This piece by Jacob Wade first appeared on IHeartBudgets.com (up to date as of 4/3/20) and is reprinted with permission from the author. It has been edited for content and clarity. The original author may be compensated if you purchase products or services via links in this post, at no additional cost to the buyer.
With millions out of work, and many more dealing with the effects of the novel coronavirus, many are struggling just to put food on the table, let alone pay their rent or mortgage for this month. New legislation that was passed last week has some good news for those with mortgages or rent they are struggling to pay (and landlords too, keep reading).
The CARES Act is giving federally backed mortgages protections against mortgage foreclosure. This means that is you have the ability to elect forbearance (pausing mortgage payments) for up to 180 days. After that 180-day period, you may be able to elect another 180-days of forbearance. This protection applies starting on March 27th, 2020, when the bill was passed, but who qualifies, what are the costs, and what should you do if you DON’T qualify?
Who qualifies for mortgage relief?
The mortgage relief applies to loans that are “federally-backed”, meaning they are owned or insured by the federal government. What types of mortgages qualify?
• Fannie Mae or Freddie Mac owned mortgages
• VA Mortgages (owned by Department of Veteran Affairs)
• USDA Mortgages (owned by the US Dept. of Agriculture)
• FHA Mortgages (owned or back by the Federal Housing Administration)
• NRMLA Insured Mortgages (insured by the National Reverse Mortgage Lenders Association)
• Certain HUD-backed mortgages under Sec. 184 & Sec. 184a (Native American & Native Hawaiian Housing)
How do I know who owns my mortgage?
Here are a few resources to see if you hold one of the above mortgages:
• Freddie Mac mortgages here
• Fannie Mae Mortgages here
• VA Mortgage information here (hint: If you used your VA loan benefit to buy your house, then you qualify)
• USDA Mortgage information here (hint: These are very specific loans only used for qualified properties)
• Find FHA mortgage information here (hint: There are usually for “first-time homebuyers” who put a small percentage down)
• NRMLA Mortgage information here (hint: these are usually reverse mortgages)
• HUD Sec. 184 & Sec. 184a mortgage info here
Contact your loan servicer directly for more loan information, and to see if you qualify.
Can I stop paying my mortgage payments?
This new bill allows borrowers to choose “elective forbearance,” which means YES, you can stop making mortgage payments, but there are steps you need to take:
• You must contact your loan servicer directly and make the request
• You must be experiencing financial hardship due to the COVID-19 emergency
There is no paperwork needed. The bill says the lender must extend “up to 180 days” without any extra proof other than “the borrower’s attestation to a financial hardship caused by the COVID–19 emergency.”
If you have one of the federally backed loans listed above, and you request the 180-day forbearance, the loan servicer is obligated to honor this. They are also obligated to extend this if you need an additional 180 days AFTER the initial forbearance period has ended. Furthermore, there are NO additional fees or penalties during the mortgage forbearance period. This means your loan provider CANNOT charge you anything extra to elect forbearance, they cannot charge any penalties for “late or non-payment”, and they cannot add any EXTRA interest charges other than what is already scheduled on your current mortgage contract. This means the forbearance period is fee- and penalty-free.
Do I still have to pay mortgage interest?
Yes and no. During mortgage forbearance, you don’t have to make any payments, but scheduled interest will accrue as normal, based on your payment schedule, and both interest and principal will still need to be paid back after the forbearance period is over. The amounts are not forgiven, simply postponed.
What happens when my mortgage forbearance is over?
After the initial forbearance period is over, if you are still experiencing “financial hardship due to the COVID-19 Emergency” you can elect up to another 180 days of forbearance, as long as it’s within the “covered period.” The CARES Act defines the covered period as:
• Starting when the bill passed (March 27th, 2020)
• Ending at the earlier date below:
• The termination of the declaration of the national emergency, or
• December 31, 2020
In short, you can extend your forbearance again as long as we’re still in a state of national emergency, and it’s still 2020.
What do I need to do after forbearance?
There is no specific guidance in the bill on how you will pay pack your missed payments, and many servicers are telling borrowers they will owe all the missed payments as soon as forbearance is over.
In that scenario, a $2,000 mortgage payment, after 6 months forebearance due to financial hardship, would require an $8,000 balloon payment. This is why it is critical to talk with your mortgage servicer directly and ask them how they expect you to pay for the missed payments. A possible alternative to a balloon payment would be to request that the postponed payments are added to the end of the loan, extending your exsiting loan terms without a large lump sum due.
What about foreclosures? Am I protected?
If you own a vacant property, or abandon your property, you are not protected from foreclosure. If you own a federally backed, occupied property, there is a “foreclosure moratorium”, which means your loan servicer may not initiate the foreclosure process or force a foreclosure-related eviction for at least 60-days, starting on March 18th, 2020. This means you will not be foreclosed on until after May 17th.
Will forbearance (or missed payments) affect my credit score?
