Lenders provide mortgage relief during a pandemic. Ask these questions first
Homeowners whose finances have been strained by the coronavirus may want to think again before postponing their mortgage payments.
Congress has offered some relief to mortgage borrowers facing financial hardship due to the coronavirus pandemic, which has left a flood of layoffs in its wake.
The law on aid, relief and economic security against the coronavirus – or the CARES Law – includes a provision that would allow affected homeowners to request up to 12 month stay on certain mortgages.
This covers people who have federally guaranteed mortgages, including loans held by Fannie Mae or Freddie Mac.
States have also put in place their own relief measures for borrowers whose mortgages are not federally guaranteed. new York, New Jersey and California are among the jurisdictions that allow homeowners to request a 90-day stay on their payments.
Borrowers are not forgiven. Instead, state and federal COVID-19 measures call for forbearance – the postponement or reduction of the loan payment owed.
“Lenders are offering forborne, which does not alleviate the wait for payment, but delays it,” said Barry Zigas, senior researcher at the Consumer Federation of America.
There are enough potential pitfalls for homeowners that Richard Cordray, former director of the Consumer Financial Protection Bureau, co-wrote a letter to the organization’s current director, Kathy Kraninger, calling on the bureau to protect borrowers.
“Already there are worrying signs that people are getting carried away as they seek forbearance or some other relief,” Cordray wrote in his letter of April 6.
“New rules were put in place several years ago to address these issues, and mortgage agents can now be exempted from complying with these rules when consumers need them most,” he wrote. .
Document every interaction you have with your mortgage agent and start with these three questions before you sign up for forbearance.
First contact your loan manager – that is, the company that bills you each month – to start the application process and demonstrate that you are having financial hardship related to the pandemic.
This can be tricky because it might not be the company that originally gave you the loan.
“Lenders often outsource their services to another company, and it might not be someone you’ve dealt with before,” Cordray said.
Whether you qualify for relief under the federal CARES law or your state’s plan will depend on who holds your loan.
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Will missed mortgage payments be incorporated into future payments? Will they be nailed to the end of your mortgage, which could add a few months to your loan term? Could they be due in a lump sum later?
A homeowner who is struggling to pay the loan could end up working with the service agent to completely restructure the mortgage.
“An amendment changes the underlying terms of the loan, extending it from 30 to 40 years,” said Daniel Eaton, a lawyer with the Christensen law firm in Minneapolis.
Homeowners who use an escrow account set aside a portion of each mortgage payment for home insurance premiums and property taxes.
Borrowers should consider what will happen to these expenses if they put their mortgage on hold, as the CARES Act does not provide clarity.
Your lender can foot the bill for insurance premiums and property taxes because it protects their interest in your home, Eaton said.
If a lender ends up insuring your home because of your inability to pay the mortgage, they’ll likely use what is called compulsory insurance, which is expensive and won’t cover your belongings, Eaton said.
When the bank covers the escrow fees, these expenses may be factored into your eventual repayment of the suspended mortgage payments.
“If your lender pays him, find out what’s going to happen during the time you don’t make payments and what happens if they pay,” Zigas said. “How is everything resolved in the end?” “