With the onset of the COVID-19 pandemic, the finances of some homeowners have been thrown into jeopardy. If you’re having trouble paying your mortgage due to job loss or illness related to the coronavirus, assistance may be available in the form of some kind of mortgage relief.
Many federal agencies and private lenders are offering help to people having trouble paying their mortgages.
If your loan is owned by one of the government-backed mortgage giants Freddie Mac or Fannie Mae, you are entitled to assistance under the new federal law, called the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The CARES Act requires your mortgage servicer to evaluate you for reduced payments or a complete pause in payments for up to 12 months. You will start with a shorter-term plan that will be re-evaluated at the end of the period to see if your financial situation has improved. If you are still unable to make your full payment, you are entitled to up to 12 months of forbearance. Servicers also are required to suspend foreclosures and evictions through at least mid-May. [2,3]
If you loan is through a private lender, you may still qualify for relief. The government of California has reached a deal with several financial institutions to suspend foreclosures for 60 days and offer a 90 day grace period for mortgage payments without late fees or penalties.[4]
The financial institutions that have entered into this agreement include JP Morgan Chase, Citigroup, US Bank, Wells Fargo and almost 200 credit unions and state banks. The forbearance on mortgage payments are for homeowners who can provide evidence that they’ve been impacted by the COVID-19 pandemic. As part of the agreement, late or missed payments cannot be shared with credit rating agencies.
What Is Mortgage Forbearance Or Deferment?
Two of the most common mortgage relief options are mortgage deferment and mortgage forbearance, which are offered through your loan servicer (the company listed on your mortgage statement).
Both options provide relief from monthly mortgage periods over a temporary period. The difference between the two options comes at the end of that period.
Some lenders require the suspended payments to be paid as a lump sum at the end relief period, historically called forbearance.
Alternatively, some lenders offer a deferment. In that case, you can ask them to work with you to structure a payment plan, instead of demanding a lump sum. For example, you may be able to add the suspended payments to the end of the loan or spread out repayment over time. In some circumstances, you may be offered a loan modification which entails rewriting the terms of the existing loan.
Keep in mind, however, that the two terms can be used interchangeably. For that reason, it’s extremely important you understand upfront the details of any plan you enter into with your mortgage servicer.
The government-sponsored entities Freddie Mac and Fannie Mae do not require you to pay back your forbearance in a lump sum. [2,3]
How To Find Out Who Owns Your Loan
The entity that owns your home loan may be different from the company you send your payments to — known as your servicer.
About half the mortgages are owned by Freddie Mac and Fannie Mae. To find out if your mortgage is owned by one of them, go to their respective Loan Lookup pages: Freddie Mac and Fannie Mae. You will be asked to enter your name, address and last four digits of your Social Security number. You may use this sample letter to request forbearance.
If you don’t find your mortgage there, your loan is most likely privately owned, and you should contact your mortgage servicer. In many cases, your servicer may be able to help you over the phone. Your monthly mortgage statement should list the phone number.
If your servicer is unable to provide you information over the phone, the Consumer Financial Protection Bureau (CFPB) recommends sending a written request to your loan servicer. They even provide a sample letter. Federal mortgage servicing rules require servicers to provide you with the information related to the servicing of your loan, e.g., name, address and telephone number of the owner of the loan.
Questions To Ask When Seeking Mortgage Relief
If you decide to pursue mortgage forbearance or deferment, here are some of the questions you should ask your lender: [1]
- What mortgage relief options are available?
- Will interest continue to accrue during the period I am not paying?
- Will there be any fees or penalty for late or reduced mortgage payments?
- How will it be reported to the credit agencies?
- Do I still need to pay for my escrow to cover taxes, insurance, and mortgage insurance?
Never just stop paying your mortgage. Always contact your servicer to work out a payment plan. It is to the financial institution’s benefit to help you get back on your feet as soon as possible.
Bottom Line
It’s always better to make your monthly payment if you can. Most loan officer’s advise that if you can pay your mortgage, you should pay it and not ask for relief. [1] If your present circumstances don’t allow it, make sure you have all the information you need to make an informed decision. Visit the California Covid-19 response website for more information about the financial help available. The list of national banks, state-chartered banks, credit unions, and mortgage lenders and servicers who have agreed to provide mortgage and fee relief can be found here. For information about the CARES Act, visit the CFPB website.
Finally seek help. Feel free to contact me with any questions. I have a strong network of financial advisors and attorneys that can help you through the process.
Sources:
- Tiffani Sherman – Mortgage Deferment and Mortgage Forbearance is There a Difference
- Freddie Mac – Extending Help To Homeowners
- Fannie Mae Assistance Options for Homeowner Impacted by Covid-19
- Nathan Rott – Banks Agree With California To Stop Foreclosures For 90 Days In Coronavirus Crisis
- California Coronavirus Response – Get Financial Help
- Freddie Mac – Understanding Forbearance During Covid-19
