How To Suspend Your Mortgage Payments During Coronavirus Turmoil
If your loan is federally backed and you’re experiencing hardship caused by the pandemic, lenders are supposed to allow forbearance. How To Suspend Your Mortgage Payments During Coronavirus Turmoil
If your mortgage is federally backed, lenders are supposed to allow forbearance for those experiencing a financial hardship caused by the coronavirus pandemic. Here are answers to commonly asked questions:
What Is Forbearance?
Forbearance allows homeowners to suspend their monthly payments when they experience a hardship or interruption in their ability to make payments.
It is not payment forgiveness or even deferment. Instead, all the missed payments, plus interest, are often due when the forbearance period ends.
As part of the $2 trillion stimulus package passed by Congress and signed by President Trump, lawmakers provided more guidance for mortgage companies granting forbearance to those affected by the crisis. If the loan is federally backed—and about 70% of mortgages in the U.S. are backed or insured by a federal agency—then the mortgage servicer is supposed to grant it.
Is It Only Those Who Have Tested Positive For Covid-19?
Borrowers qualify if they are experiencing a financial hardship caused directly or indirectly to the Covid-19 emergency, according to the stimulus package.
This definition is intentionally broad, said John Hastings, a senior loan officer at Movement Mortgage in Minneapolis. It is causing some confusion among lenders and borrowers.
“Servicers are going to be in a tough spot, and there are a lot of unknowns,” he said. “Don’t make any assumptions about what your options are.”
For example, Fannie Mae and Freddie Mac have said this applies “whether you’re facing job loss, reduced income, illness or other issues that impact your ability to make your monthly mortgage payment.”
Bob Broeksmit, chief executive officer of the Mortgage Bankers Association, said this should also apply if a hardship with a co-borrower or family member has similarly affected someone’s ability to make payments.
Even those who lose work hours or are considered underemployed may qualify, said Mr. Hastings. He said the wide swath of people affected by this crisis means there will be lots of room for interpretation, for both servicers and those seeking forbearance.
“If the loan is federally backed, those mortgages are going to have some protection, and the servicers will have more leeway,” he said. “But the privately held mortgages, the brokered-out loans, the type of mortgages where people had the stated income or bank-statement-type loan programs to show incomes, those servicers are scrambling, trying to figure out what they’re going to do.”
There has been a resurgence in unconventional nonagency mortgages, but as the mortgage market continues to break down in the wake of the pandemic, those might be the ones most negatively affected.
Should I Do It?
It depends. Forbearances are usually granted after personal hardship such as death, divorce or a natural disaster. They are expected to be used widely as millions of Americans lose their jobs and struggle to cover living costs.
“I always stress: if you’re not affected and able to make your payments, please keep doing so,” said Mr. Broeksmit.
How Can I Do It?
Many mortgage companies have posted options available to customers who have been affected by the coronavirus pandemic. If you can’t find the information you’re looking for there, try calling your company directly. But be warned: You likely won’t be the only one trying to get through.
“We’ve been hearing from our members who service mortgages that the call volume has gone up exponentially and the hold times are 45 minutes or an hour in a lot of cases,” said Mr. Broeksmit.
Do I Have To Get In Touch With My Company By A Certain Date?
Wall Street Journal reporting shows some servicers are taking days or weeks to respond to forbearance requests. These long wait times could mean some borrowers might not be approved until both their payment date and grace period have passed.
But Mr. Broeksmit also points out that while many people may stress about putting in a request before their payment date, they should take advantage of the grace period in place if needed.
“Another thing I think is helpful to point out: while the mortgage payment is due on April 1, there’s a grace period, so it’s not delinquent until April 15,” Mr. Broeksmit said. “People shouldn’t think, ‘If I don’t get in touch with my servicer by April 1, I’m going to have some sort of negative consequence.’”
What Happens If I’m Not Able To Get In Touch With My Company Until After My Payment Date And Grace Period Have Ended?
If the forbearance plan hasn’t been approved by the last day to make that month’s payment, the loan will likely be considered delinquent.
Will This Affect My Credit Score?
It shouldn’t, but it might.
Freddie Mac has instructed mortgage servicers not to report borrowers on forbearance plans as delinquent to the credit bureaus.
In the past, natural-disaster victims granted the same relief have been reported late, making their recovery more difficult. And the record number of forbearances expected will challenge servicers’ capabilities, including the suspension of negative credit reporting.
Homeowners who accept a forbearance plan should regularly check their credit reports to make sure they haven’t been reported past due.
The Consumer Financial Protection Bureau has said it would give lenders more time to respond to credit-reporting complaints from consumers during the pandemic. That means homeowners might wait longer to have inaccurate information removed from their credit reports.
Will This Affect The Life Of My Loan? What Happens To Interest During The Time I’m Not Paying?
Most of the time, borrowers won’t know how they will be allowed to catch up on the missed payments until the forbearance ends.
Many servicers allow borrowers to apply for repayment plans, in which the missed payments are spread over a given time frame, or for a loan modification, which changes the terms of the loan. Additional documentation is typically required for these options, and being approved isn’t guaranteed.
Borrowers with loans insured by the Federal Housing Administration can resume their normal mortgage payments when the forbearance ends, according to the Department of Housing and Urban Development guidance issued recently. But these loans represent just a fraction of all active mortgages.
