Relief In Sight Part 3- Paycheck Protection Program loanby Jeff ColemanIn this series we’ll take a look at a new federal law, the Coronavirus Aid, Relief, and Economic Security (CARES)
Relief In Sight - Part 2, Mortgage Relief
Dated: April 12 2020
Relief In Sight
Part 2- Mortgage Relief
In this series we’ll take a look at a new federal law, the Coronavirus Aid, Relief, and Economic Security (CARES) Act, that provides protection for taxpayers, homeowners, small business owners, contractors, and workers unemployed due to the effects of COVID-19 and government responses to it.
I’ve put this together from sources listed within and at the end of this article. I am not a financial planner, attorney, or debt relief specialist. This is not a recommendation for any action and is only intended to be a source of learning what options might be available. I recommend talking with an expert before making decisions in this critical area of your life. If you don’t have a consultant you trust, I’d be happy to provide you contact information for attorneys and financial planners, or to discuss real estate options in the current market.
See entries in this series:
At least two mortgage relief options are in place through the CARES Act for those owners with federally back mortgages:
1. A foreclosure moratorium –
2. A right to forbearance for homeowners who are experiencing a financial hardship due to the COVID-19 emergency
Section 4022 of CARES Act states “The term “Federally backed mortgage loan” includes any loan which is secured by a first or subordinate lien on residential real property (including individual units of condominiums and cooperatives) designed principally for the occupancy of from 1- to 4- families that is” insured or, guaranteed, or made by one of the following:
Federal National Mortgage Association (aka Fannie Mae),
Federal Home Loan Mortgage Corporation (Freddie Mac),
Federal Housing Administration (FHA),
Department of Housing and Urban Development (HUD),
Department of Veterans Affairs (VA) and the
Department of Agriculture (USDA).
You can contact your loan service provider. Also, Fannie Mae has an online lookup tool at https://www.knowyouroptions.com/loanlookup or you can call (800) 232-6643 toll-free. Freddie Mac has a look-up tool at https://ww3.freddiemac.com/loanlookup/ or you can call (800) 373-3343 toll-free.
Up to 70% of all mortgages are federally backed, but yours may not be. If not, your lender may still provide relief. Contact your loan service provider to learn about options they offer. Financial institutions have been encouraged to work with borrowers who are or may be unable to meet their obligations because of the effects of COVID-19.
“Foreclosure is the legal right of a mortgage holder or other third-party lien holder to gain ownership of the property and/or the right to sell the property and use the proceeds to pay off the mortgage if the mortgage or lien is in default.” Find Law https://realestate.findlaw.com/foreclosure/what-is-foreclosure.html
Currently until May 17, 2020.
Section 4022 of the CARES Act states “Except with respect to a vacant or abandoned property, a servicer of a Federally backed mortgage loan may not initiate any judicial or non-judicial foreclosure process, move for a foreclosure judgment or order of sale, or execute a foreclosure-related eviction or foreclosure sale for not less than the 60-day period beginning on March 18, 2020.”
“Forbearance is a temporary postponement [itals mine] of mortgage payments. It is a form of repayment relief granted by the lender or creditor in lieu of forcing a property into foreclosure.” -Investopedia https://www.investopedia.com/terms/f/forbearance.asp
The terms of a forbearance are usually decided between the lender and the borrower. Note what it isn’t. It is NOT loan forgiveness, or payment forgiveness. If granted, the borrowers will still have to make those payments at a later date.
If you stop making payments, you won’t be automatically granted forbearance under this program. If you stop making payments without contacting your lender, you may simply be considered deliquent, hurt your credit score, and suffer other legal action by your lender. To be eligible for forbearance you must contact your loan servicer. See under “Where do I apply?” for more details.
Up to 180 days and may be extended an additional 180 days if borrower requests during the initial 180 day period. Section 4022 (b) 2 states “Upon a request by a borrower for forbearance under paragraph (1), such forbearance shall be granted for up to 180 days, and shall be extended for an additional period of up to 180 days at the request of the borrower, provided that, at the borrower’s request, either the initial or extended period of forbearance may be shortened.”
You won’t incur late fees or any additional interest if you are granted forbearance under this program.
“There will be no additional fees, penalties or additional interest (beyond scheduled amounts) added to your account. You do not need to submit additional documentation to qualify other than your claim to have a pandemic-related financial hardship.”
The terms of the forbearance are between you and your lender. You may wish to ask your lender if you will owe the unpaid amount in a lump sum once the forbearance period has ended, or at the end of the loan term, or if the loan will simply have the term/months added to the end of the mortgage, or if subsequent payments will be increased in order to make up for the missed payments, or some other method will be employed to make up for the missed payments. The answer to this question may influence your decision to seek forbearance.
Technically, homeowners have to apply before December 31st or before the end of the emergency, whichever comes first.
You must contact your loan servicer to request this forbearance. The loan servicer is the company to which you send your monthly mortgage payment. Contact information may be found on your monthly mortgage statement. Keep in mind that mortgage servicers may be experiencing high call volumes.
This is an important question. The short answer is, that it depends. I read the Act’s provision for all loans, including your mortgage, that are provided relief due to the coronavirus will allow one of two ways with regard to credit bureau reporting.
1. If you are
a. still current in your payment, and then
b. you receive an accommodation from your lender/servicer, the
c. lender must report your account as current throughout the accommodation, i.e., no effect on your credit score.
2. However, if you are
a. delinquent, and THEN
b. receive the accommodation, the
c. lender looks like they’re obligated to call your account delinquent throughout the accommodation, unless you bring the account current. That would be a hit on your credit score and I’d say a significant one at that. If this reading is accurate, then it’s important not to wait until you are delinquent before asking for accommodation from the lender.
The Act’s credit reporting accommodations last for the covered period ending on the later of the following dates: 120 days after Act’s enactment (March 27, 2020), or 120 days after the presidential declaration of emergency terminates.
Section 4021 of the CARES Act states:
“Except as provided in clause (iii), if a furnisher makes an accommodation with respect to 1 or more payments on a credit obligation or account of a consumer, and the consumer makes the payments or is not required to make 1 or more payments pursuant to the accommodation, the furnisher shall—
“(I) report the credit obligation or account as current; or
“(II) if the credit obligation or account was delinquent before the accommodation—
“(aa) maintain the delinquent status during the period in which the accommodation is in effect; and
“(bb) if the consumer brings the credit obligation or account current during the period described in item (aa), report the credit obligation or account as current.
“(iii) EXCEPTION.—Clause (ii) shall not apply with respect to a credit obligation or account of a consumer that has been charged-off.”
“There have been reports that scammers are pretending to be the government, contacting people by robocall, text message, email and other outreach. These scammers say they can get people financial help during the COVID-19 pandemic, and then ask for money or personal information, like your Social Security, bank account or credit card number. This is a SCAM.
Don’t trust anyone who offers financial help and then asks for money or personal information. Federal and local disaster workers do not solicit or accept money. The Department of Homeland Security, FEMA, U.S. Health and Human Services and the Centers for Disease Control staff never charge for disaster assistance.
The Federal Trade Commission scams page has tips to help you avoid scams online, on the phone, by text and through email. If you see a scam, please report it to the Federal Trade Commission: ftc.gov/complaint.
Consumer Financial Protection Bureau Mortgage Relief Guide
Consumer Financial Protection Bureau CARES Act Mortgage Forbearance — What You Need to Know Video
H.R. 748 CARES Act Text
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