As the economic effects of the coronavirus pandemic drag on, a growing number of Americans are struggling to pay their monthly mortgage.
Some protections and benefits from the Coronavirus Aid, Relief, and Economic Security (CARES Act), including expanded unemployment benefits and paid family leave, are set to expire at the end of the month unless Congress passes additional stimulus. A separate eviction protection for renters, ordered by the Centers for Disease Control and Prevention to curb the spread of the virus, also expires at year’s end.
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But the good news for homeowners is that many other protections remain in place or have been extended.
Just last week, the federal ban on single-family foreclosures, previously set to expire at the end of the year, was extended. And most homeowners who need to delay or defer their mortgage payments will still be able to enter into a forbearance program into 2021.
Here’s what struggling homeowners need to know.
Ban on foreclosure extended
The Federal Housing Finance Agency extended its moratorium on foreclosures and certain evictions until the end of January. While the moratorium only applies to loans backed by Freddie Mac or Fannie Mae for single-family homes, it still covers millions of homeowners.
“Extending Fannie Mae and Freddie Mac’s foreclosure and eviction moratoriums through January 2021 keeps borrowers safe during the pandemic,” said Mark Calabria, director of FHFA. “This extension gives peace of mind to the more than 28 million homeowners with an enterprise-backed mortgage.”
The ban also protects from eviction any renters who are living in properties that have been acquired by Freddie or Fannie through foreclosure.
Foreclosures are at historic lows because of the moratorium and forbearance programs, according to ATTOM Data Solutions, which tracks foreclosure data. There were 90% fewer properties with foreclosure filings in the third quarter of this year than there were prior to the pandemic. But that is likely to change when the ban ends, said Rick Sharga, executive vice president of RealtyTrac, an ATTOM Data company.
“It’s important to remember that the numbers we’re seeing today are artificially low, even as the number of seriously delinquent loans continues to increase, and that we’ll see a significant – and probably quite sudden – burst of foreclosure activity once these various government programs expire.”
Mortgage relief
For many homeowners it is not too late to request a mortgage forbearance – which allows you to defer or reduce mortgage payments for a certain amount of time – from your loan servicer. Whether you have a government-backed mortgage or not, talk to your servicer about your options.
In December, FHFA said a borrower’s eligibility to request a Covid-19-related forbearance on a Fannie Mae- or Freddie Mac-backed loan will not expire at the end of the year. You can check with Freddie Mac or Fannie Mae to find out if they own your loan. If you don’t know who services your loan, you can look it up here.
Freddie Mac, for example, will continue to provide homeowners mortgage relief for up to 12 months without incurring late fees or penalties. Additionally, foreclosure and other legal proceedings are also suspended while homeowners are on a Freddie Mac forbearance plan.
Fannie Mae continues to offer homeowners in forbearance access to the Disaster Response Network’s HUD-approved housing counselors, which can help households navigate the financial challenges they may be facing.
Currently, single family homeowners with FHA-insured mortgages have until December 31 to request forbearance.
Some bank lenders, including Wells Fargo, Bank of America and Chase, will also continue to offer forbearance into the new year.
“Help is still available for homeowners who have been impacted,” said Keosha Burns, a Chase home lending spokesperson. She said the bank has already helped tens of thousands of US customers by deferring payments for three months.
During the three-month forbearance period, the bank will be in touch with customers, and if circumstances have not improved, the period can be extended for up to a year.
Wells Fargo is offering similar help to its customers.
“We encourage customers to continue making their home loan payments if they can,” said Tom Goyda, a Wells Fargo spokesperson, “but are continuing to grant customers impacted by Covid-19 an initial six-month payment suspension, in three-month increments, on any mortgage or home equity line serviced by Wells Fargo Home Lending.”
He said loans covered by the CARES act or owned by Wells Fargo are eligible for an additional six months of forbearance.
Just keep in mind: forbearance is not loan forgiveness. Borrowers will need to pay the deferred amount back. During the forbearance period, expect to be in touch with your servicer about how you would like to pay.
Of homeowners who exited forbearance programs between the beginning of June and end of November, 30% continued to make payments regularly, according to data from the Mortgage Bankers Association.
Nearly a quarter had their deferred payments tacked on to the end of the loan to be resolved when the loan is paid off, the home sold or loan refinanced. Almost 17% paid the past-due amount in a lump sum, and 13% have exited but not yet set a plan with their servicer.
Forbearance could help more borrowers
Mortgage forbearance has been critical in protecting borrowers affected by the pandemic by providing them with payment relief, while in many cases, also suspending borrower late fees or penalties.
Among borrowers who became delinquent on their mortgage payments during the pandemic, 88% are either currently in forbearance or have been in a forbearance plan this year, according to Black Knight, a mortgage data company.
There are currently 2.8 million loans in forbearance, according to MBA’s estimate. At the peak in May, 4.76 million mortgages were in forbearance, representing 9% of all home loans, according to Black Knight.
Another 800,000 borrowers could still benefit from entering into a forbearance program, Black Knight estimates.
The number of loans in forbearance was moving down, as homeowners regained their financial footing and returned to regularly making mortgage payments. But last month, the share of loans in forbearance again ticked up, according to the MBA.
While new forbearance requests declined, the number of homeowners exiting forbearance slowed to the lowest level in the pandemic.
“It is not surprising to see the rate of forbearance exits slow,” said Mike Fratantoni, MBA’s chief economist, “as households that needed forbearance assistance in October may be in even greater need now.”
