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.
Last week, 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 forebearance on mortgage payments.
"The options for relief do vary from agency to agency," says Karan Kaul, a research associate in the Housing Finance Policy Center at the Urban Institute. 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.
If you are looking for help with your mortgage payments, here are five major things you need to know.
First and foremost, consumers should find out who owns their mortgage, Kaul says. Many times, homeowners work primarily with their loan servicer, but a government agency or private lender may actually own the mortgage. They simply have another company, usually a bank, service the loan by collecting payments and making sure the tax authorities, homeowners' insurance and loan repayments are taken care of.
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 federal mortgages, 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
Last year, roughly 63% of all U.S. mortgages were federally backed by government sponsored agencies, according to data from the Urban Institute. Fannie Mae and Freddie Mac alone back nearly half the nation's total mortgages, according to the Consumer Financial Protection Bureau.
There are a number of different rules and guidelines that have been issued when it comes to providing help to homeowners who have been affected by the coronavirus pandemic, says Alan Wingfield, a partner in the law firm Troutman Sanders's consumer financial services practice.
That means you'll need to pay close attention to the details of what you're eligible to receive and what you're ultimately offered. With some mortgage relief programs, you may owe all of your missed payments when the forbearance period ends, while others may instead add those missed payments to the end of the mortgage.
If you are offered assistance where all your skipped payments are due at the end of the forbearance period and you're unable to pay the balance, at that point you will need to work with your servicer to seek out lower mortgage payments or longer-term borrower assistance options such as a loan modification. Because many Americans' financial situations are in flux at the moment, you should take this process one step at a time and apply first for any available forbearance options available.
Under the CARES Act, if a homeowner requests 180 days of forbearance on their federally backed mortgage, they can get it. If you don't need that long, you can request a shorter forbearance period, says Solomon Greene, a senior fellow at the Urban Institute. That said, if you request the full 180 days, lenders cannot just unilaterally shorten it and only approve 90 days.
For those with privately-held mortgages, loan servicers have more control over the length and structure of the forbearance program. Most are currently offering 90-day forbearances, but that will vary.
"One of the most important things to remember, and the source of a lot of confusion, is that forbearance is not forgiveness," Kaul says. It's just putting a pause on your mortgage payments for a few months. And depending on the loan servicer, interest can continue to accrue during the forbearance period, which may increase the overall cost of the mortgage.
Your bank or loan servicer may use the terms deferral and forbearance interchangeably. That's because there's no real recognized difference between the two terms in the mortgage space, says Urban Institute's Sheryl Pardo. It doesn't really matter what it's called, as long as you're clear on what the terms are.
None of the mortgage payment relief options currently available are automatic, according to the National Housing Law Project. That means if you want relief, you have to contact your mortgage servicer to request assistance and find out what options are available.
When requesting mortgage assistance, you need to be persistent, Wingfield says. "You have to follow up," he says. You can't just assume that filing a request is a "one and done" task during the current pandemic. That approach is unlikely to work well in this environment. "You're going to need to be proactive," Wingfield says.
Additionally, keep an eye on news — especially updates from your loan servicers — to see if additional programs become available. You may need to re-apply in order to take advantage of any new initiatives or protections.
Once you've agreed to a relief program, ask your loan servicer to provide written documentation that confirms the details of your agreement.
You'll also need to monitor your monthly mortgage statements to make sure you don't see any errors. Under the CARES Act, those who receive mortgage forbearance will also receive credit protection, as long as they are up-to-date on their payments, says Vaasavi Unnava, a research associate at Yale University's Program on Financial Stability.
That means your loan servicer must continue to report the mortgage as "current" to the credit bureaus, so you should not experience any decline in your credit scores from missed mortgage payments. Loan servicers are barred from adding any fees, penalties or interest charges beyond the amounts scheduled or would be calculated if the borrower made timely payments.
There are millions of Americans who are likely considering requesting some kind of mortgage assistance, which means it can take a while to connect with your loan servicer. Many consumers have reported being on hold for hours before being connected with their bank's customer service representatives.
Some banks are offering online request forms, including Bank of America and BMO Harris. NHLP recommends to first file a request using these online forms if possible. "Using email or a trackable online interface is preferable so the borrower will have a record of the communications with the servicer," the nonprofit says.
Once you get in touch with the servicer, keep in mind that the customer service representative is probably working off a checklist they need to complete before offering you any assistance with your mortgage. While the CARES Act does not require homeowners to submit any documentation to get forbearance, they do need to attest "to a financial hardship caused by the COVID-19 emergency."
"It may sound stupid and harassing to the consumer, but they need to understand that until all those boxes are checked, [the rep] can't do it," Wingfield says.
And keep in mind that the person on the other end of the phone likely has a stack of applications to get through, has spent days fielding a seemingly endless stream of calls and has probably already dealt with more than one unhappy customer before taking your call.
"Don't be mean to people on the telephone," Wingfield says. "We're all people in a tough situation." Helping the institution by having your paperwork in order and treating customer service reps with respect goes a long way toward improving your own situation.