Mortgage Crisis

The mortgage forbearance during pandemic mortgage crisis is available to all homeowners affected by the economic crisis.

  • The CARES Act, which is the coronavirus relief law, allows homeowners who have mortgages that are backed by the federal government to be eligible for forbearance up to 12 months
  • Federally-backed mortgages are home loans owned by Fannie Mae and Freddie Mac
  • Homeowners considering taking the forbearance offer need to consider the disadvantages
  • Forbearance is not forgiveness
  • Homeowners need to pay the mortgage payments missed when the forbearance period is over

It can also affect borrowers in qualifying for a refinance and/or another mortgage at a later date.

Historic Unemployment Numbers Due To Coronavirus Economic Shutdown

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The US economy was stronger than ever prior to the coronavirus pandemic outbreak.

  • The unemployment rate was at 3.5% low, which is a 50-year low
  • Most worker’s 401k’s was up over 50% since President Trump took office in 2017
  • Housing demand was stronger than ever
  • Mortgage rates were at an all-time low
  • Then disaster struck
  • Unemployment claims hit historic highs
  • In the past 3-weeks, over 16 million Americans filed for unemployment claims
  • Americans who felt they were secure in their jobs either got laid off or got fired
  • Many businesses have shut down
  • As time passes, it seems it is unlikely for small businesses to reopen and return to business as usual
  • The mortgage and housing markets are upside down and in a state of chaos
  • Unemployment numbers are expected to skyrocket in the weeks to come
  • The federal government is launching more coronavirus economic stimulus plans in the weeks to come to do damage control to a brittle economy
  • The forbearance program for homeowners was launched to prevent a financial crisis worse than the 2008 economic meltdown

The forbearance program can help countless homeowners from foreclosure. However, homeowners who can make the regular mortgage payment, it is advised not to take the forbearance program.
Mortgage Forbearance During Pandemic On Federal-Backs Home Loans

Under the $2 trillion coronavirus stimulus package, homeowners who have federally backed mortgages, including mortgages that are owned by Fannie Mae or Freddie Mac are eligible for a six-month forbearance on their mortgages.

  • If things do not improve financially, homeowners can extend the forbearance for another six-months after the initial term expires
  • For homeowners who do not have federally-backed mortgages, countless states have their own forbearance
  • For example, New YorkNew Jersey, and California are among the jurisdictions that are allowing homeowners to request a 90-day reprieve on their payments
  • Homeowners need to realize that forbearance is not forgiveness
  • Forbearance means it is the postponement of the mortgage payment due until a later date
  • Nothing change in mortgage payment terms. Interest rates and terms remain the same

Once the forbearance period is over, the full amount that has been postponed is due. Those who cannot come up with the amount due all at once, lenders may spread the amount due in 12 monthly payments.

Forbearance During Mortgage And Housing Crisis

By law, mortgage servicers need to grant forbearance to homeowners in financial hardship with limited paperwork. Many lenders are not happy with the forbearance law.

  • Mortgage servicers are still on the hook in making principal and interest payments to investors
  • There is nothing in the $2 trillion stimulus package that helps mortgage servicers when borrowers are not paying their mortgage payments
  • Servicers also need to pay property taxes and homeowners insurance for borrowers who have escrow accounts
  • Over 25% of homeowners are expected to take advantage of the forbearance program
  • This can bankrupt many mortgage servicers

Mortgage Payments After Forbearance Period Expires

Borrowers are eligible up to 12-months forbearance due to the coronavirus pandemic economic crisis.

  • Many wonder how the repayment works
  • Will the missed payments be all due at once?
  • Will the missed payments be rolled in the back of the loan balance?
  • Will the missed mortgage payments be spread out?
  • Normally, the mortgage servicer prefers borrowers to pay the missed mortgage payments all at once
  • However, most lenders will work a payment plan where the missed payments are spread out over six to twelve months
  • If the borrower cannot pay the missed payments due to wage decrease and/or change of employment to a less paying job, then a loan modification may be necessary
  • A loan modification changes the interest rate and/or terms of the loan

There are many ways of restructuring the payments after the forbearance period is over. Lenders cannot report the mortgage payments late on your credit report during the forbearance period.

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?

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.

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