Recently enacted legislation, known as the CARES Act directs lenders holding federally backed mortgages to suspend borrowers' payments for up to 12 months if they have lost income because of the coronavirus outbreak. The law also suspends foreclosure and foreclosure-related eviction action and changes the rules regarding credit reporting during some or all of the coronavirus emergency period.
- If your mortgage is backed by the federal government, provisions of the recently enacted CARES Act allow you to suspend payments for up to 12 months.
- In addition you will not be charged late fees or reported to credit bureaus.
- Foreclosures and evictions will be suspended for at least 60 days.
- If your loan is not federally backed, contact your loan servicer or state or local government offices to find out what options you have.
- Additional help may be available after the forbearance period.
The law regarding forbearance and foreclosure pertains to mortgage loans backed by the federal government which are defined as loans:
- Insured by the Federal Housing Administration (FHA)
- Insured under section 255 of the National Housing Act
- Guaranteed under section 184 or 184A of the Housing and Community Development Act of 1992
- Guaranteed or insured by the Department of Veterans Affairs
- Guaranteed, insured, or made by the Department of Agriculture
- Purchased or securitized by the Federal Home Loan Mortgage Corporation or the Federal National Mortgage Association
Paused Payments (Forbearance)
The CARES Act directs that if you are experiencing financial hardship due to COVID-19, you will be granted forbearance on your federally backed mortgage loan for up to 180 days with the option to extend for another 180 days.
If you are a landlord with a mortgage on multifamily (5 or more units) housing you have similar protection that allows a 30-day forbearance on payments and up to two 30-day extensions.
If you are offered forbearance, carefully review the terms before signing. Best is just to have the missing payments added to the end of your mortgage term, but reportedly some borrowers are finding that lenders are instead imposing a balloon payment that would be more than they can afford.
How to Request Forbearance
As a borrower with a federally-backed mortgage loan, you will be granted forbearance of up to 180 days by submitting a request to your servicer (the company you make payments to) and affirming that you are experiencing financial hardship during the COVID-19 emergency. No further documentation or proof is required.
Landlords (5 or more units) must have been current on payments as of Feb. 1, 2020. If so, they must submit an oral or written request to their servicer who will approve a 30-day forbearance and, upon request from the borrower, issue up to two additional 30-day forbearance periods.
Right to Halt Forbearance
As a borrower, the CARES Act gives you the right to halt forbearance at any time. This rule applies to you if you have a government-backed loan on a regular (1-4 unit) property or a multifamily (5 or more unit) building.
No Extra Penalties, Interest, or Late Fees
During any forbearance period granted to you, your servicer cannot charge any penalties, interest, or fees that would not have been charged if you made your payments on time and in full. Landlords may not charge tenants any fees or penalties for late payment of rent during any forbearance period granted to the landlord.
No Reporting to Credit Bureaus
Lenders are directed not to report you to credit bureaus for late or missed payments provided you are in one of the forbearance programs. This applies through July 25, 2020, or 120 days after the end of the emergency period, whichever is later. This means the fact you are not making full payments or not paying at all, will not affect your credit rating.
No Foreclosures or Evictions
Guidance from the FHFA June 17, 2020 extended the moratorium on foreclosures and evictions for Federally-backed mortgages from May 17, 2020 until at least August 31, 2020. Landlords cannot evict renters during any period in which they are granted forbearance.
Additional Help Possible
Once you reach the end of your forbearance period, you may qualify for additional assistance if you need it. Work with your servicer and, if possible, resume making your regular payments. If you still need assistance ask your servicer what other options are available. This could including reducing your monthly payments or some other type of loan modification. In the event you and your lender reach agreement on any loan modification, you cannot be reported to credit bureaus as "not current" on that loan.
Forbearance, which this is, is not the same as forgiveness. You will still owe the amount you didn't have to pay, plus interest, during the forbearance period.
How to Find Out If Your Loan Is Federally Backed
To find out whether your loan is backed by the federal government, making you eligible for the help noted above, here are some actions you can take:
- Call or write your mortgage servicer. Your servicer is required to tell you who owns your mortgage and provide you with the name, address, and phone number of whoever owns your mortgage.
- Check online. Use loan lookup tools provided by Fannie Mae or Freddie Mac to find out if either of those two government-backed providers own your mortgage.
- Check the Mortgage Electronic Registration Systems (MERS) website to find your servicer if you don't know who that is.
What If You Have a Non-Government Backed Mortgage
Federal regulators believe most non-government-backed lenders and servicers will adopt policies similar to those mandated by the CARES Act. To find out, contact your loan servicer, ask what programs they have in place to help homeowners impacted by the coronavirus outbreak and follow any instructions you are given.
Although the CARES Act does not require private lenders to offer relief, if you and your lender come to any type of loan modification agreement, the law regarding not reporting reduced or paused payments to credit bureaus does apply to you.
Don't Just Stop Making Payments
Whether your loan is backed by the federal government or a private lender, the one thing you should not do is to just stop making payments. You must contact your lender or servicer to let the company know you are having trouble making payments. Failure to contact your lender could result in all of the negative things mentioned above including penalties, bad credit, and ultimately, perhaps, foreclosure and eviction.