When the coronavirus started ramping up in the US back in early 2020, Congress swiftly passed the CARES Act which specified economic relief for many Americans and businesses affected by the virus. The law itself was very broad, but there was a specific provision related to Americans who had trouble making their mortgage payment. Here is what you need to know about the CARES Act Mortgage Forbearance policy.
What is Mortgage Forbearance?
Forbearance just means a temporary halt or reduction to your mortgage payment obligations. Note the word “temporary”, and also note that forbearance IS NOT forgiveness. If you are granted forbearance, you will be asked to repay the full amount later on – but we’ll get to that later in the article. Just note that if you qualify for mortgage relief through the CARES Act, it is temporary – you will have to continue making payments and repay any past due amount at some point down the road.
Since you will have to repay any payments that you miss, it’s strongly recommended that you continue making payments if you can. You don’t want to wind up behind and unable to catch up. Forbearance should be seen as a last resort.
CARES Act is For Federally Backed Loans Only
This is really important to understand. The CARES Act Relief can only be enforced for loans that are backed by the Federal Government.
Specifically, this means that your loan must be serviced by the FHA, VA, USDA, Freddie Mac, or Fannie Mae. Any non-Government backed loans are not covered under the CARES Act. Be sure to check with your loan administrator to see if your loan is backed by a federally qualifying loan.
Even if you do not have a federally-backed mortgage, it’s still a good idea to check with your bank to see if they will grant a forbearance if you need it.
Many of the banks don’t want to be the bad guy and foreclose during a global pandemic, but just know that they can. There is no law currently forcing private loan servicers to allow mortgage relief.
What are CARES Act Rules?
Here are some current guidelines that you should know:
- A forbearance request does not require proof that you are facing hardship (meaning, no paperwork)
- You can request forbearance for 180 days, with a second 180-day extension if you need it, for a total of 360 days
- Government-backed loan servicers cannot begin any foreclosure process until 12/31/2020
- Some of the Servicers have a 12/31/2020 deadline to request a forbearance…. Don’t wait!
- It’s unclear whether the program will extend past 12/31/2020
Does This Affect Your Credit?
It should not. If you were current with your mortgage when your forbearance began, then servicers are required to report your mortgage as “current” to credit agencies even while you are temporarily not making payments under forbearance.
If you were delinquent, however, then the servicer is required to continue reporting you as “delinquent” until your balance is paid current.
How Do You Repay When Forbearance Ends?
So, let’s get one big concern out of the way – you should not have to repay in one lump sum. This is good news. What will happen is likely one of two things: 1) you can pay back the past due amount in installments added to your regular loan payments, or 2) more likely, the past due amount will be added to the total mortgage amount as a 2nd lien.
Let me go through an example to show you what I mean:
Let’s say your mortgage payment is $1000 per month.
You requested forbearance for 180 days, so you didn’t make the payments for 6 months.
Once the 180 days is up, you start making $1000 per month payments again, and you now have $6000 that will need to be repaid for the 6 months you were granted relief.
After speaking with your loan servicer, you have 2 options to repay the $6000. You can pay extra on top of your loan payment each month – say $250 – until the $6000 is paid off. Under that method, you would pay back what you owe in 24 months and then go back to $1000 per month payments like before.
Many people won’t be able to pay extra each month, however, so there is a second option. The $6000 will be added to the principal amount due as a “junior” or “second” lien. This is a second mortgage that will have to be paid off when the house sells, is refinanced, or the title transfers.
If Forbearance Ends and You Aren’t Able to Resume Payments
If the forbearance period ends, and you are unable to resume making your normal payment, then you may be facing foreclosure. This means you need to get on the ball!
The first thing you need to do is contact your loan servicer and see what options you have. You may be able to request another extension, make a loan modification, deferment, or some other option.
Each servicer is going to have different options, so you need to talk to them and see what they can do.
One common misperception is that banks want to foreclose on your home. They don’t. They lose money and it’s a huge hassle for banks to foreclose, so just know that they want to help you. But you have to talk to them and be willing to work within their rules.
We Are Here to Help!
As always, give us a call at (404) 500-8094 or shoot us a note with any questions or concerns that you have about the CARES Act, forbearance, foreclosure, or any real estate issues that you may be facing. We are here to help.