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The CARES Act and COVID-19

Here’s some coronavirus relief your bank or home loan servicer might not be telling you: new federal coronavirus relief measures enable most homeowners with mortgage loans to put off making their mortgage payments for a full year. And once we get back to normal, those borrowers will have the option to tack those missed payments to the end of their loan terms.

Your credit won’t suffer. Yet, on the social media pages of some of the nation’s largest banks, consumers say customer service representatives are offering them the opportunity to skip only three months of payments, and they’re saying those payments will become due as a lump sum at the end of those three months, along with the next month’s payment.

“What help is that!” one Bank of America customer complained.

Those customers were given only part of the story. The federal CARES Act, signed by President Trump, gives borrowers of federally backed loans the right to contact their mortgage loan servicer and demand what’s called a forbearance – in other words,

skipping their mortgage payments – simply by attesting that the coronavirus crisis has resulted in financial hardship. No documentation of the hardship is required, regardless of how many questions your servicer asks about your financial situation. Mortgage servicers, however, are allowed to approve forbearance periods for 90 days at a time. According to Ralph Williams, spokesman for the Federal Housing Finance Agency (which oversees Fannie Mae and Freddie Mac, guarantors of nearly half of all U.S. loans), "Before those 90 days are over, customers need to reach out again if they need another 90 days, and so on, up to a year."

At the end of that forbearance period, however long it is, when you are ready to resume making monthly payments, servicers of federally backed loans must give customers several repayment options, including repaying the missed payments as a lump sum or spreading the payments over time, to be paid off in addition to regular monthly payments. In some cases, borrowers may choose to refinance their loans and reduce threir monthly payments. “Keep in mind, the servicer’s goal is to get the borrower into a plan that’s best for them,” Williams said. Another option, which many borrowers will choose because it requires no additional out-of-pocket expense, will be to add the entire missed amount to the end of the loan, extending the loan by the number of missed months. It’s important to note that these requirements apply only to federally backed loans. But chances are better than good that you have one.

You might think your loan is owned by the bank, credit union or mortgage servicing company that collects your payments and pays your taxes and insurance. But in fact, the Urban Institute, a nonprofit research organization, estimates that about 70% of home loans in the United States – about 33.4 million – are actually owned by an agency backed or controlled by the federal government, including Fannie Mae and Freddie Mac, government-sponsored enterprises that back a combined 28 million loans. The others are backed by the U.S. Department of Housing and Urban Development’s Federal Housing Administration (FHA or HUD loans, reverse mortgages, and loans for Hawaiian natives and Native Americans), the Veterans Administration and the Department of Agriculture (USDA loans).There are a number of ways to find out which agency owns your loan. The easiest way is to call the company where you send your loan payments and ask. Online lookup tools are available to find out whether your loan is owned by Fannie Mae or Freddie Mac.

​Loans backed by any of those agencies fall under the protections enacted by the CARES Act, which stands for Coronavirus Aid, Relief, and Economic Security. In addition to granting up to a year of forbearance, with no penalties, fees or additional interest, the government has forbidden any foreclosure actions against borrowers of those loans for 60 days beginning March 18. Providing borrowers the option to add the missed payments to the end of the loan was specifically dictated to loan servicers by the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac. An official at one large banking company, who asked to speak only on background, said his company understands that the requirement is also in place for loans backed by the other federal agencies. An official at another large banking company, also speaking on background, said it’s expected that all of the federal agencies will soon require servicers to offer the same repayment options. “The group tends to move together,” he said.

Alys Cohen, staff attorney for the National Consumer Law Center, which is tracking federal mortgage relief efforts, said repayment options that other agencies, such as FHA, USDA, and VA, require servicers to offer might be slightly different but the intention is the same. “The policies are somewhat different for each ‘channel,’ but all of them have loss mitigation options for the end of a forbearance such that you don’t have to pay a lump sum,” she said. The CARES Act doesn’t specify how mortgage servicers should handle the escrowed portion – property taxes and insurance – of mortgage payments.

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