What your bank or home loan servicer might not be telling you.
New federal coronavirus relief measures enable most homeowners with mortgage loans to put off making their mortgage payments for a full year. And once we get back to normal, those borrowers will have the option to tack those missed payments to the end of their loan terms. Best of all your credit won’t suffer. Some of the nation’s largest banks are only offering borrowers the opportunity to skip three months of payments and saying those payments will become due as a lump sum at the end of those three months, along with the next month’s payment. Those customers were given only part of the story.
The federal CARES Act gives borrowers of federally backed loans the right to contact their mortgage loan servicer and demand what’s called forbearance — in other words, skipping their mortgage payments — simply by attesting that the coronavirus crisis has resulted in financial hardship. No documentation of the hardship is required, regardless of how many questions your servicer asks about your financial situation.
Mortgage servicers, however, are allowed to approve forbearance periods for 90 days at a time. Before those 90 days are over, customers need to reach out again if they need another 90 days, and so on, up to a year. At the end of that forbearance period, however long it is, when you are ready to resume making monthly payments, servicers of federally backed loans must give customers several repayment options, including repaying the missed payments as a lump sum or spreading the payments over time, to be paid off in addition to regular monthly payments. In some cases, borrowers may choose to refinance their loans and reduce their monthly payments. Another option, which many borrowers will choose because it requires no additional out-of-pocket expense, will be to add the entire missed amount to the end of the loan, extending the loan by the number of missed months.
It’s important to note that these requirements apply only to federally backed loans. But chances are better than not that you have one. You might think your loan is owned by the bank, credit union or mortgage servicing company that collects your payments and pays your taxes and insurance. In fact, the Urban Institute, a nonprofit research organization, estimates that about 70 percent of home loans in the United States — about 33.4 million — are actually owned by an agency backed or controlled by the federal government. These include Fannie Mae and Freddie Mac, government-sponsored enterprises that back a combined 28 million loans. The others are backed by the U.S. Department of Housing and Urban Development’s Federal Housing Administration (FHA or HUD loans, and reverse mortgages), the Veterans Administration and the Department of Agriculture (USDA loans).
There are a number of ways to find out which agency owns your loan. The easiest is to call the company where you send your loan payments and ask. Online lookup tools are available to find out whether your loan is owned by Fannie Mae or Freddie Mac. For Fannie Mae, go to knowyouroptions.com/loanlookup. For Freddie Mac, go to ww3.freddiemac.com/loanlookup. In addition to granting up to a year of forbearance, with no penalties, fees or additional interest, the government has forbidden any foreclosure actions against borrowers of those loans for 60 days beginning March 18.
Providing borrowers the option to add the missed payments to the end of the loan was specifically dictated to loan servicers by the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac. The CARES Act doesn’t specify how mortgage servicers should handle the escrowed portion — property taxes and insurance — of mortgage payments. Some servicers are interpreting the law to require forbearance for those payments as well, while others have already addressed the issue. Borrowers who choose not to escrow their taxes and insurance payments must deal directly with taxing authorities and insurers. Borrowers must contact their mortgage services to obtain any available relief. It won’t be granted automatically if you simply stop paying.
For the 30 percent of home loans that are not federally guaranteed — or roughly 14.6 million — no forbearance relief or repayment options are required. But many banks are offering similar relief at the urging of federal and state authorities. Bank of America, for example, has offered its own borrower’s three-month forbearance terms and approval to extend the loans to the end of their terms upfront.
Click here for a copy of the final CARES Act legislation passed by Congress and signed by the president. On page 105 of the .pdf is the language requiring servicers to provide up to a year of forbearance if a borrower attests he or she is suffering a financial hardship caused by Coronavirus. The language also forbids servicers from requiring additional documentation.
Click on these links for guidance from Fannie Mae and Freddie Mac forbidding negative credit reporting during the forbearance period, and also requiring loan extensions following the forbearance.
If you need any assistance, please don’t hesitate to call us. We’re taking calls from clients and new customers, but not seeing them in person. Call 772.408.6969 to set up a consultation.