Mortgage Relief for Homeowners in the Coronavirus World: Facts and Fiction
As we all grapple with the financial effects of the global coronavirus pandemic, many homeowners are reasonably concerned about their ability to pay monthly bills. The U.S. faces mass layoffs and business closures. For most Americans, their personal residence is their most valuable asset and largest liability. With so much uncertainty regarding how and when Americans can go back to their normal lives, we just don’t know what the lasting financial effect will be, both globally and individually. Below we set forth the current landscape as it relates to mortgage relief for homeowners in the coronavirus world.
Federal officials have imposed a nationwide halt to foreclosures and evictions for the more than 30 million Americans with home mortgages that are backed by the Federal Housing Administration (“FHA”), or the two government-controlled companies, Fannie Mae and Freddie Mac. The moratoriums will last until mid-May, but could be extended beyond that date.
However, not all home mortgages are covered by the federal moratoriums. In fact, more than five million homeowners currently have mortgages that are not backed by the government.
Federally Insured Mortgages
On March 27th President Donald Trump signed the CAREs Act, which among other things, provides mortgage relief options for homeowners with FHA insured mortgages who have been impacted by COVID-19. The U.S. Department of Housing and Urban Development (“HUD”) has provided that, effective immediately, mortgage servicers must extend deferred or reduced mortgage payment options for up to six months, and must also provide an additional six months of forbearance if requested by the borrower.
Under the new guidance, the FHA has also implemented the COVID-19 National Emergency Partial Claim, an option to be used by loan servicers when the COVID-19 forbearance period ends. This program will help eligible homeowners who have been granted a forbearance to reinstate their loans by allowing the servicers to advance funds on behalf of homeowners. The funds will be advanced through an interest-free “subordinated mortgage” that the borrower does not have to pay until their first mortgage is paid off.
The current HUD guidance and foreclosure moratorium applies to single-family homes backed by the FHA, Fannie Mae and Freddie Mac. There are currently about 8.1 million active FHA backed loans, and Fannie Mae and Freddie Mac cover about half of the country’s mortgages, or an estimated 28 million borrowers.
All claims for reduction, deferral or forbearance under FHA, Fannie Mae or Freddie Mac backed loans will be handled by the mortgage servicers. Servicers of these federally back loans have been ordered to provide relief.
While most servicers will allow borrowers to apply for relief online with a few clicks and little to no financial information, keep in mind that the loan servicing industry is dealing with the same issues as the rest of the country. Servicer employees are working from home with reduced staffs, and are practicing social distancing. Most relief programs are typically approved within 10 days. Our best advice is to start online, rather than calling your servicer.
Homeowners can determine whether their loan(s) are backed by either Fannie Mae or Freddie Mac on their websites, or by clicking on the links below.
Fannie Mae: https://www.knowyouroptions.com/loanlookup
Freddie Mac: https://ww3.freddiemac.com/loanlookup/
Non-Federally Insured Mortgages
For loans not backed federally the type of relief that is available to a homeowner depends on who owns the loan. California Governor Gavin Newsom recently announced that the nation’s largest banks, including JPMorgan Chase and Wells Fargo, have voluntarily agreed to temporarily suspend residential mortgage payments for people affected by the coronavirus in the state for 90 days.
However, not all banks have agreed to do the same. For example, Bank of America has declined to sign on with the other large banks, and instead will offer mortgage relief on a case-by-case, month-by-month basis.
For non-federally backed loans, mortgages servicers are expected to allow millions of borrowers affected by the crisis to skip some mortgage payments. Still, the money will have to be paid back. It’s important to think of a deferral or a forbearance as a new or second loan — not a gift.
While it is still unclear how, when, and in what form these “new” loans will need to be repaid, some borrowers will be required to repay the entire past due amount all at once, or over several months. Currently, there is a push by regulators to encourage banks to simply extend the length of the mortgage rather than requiring them to catch up in a short period of time.
All deferral and repayment arrangements must be made through your loan servicer. We have anecdotal evidence from the experiences of some borrowers that much like with federally backed loans, servicers will allow borrowers to apply for relief online with a few clicks and little to no financial information.
Finally, once you receive your forbearance or deferral agreement, read the fine print. Make sure you understand your obligations, the timing of repayment, and any follow up you must do to ensure your loan stays current, even if temporarily deferred.
We are open and our real estate attorneys are available to assist you with remote appointments to answer any questions or to review deferral agreements once received.