Temporary Mortgage Postponements Are Up: What Does That Mean for You?
Times are tough right now for many people across the nation. The economic hit from the COVID-19 pandemic has caused unemployment rates to skyrocket, businesses to shutter and people who were once financially solvent to struggle. The financial downturn has caused more than just job loss, though — it has also led millions of homeowners to request mortgage forbearance, allowing them to temporarily press pause on their home payments.
The percentage of mortgages in forbearance jumped last week to 8.16% from 7.91% the week prior, according to a recent survey by The Mortgage Banker’s Association. What those numbers mean is that out of the estimated 128 million Americans who were homeowners in 2019, over 4.1 million are now struggling to keep a roof over their heads.
What’s going on with the uptick in mortgage forbearances?
Unemployment claims recently topped 40 million, so it’s hardly surprising that the number of mortgages in forbearance have also increased along with them. Forbearances have been requested for all types of loans, but FHA and VA borrowers have been the hardest hit according to the MBA report, with more than 11% of Ginnie Mae borrowers currently in forbearance.
Part of the issue is that “FHA and VA borrowers are more likely to be employed in the sectors hardest hit by the crisis,” said Mike Fratantoni, MBA’s Senior Vice President and Chief Economist.
Homeowners aren’t just pressing pause on FHA and VA loans, though — it is happening with all types of mortgages. The MBA report shows that the percentage of Fannie Mae and Freddie Mac loans in forbearance recently increased from 6.08% to 6.25%, while the percentage of private-label securities and portfolio loans in forbearance increased from 8.88% to 9.26%.
But, while an overall rise in mortgage postponement sounds scary, it’s not all bad news. The report data also shows that the mortgage forbearance curve could be flattening alongside the COVID-19 numbers — even with the recent upswing in temporary mortgage postponements. This is the smallest weekly increase in mortgage forbearances since the week of March 16, which is likely due to states easing restrictions and people getting back to work, according to Fratantoni.
So, what does all of this mean for me?
Well, it all depends on where you stand. As of May 28, the real unemployment rate was at about 23.9%. If you’re lucky enough to have avoided a loss of income thus far during the economic downturn, you likely aren’t in need of a mortgage postponement right now.
Still, it’s important to stay educated on how forbearance works, as unemployment numbers have increased steadily over the last couple of months, and it’s unclear when the economy will return to normal. Luckily, regulations have been put in place to help those who are financially struggling due to COVID-19, and what may seem like passive information now could save you a lot of hassle and research later should your employment status change.
If you need to file for mortgage forbearance, here’s what you should know:
If you’re struggling financially and trying to decide whether you want to go the mortgage forbearance route, take comfort in the fact that about 4.1 million other people are in the same spot — so you’re in good company. It’s not ideal to be in that position, of course, but the CARES Act, which was signed into law on March 27 and offers protections for people who are struggling financially due to the COVID-19 pandemic, will make life a lot easier for you.
There are a ton of protections in place for people who are struggling under the CARES Act, including protections for homeowners who have federally or GSE-backed (Fannie Mae or Freddie Mac) or funded mortgages and can’t afford to make their monthly mortgage payments right now.
The mortgage protections under the CARES Act include:
- A moratorium on foreclosure: Under the CARES Act and the recent guidance from the GSEs, the FHA, the VA, and the USDA, your lender or loan servicer may not foreclose on you until at least June 30, 2020.
The CARES Act prohibits lenders and servicers from beginning any judicial or non-judicial foreclosure against you, or from finalizing a foreclosure judgment or sale. This protection was put in place on March 18, 2020, and extends through at least June 30, 2020.
- 180 days of mortgage forbearance, and then 180 more days if you need it: The CARES Act allows you to request 180 days worth of forbearance if you experience financial hardship due to the coronavirus pandemic. If you’re still struggling after 180 days, the protections allow you to request 180 more days of forbearance from your lender, or up to 12 months of forbearance for homeowners with federally-backed mortgages in total.