Not for a while. Forbearance does not directly affect your credit score, but it can affect your future ability to get a mortgage loan. The CARES Act states that missed or partial payments will not be reported for 120 days, starting on January 31st, 2020, and ending 120 days after the bill passed. This applies to any mortgage type and means that missed or partial payments should not hurt your credit score until after July 25th, 2020.
What if I have a multifamily residential property?
If you have a federally backed loan on a multifamily residential property and if are current on your payments as of February 1st, 2020, then you may claim elective forbearance on that mortgage. To request this, you need to provide an oral or written request to your loan servicer. Once the request is made, your servicer will document the hardship and provide forbearance for up to 30 days. After that 30 days is over, you may request another 30-day forbearance up to 2 additional times. These requests need to be made at least 15-days in advance of the original forbearance ending. Here’s a potential scenario:
• Call your servicer, state your case for financial hardship due to COVID-19
• After 14 days, call them back and request another 30-day extension
• 30 days after that, call again and ask for another 30 days
This could give you 90 days of total mortgage forbearance, assuming each time you request another 30 days, the US is still in a national state of emergency, and it’s still before December 31st, 2020.
What if you don’t qualify for mortgage relief?
If you do not have a federally backed mortgage, many private lenders are stepping up and helping owners during this national emergency. If you are experiencing financial hardship, call your mortgage servicer as soon as possible and ask what your options are. Many are working with people on a case-by-case basis, and it is far more beneficial to have a conversation with them than to skip payments or underpay and hope for the best.
Should I stop paying my mortgage if I can afford it?
No. If you can make the payments, it’s better to pay than to delay the payments (and interest) until later. There are multiple reasons for this:
• You will be extending your mortgage payoff, and depending on how your interest is calculated, this could end up costing your more
• If your lender requires a balloon payment at the end of forbearance, you have to pay it anyways, and now you risk going into default if you don’t have the money
•If you can afford the payment and are not experiencing financial hardship due to COVID-19, you don’t qualify for forbearance anyway. Not to mention the strain on your lender and everyone else who really needs help. If you can pay, you should.
What if I can’t pay my rent?
In addition to mortgage relief, the CARES Act addresses renters as well. If the mortgage on your rental home is covered by any of the below, then your landlord cannot file for eviction or ask you to vacate your property for 120 days (starting on March 27th):
• Federally backed mortgage
• Federally backed multifamily mortgage
• Part of Covered Housing Program VAWA (Violence Against Women Act of 1994)
• Part of Rural Housing Voucher Program (under section 542 of the Housing Act of 1949)
During this 120-day period, the landlord cannot “charge fees, penalties, or other charges to the tenant related to such nonpayment of rent.” So, until September 23rd, 2020, rental properties with qualifying loans CANNOT evict, or charge extra fees for non-payment to their renters.
If you are a renter experiencing financial hardship due to the COVID-19 Emergency:
• Call your landlord or meet in person. Talk to them about your situation and let them know if you cannot make your payment.
• Work out a plan to pay what you can, when you can, and let them know about your desire to pay your rent. Remember, you are still obligated to pay rent per your rental agreement.
• Preferably, write out your plan on paper, and have both of you sign it so that you are both in agreement.
•If you feel the need, ask them if they are aware of the mortgage relief options, and refer them to this post to find out more.
•If they are unagreeable, then you may need to ask them who owns the loan on the property and remind them that there is a federal eviction moratorium in place.
Remember, just as much as you have an obligation to pay your rent, your landlord has an obligation to pay the mortgage on the property. Working together, you can come to a mutually acceptable resolution.
What about non-qualified rentals? Will I get evicted?
Many states and counties are issuing a blanket eviction moratorium, effectively not allowing landlords to legally evict tenants. To find out more about specific state and county emergency evictions notices, check out this comprehensive list.
What if I can afford rent, should I still pay?
Yes. The eviction relief is not rent forgiveness; it protects you from being thrown out of your rental house if experiencing hardship right now. You still are obligated to pay your rent. Don’t skip your payment just because you won’t be evicted. You could face legitimate eviction later and have difficulty securing another rental property. Remember, most landlords have families and obligations to take care of as well. Stay in communication and honor your commitments.
What do I do once the eviction moratorium is over?
You will need to resume paying rent and follow a plan to repay the back-owed rent during the moratorium. If you are still unable to pay, an eviction notice can be served to you, but you will not need to vacate for 30 days. Most states have protection for renters; familiarize yourself with Renter’s Rights over the next few weeks.
Should I refinance my mortgage right now?
Perhaps. If you have a federally backed mortgage and need financial relief, refinancing may not be your best option. You would be exempt from the forbearance options available in the CARES Act. If your mortgage doesn’t qualify for mortgage relief, now may be a good time to look at refinancing.
Generally, if you can reduce your rate by 0.5% or more, and will be in the house long enough to make back the refinancing fees, then yes, refinancing may be a smart move. Mortgage expert Casey Fleming has a great loan calculator that lets you plug in your numbers to see if it’s worth it, and how quickly you can recoup your costs. Recently mortgage rates have plummeted. You could save a significant amount by pursuing a low-cost refinance.
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