Maybe you or a loved one are among the 30 million people who lost a job in the spring because of the COVID-19 pandemic. Or maybe you’re one of the 18 million who no longer receives an extra $600 a week in unemployment. Or maybe you’ve taken a pay cut.
The pandemic has walloped the economy and wrecked people’s finances. Many are doing well to buy groceries or pay their utilities. And then there’s the mortgage -- often your biggest expense. It’s not surprising that more than 7 percent of homeowners with a mortgage are in a forbearance program to delay monthly payments. Even if you’re back to work, you may still be trying to play catch-up with your bills.
If you’re one of the 3.6 million homeowners in forbearance and entered a program in March when Congress passed a law protecting homeowners, your initial six-month forbearance will end in a few weeks.
No matter when you went into forbearance, it’s important for you to know your rights and responsibilities. Information is power during these stressful times. Here are some tips to help you:
First, you should figure out what kind of loan you have, because your rights depend on who your underwriter is. Even if your mortgage is through Chase or Wells Fargo or another bank, the loan is likely held by someone else. The mortgage relief through the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) passed by Congress is mandatory for government-backed loans, which make up 70 percent of mortgages. These include loans guaranteed by Fannie Mae, Freddie Mac, FHA, Veterans Affairs and the U.S. Department of Agriculture. But many lenders without government- backed or government-sponsored loans are operating voluntarily under the CARES rules.
If you’re not sure who holds your mortgage, you can ask your lender or you can look it up. You can learn whether your loan is through Fannie Mae here or Freddie Mac here. If you don’t find your loan under Fannie or Freddie, you can get help here. The tips below are divided into those with government-backed loans and those without.
If you have a government-backed loan:
Understand the initial forbearance period lasts 180 days, under the CARES (CARES Act). You have the right to request an extension -- another 180 days -- if you still need to delay monthly payments.
Realize that a forbearance doesn’t wipe out your monthly payments; it just gives you the right to postpone them without getting hit by any late fees or negative marks on your credit history. This may affect your decision to extend your forbearance. It can be great to get some financial breathing room, but you’ll have to make the payments at some point.
Evaluate your options for repaying the months you missed when your forbearance is over. Lump-sum or “balloon” payments to catch up on missed payments won’t be required for consumers with mortgages backed by Fannie Mae, Freddie Mac, FHA, Veterans Affairs and the U.S. Department of Agriculture. Beyond this, the CARES Act doesn’t spell out your rights on repayment, and different banks are establishing different requirements. Your preference will depend on whether you’re working again, whether your finances are stable, whether you have an emergency fund and whether you fear another layoff.
If you don’t have the money or don’t want to pay the lump sum, you’ll likely be expected to repay one of two ways: Either by paying a little bit extra every month over the next year, or adding the missed payments on the back end of your loan, usually through a loan modification. Your lender may not give you choice; in lieu of a lump sum, it may expect a loan modification. This could carry modest administrative or filing fees, but won’t be nearly as expensive as a loan refinance, which can total thousands of dollars in closing costs. It’s also easier to qualify for a modification than a refinance.
However, a modification could hurt your credit score, depending on how it is reported to the credit bureaus. Some lenders will report your loan as continuing to be “paid as agreed”; others will add the modification to your credit report and that could lower your score. You should ask how it will be reported before you agree to a modification. And it’d be nice to get that assurance in writing if you can. Regardless, a modification certainly would be better for your credit rating than a long-term delinquency or foreclosure.
Ultimately, if your finances are secure, you may decide to just repay it all now and be done with it.
If you don’t have a government-backed loan:
Many private lenders have also worked voluntarily with homeowners on forbearance programs. More than 10% of private/portfolio loans are in forbearance, according to the MBA. In these cases, your lender can call the shots on how things proceed after forbearance.
The fact that your lender offered a forbearance when it wasn’t required to is a good sign the company may be willing to work with you going forward. If your forbearance period is ending and your finances are still unstable, ask whether you can extend your forbearance.
When your forbearance ends, many homeowners whose loans are not government-backed may find their lenders will expect the deferred payments to be repaid all at once, in a balloon payment. You should call your lender to find out your options, which could mean paying extra every month for a year or adding the payments to the end of your loan. This may affect when you want your forbearance to end. Many banks have extended customer service hours but are still slammed with phone calls. So be patient and try to call first thing in the morning or during non-peak times. (The Mortgage Bankers Association this week said 5 percent of homeowners who call their mortgage servicer hang up before talking with someone.)
If you can’t afford a lump sum payment to catch up and your lender insists on a loan modification to add your payments to the end of your loan, understand a modification could hurt your credit score. Some lenders will report your loan to the credit bureaus as continuing to be “paid as agreed”; others will add the modification to your credit report and that could lower your score. You should ask how it will be reported before you agree to it. And it’d be nice to get that assurance in writing if you can. Regardless, a modification certainly wouldn’t be as bad for your credit rating as a long-term delinquency or foreclosure.
If your forbearance is ending and you either can’t afford your regular mortgage payment or can’t afford to make your missed payments, reach out to your lender to discuss options to avoid foreclosure. You should find they’re receptive. In general, lenders don’t want your house. (You may have heard about a moratorium on foreclosures; as of now, that applies only to government-backed loans, through Dec. 31.)
Contact a HUD-approved housing counselor if you can’t reach a repayment agreement with your lender and are at risk of foreclosure. This free service can help you evaluate programs to avoid foreclosure and help you prepare paperwork to submit to your lender.
Whether you’ve figured out what’s next with your forbearance or not, here are a few other important steps you can take to protect yourself:
Watch out for con-artists who may try to take advantage of your hardship. Given that more than 8 percent of people with a mortgage are either in forbearance or are a month or more delinquent, homeowners are a popular target for scammers these days. It’s bad enough to be behind on payments. But if you fall for a scam, you could face more financial pain or an identity theft mess that could take weeks or months to resolve.
Be on guard for anyone who may contact you by phone, email or text message and pose as your lender or a government official. Never provide personal information to anyone you weren’t expecting to contact you. If someone calls you and says they are from your bank or servicer and you weren’t expecting the call, do not give them information. Instead, look up the bank’s phone number independently and call them back to make sure you’re not being scammed.
Check your credit report more faithfully, particularly since you can now pull your reports once a week at no charge from all three credit bureaus, as part of the CARES Act. Free weekly credit reports last through April, 2021. You want to make sure your lender is reporting your mortgage properly, either in forbearance or paying as agreed, but not late. If the information on your credit report is incorrect, you can dispute it with the credit bureau. (Instructions are included with your credit report.) Under the Fair Credit Reporting Act, the bureaus generally have 30 days to investigate a dispute and delete the information from your file unless it’s confirmed. https://www.annualcreditreport.com
Keep an eye out for any letters by mail from your lender. Sure, you’re probably checking your mailbox with one eye closed, out of fear of yet another bill collection notice. But you want to be sure to meet any deadlines for any information or action your bank requests.