You’ll have to contact your loan servicer to request this forbearance, but there will be no additional fees, penalties or added interest — beyond the scheduled amounts — added to your account. You won’t need to submit additional documentation to qualify, other than your claim to have a pandemic-related financial hardship.
It’s important to note, though, that while you may qualify for a year of mortgage forbearance under the protections, it won’t mean your payments are forgiven or erased. You will still be required to pay back any missed or reduced payments, though these repayments likely won’t be in a lump sum after the forbearance period has ended. In most cases, your missed or reduced payments can be paid back over time, but it will depend on the type of loan you have.
Different loans will have different repayment parameters at the end of the forbearance period, so it’s important to understand what your servicer expects in terms of repayment post-forbearance. Your mortgage loan servicer is required to contact you at the end of the forbearance to discuss how the missed payments will be repaid, but you should try to get as much information as possible prior to requesting forbearance on your loan. You can find specific information about repayment terms for FHA, VA, USDA, HUD, Fannie Mae and Freddie Mac loans here.
If you don’t qualify for mortgage protections under the CARES Act, don’t give up. There are other resources available to help, including some state-run programs that have been put in place for homeowners who aren’t covered under the federal protections. You should also try contacting your loan servicer directly — they may also be willing to work with you, as lenders have been encouraged by the Consumer Federal Protection Bureau and other financial regulators to work with borrowers who are unable to meet their mortgage loan obligations due to the effects of COVID-19.
There may also be programs in place to help with the amount you owe at the close of your mortgage postponements.
If you need to request a postponement on your mortgage payments, the CFPB recommends that homeowners requesting forbearance protect themselves by:
- Keep written documentation on hand. It’s always smart to get things in writing, and you’ll want to do that with your forbearance, too. Make sure this documentation is available in case there are any errors with your monthly mortgage statements.
- Keep a close eye on your monthly mortgage statement. You may be in forbearance but you should continue monitoring your monthly mortgage statements to make sure you don’t see any errors or charges that shouldn’t be on your statement.
- Stop or temporarily pause any auto-payments for your mortgage. If you are having your mortgage payment deducted automatically from your bank account you’ll need to make sure you cancel those auto payments or put a hold on them temporarily. Otherwise, you could end up with overdraft fees and a slew of other fees when your mortgage automatically drafts from your account.
- Keep an eye on your credit. Mistakes happen, and you’ll need to keep an eye on your credit report to make sure that forbearance hasn’t caused any issues with your credit. If you were current on your account prior to applying for forbearance and received an accommodation, your account should be reported as current. If an error has been made, however, you can work to dispute it. You can find more information about protecting your credit during the coronavirus pandemic here.
- Resume your payments if/when your income is restored. With forbearance, you will still owe the payments that you missed, but if you can cut down on the amount of missed payments you’ll owe less down the road.
- Request a forbearance extension if you need it. Under the CARES Act, you can request an extension of the forbearance for up to an additional 180 days if you have a federally or GSE-backed mortgage.
- Put any extra money away so you can use it to pay off what’s needed later. If you can save any money now, it’ll be helpful when payments are due later.
- Continue to pay your property taxes, HOA dues, condo fees and insurance. Most of these taxes and fees are paid as part of your mortgage if your loan utilizes an escrow account, but you may want to confirm with your servicer. If your mortgage does not have an escrow account, you will be responsible for these payments as well as HOA and condo fees during forbearance.
Ultimately, if you need help, ask for it. There are plenty of people who are going through the same thing, many for the first time. Lenders are learning along with homeowners about the best way to deal with mortgage postponements in the midst of a pandemic, and while the system isn’t perfect, there are protections in place to protect you and your investments.
Although the recent uptick in mortgage forbearances is concerning, this increase is hopefully just a temporary setback — one that MBA promises to monitor closely in the coming weeks. “We will continue to closely monitor the forbearance request and call volume data for any sign of an uptick, but current trends suggest that if the economy continues to gradually reopen, the situation could be stabilizing,” Fratantoni said.