The government has made it very easy for homeowners to get a forbearance on their mortgage during the pandemic. This has been a life line for many homeowners who have been affected financially by COVID-19. In this time of crisis, all a borrower has to do is pick up the phone and call their mortgage servicer and ask for payment relief. But how are homeowners going to pay the forbearance back? Are homeowners really being protected from delinquent marks and credit consequences?
COVID-19 has put the world through the ringer lately, and homeowners have not been an exception.
Though the government has tried to help out, only so much can be done when unemployment is increasing and businesses are closing.
Over 40 million people have filed for unemployment. Even before the pandemic about 10-15% of homeowners reported to being “housing insecure”, meaning that homeowners were worried about their ability to make payments. In April 2020, 1 in 3 Americans did not pay rent, and even though evictions have been halted, there are still people being evicted!
If you have secured a COVID-19 mortgage forbearance that works for you and your family this can be a great help. However, it is important to discuss with your mortgage servicer how they will be handling your past due payments at the end of the forbearance. 30 days before the forbearance ends you should assess your situation with your mortgage servicer to determine your next steps. Some servicers are requiring borrowers to make one large balloon payment when the forbearance ends, which is the worst case scenario for many homeowners. Other options are:
- repayment plan
- payment deferral
- loan modification
Defining Fannie Mae and Freddie Mac is not a matter of “who”, but a matter of “what”. Fannie Mae is a nickname for the Federal National Mortgage Association (FNMA). Freddie Mac is a nickname for the Federal Home Loan Mortgage Corporation (FHLMC). Both the FNMA and the FHLMC are home mortgage companies that were created by U.S. Congress. They do not originate or service mortgages, instead they buy and guarantee mortgages from the secondary mortgage market. The secondary mortgage market is where home loans and mortgage servicing rights are bought and sold between lenders and investors. This is great for homeowners because the secondary mortgage market creates competition in the mortgage industry and is responsible for encouraging lower interest rates.
When you are served with foreclosure documents it can be devastating. Given the current situation, you are faced with the possibility of losing your home during, what appears to be, a never-ending COVID-19 pandemic.
This foreclosure also didn't take place because you have tons of disposable income laying around. So now you have to decide how you are going to save your home. The idea of hiring an attorney in the wake of being served with foreclosure documents seems impossible: if you didn't even have enough money to pay your mortgage, how can you think about hiring a lawyer? So now you're considering representing yourself in court to save your house and to save the attorneys' fees.
This article was last updated July 10, 2020 at 10:45 a.m.
Federal Foreclosure Moratoriums
Federal laws now state that Fannie Mae, Freddie Mac and FHA have been directed to suspend foreclosures and evictions due to the COVID-19 emergency. What does this mean? Any person with an Enterprise-backed single-family mortgage will not be evicted or foreclosed on before August 31st. This does not mean that your mortgage payments are forgiven for the next 2 months; you must still pay the money, the due dates have just been suspended. You will not be charged a fee for taking advantage of this forbearance. Also, as per the Federal CARES Act, your mortgage servicer is not allowed to ask you to pay a lump sum payment at the end of the forbearance period.
If you don’t know whether your loan is backed by Fannie Mae or Freddie Mac, you can verify it below.
Your mortgage payment is usually a PITI payment. PITI stands for Principal, Interest, Taxes, and Insurance. When you make your payments each month, the "TI," or tax and insurance portions, are saved in an escrow account.
Here are just a few of the things I overheard last week:
- "Wells Fargo gave me a 3 month forbearance, I don't need to make any payments."
- "If they can't foreclose, why should I make my mortgage payments?"
- "Mr. Cooper is letting me skip three mortgage payments, I ordered new patio furniture."
How would you respond to each of these? Let's take a look.