As the COVID-19 pandemic enters a new month and the current stay-at-home orders remain in place, many homeowners may be facing the challenge of making their next mortgage payment while being unemployed. A recent National Association of Realtors® study estimated that 40% of Pennsylvanian homeowners will struggle in making their mortgage payment.
Although the real estate industry is shut down, Realtors® are still able to remain in contact with their clients. You may want to ensure they understand their options if they are unable to make their mortgage payment.
According to the Consumer Financial Protection Board, the Coronavirus Aid, Relief and Economic Security (CARES) Act created two protections for homeowners with federally backed mortgages: a moratorium on foreclosures for 60 days after March 18; and the right to request forbearance for up to 180 days if the coronavirus pandemic caused financial hardship. An additional 180-day extension may also be requested.
“If you are struggling financially because of the COVID-19 virus, you do have some options,” said Bob Wexler, vice president of the Mortgage Bankers Association of Greater Philadelphia and vice president of Allied Mortgage Group. His recommended first step is to call the mortgage servicer using the contact information on the monthly mortgage statement. Since lenders are also working with reduced staffing, he recommends checking their website for current information and contact options.
Among the questions he suggests borrowers ask are:
- If I am able to resume making my normal monthly payment, but I can’t repay the entire missed amount immediately, what other options might be available?
- Will my subsequent monthly payments be higher for a period of time to make up the deferred amount? What if I can’t afford a higher payment?
- Can the loan term be extended so that missed payments are added to the end of my mortgage?
- What if I won’t be able to go back to making my regular monthly payment?
There are no additional fees, penalties or additional interest beyond scheduled amounts added to your account, according to the CFBP. No additional documentation is required other than the claim of pandemic-related financial hardship. Borrowers will not be reported to the credit bureaus for making late payments.
It will be important for your clients to understand that forbearance is not forgiveness. It is a pause or reduction of mortgage payments for a limited period to allow the homeowner to regain their financial footing. Repayment of missed or reduced payments will have to be made in the future
“Missed payments do not have to be paid back in a lump sum at the end of the forbearance period,” said Wexler, noting that there are many misconceptions about this. “Work with your lender or servicer to find the best option.”
If taxes, insurance or condo fees are paid separately from the monthly mortgage payment, those must continue to be paid, he said. He advised homeowners to check with their township or insurance companies about their pandemic policies.
Wexler said the CARES Act forbearance only applies to federally backed mortgages including those from the U.S. departments of Housing and Urban Renewal, Agriculture and Veterans Affairs. Federal Housing Administration, Fannie Mae and Freddie Mac are also covered. Consumers can check many of these agency’s websites or call them to determine if they hold their mortgage.
Borrowers with mortgages not covered by the CARES Act should contact their loan servicer to identify alternatives that may be available. The PA CARE Package, launched by Pennsylvania Attorney Josh Shapiro, provides additional protections to state residents facing financial hardship including a minimum of a 90-day grace period for mortgages not covered by the federal CARES Act.
As Pennsylvanians go back to work after starting a COVID-19 forbearance and can make regular payments again, they should do so, even if it’s a partial payment, as it reduces the amount owed at the end of the forbearance period.
“You are not required to use the full term,” Wexler said. “It is more beneficial for you to begin making your regular payments as soon as you can reasonably do so. Just contact your servicer and together you can work out a good plan.”