Wells Fargo Curtails Jumbo Loans Amid Market Turmoil
America’s largest mortgage lender will only refinance jumbo mortgages for customers who hold at least $250,000 in liquid assets with bank.
Wells Fargo WFC & Co. substantially curtailed its program for making large loans this week, one of the most pronounced signs yet of how the recent market turmoil is cutting off access to some types of mortgages.
America’s largest mortgage lender will only refinance jumbo mortgages for customers who hold at least $250,000 in liquid assets with the bank, according to a bank spokesman. The change is effective immediately.
That means that a customer who already has a jumbo loan with Wells Fargo can’t refinance to take advantage of falling rates unless they keep money with the bank. The bank hasn’t changed policies for loans used to purchase properties.
A jumbo loan is one considered too big to be sold to government mortgage corporations Fannie Mae and Freddie Mac. In most markets, it must be larger than $510,400 this year, but in the highest-cost areas it must be larger than $765,600.
Wells Fargo extended more residential mortgages than any other lender last year, according to industry-research group Inside Mortgage Finance. It was also the biggest lender for jumbo loans, extending some $70 billion of them in 2019.
Conventional loans that are guaranteed by Fannie Mae or Freddie Mac are still widely available. But loans without government backing, like jumbo loans, have been harder to come by during the recent market fluctuations because there has been limited appetite for investors to buy these loans.
Reflecting this, the average interest rate on a 30-year jumbo mortgage on Friday was 3.86%, well above the 3.44% on a conforming mortgage, according to indexes kept by Optimal Blue LLC. These are typically closely aligned during more normal periods.
Some banks don’t sell jumbo loans to investors, but rather keep them on their balance sheets. Wells Fargo faces limitations on its ability to do so. Since 2018, the Federal Reserve has capped the bank’s total assets because of risk-management failures tied to its fake-accounts scandal. That gives it limited flexibility to make loans that it holds onto.
“These difficult business decisions reflect efforts to prioritize how we serve customers and maintain prudent balance sheet discipline,” the bank spokesman said Saturday.
The bank also said earlier this week that it would stop purchasing all jumbo loans made by third-party mortgage bankers. Its third-party mortgage business, known as correspondent lending, amounted to about one fifth of its total business in the final three months of 2019, according to Inside Mortgage Finance.
2.7 Million Homeowners Are Pausing Their Monthly Mortgage Bills And More Might Need Help In The Coming Months
A promising sign of a bounce back in the pandemic-ravaged economy has stalled: Fewer borrowers are resuming mortgage payments.
The proportion of homeowners postponing mortgage payments had been falling steadily from June to November, an indication that people were returning to work and the economy was beginning to recover. But the decrease has largely flattened since November, when the current wave of coronavirus cases surged in communities across the country.
For roughly the past two months, that group of homeowners has flatlined at about 5.5%, according to the Mortgage Bankers Association. Though that is down from a peak of 8.55% in June, some economists are concerned about the stalling forbearance rate—and worry that it could even start climbing as the economy sheds jobs.
Other data indicate a slowing U.S. economy this winter, and greater pressure on household finances. Employers cut jobs last month for the first time since the spring. The number of job openings has declined, and claims for unemployment insurance remain elevated. Retail sales have fallen for three consecutive months.
“With the waning recovery, and more applications for unemployment claims, we’re likely going to see increased demand for forbearance,” said Ralph McLaughlin, chief economist at Haus, a home-finance startup. “One of the safeguards people have, if they own a home, is to apply for forbearance.”
The roughly 5.5% of borrowers in forbearance represent about 2.7 million homeowners, according to the MBA. (The rate did slip to 5.37% in early January.) At the peak in June, about 4.3 million homeowners were in forbearance plans, according to the MBA.
Shunda Lee had planned to restart payments on her home in Forney, Texas, this month after a three-month forbearance from Regions Financial Corp. ended. The courthouses where she works as a lawyer have often been closed, putting her short-term income in doubt.
The pandemic first shut down Texas courts last spring, but Ms. Lee, 47 years old, managed to stay current until September, tapping her savings to help cover the monthly payments of about $1,600 on her federally backed mortgage. She recently asked for—and received—a three-month extension on her forbearance plan from Regions.
If she’s still not working full time when the extension expires, she said, she plans to request additional forbearance. Ms. Lee said she would ask for help from her parents, who live nearby, as a last resort.
“If worst comes to worst, that’s what I’ll do,” she said. “Nobody wants me to lose my house.”
The federal Cares Act passed last March afforded borrowers the opportunity to postpone payments on federally backed mortgages for up to 12 months. About 75% of U.S. mortgages are guaranteed or insured by the U.S. government, according to mortgage-data firm Black Knight Inc.
Many homeowners might not be able to start paying again when the oldest plans start to expire in late March, said Andy Walden, director of market research at Black Knight.
“That’s a huge unknown in terms of what share of those homeowners…could get back on track and what share need additional assistance,” Mr. Walden said.
Just 35% of homeowners with forbearance plans that expired near the end of December were removed from forbearance in the first week of January, according to Black Knight. That was down from an average of 60% in the previous three months. That means more borrowers got extensions on their forbearance plans in January.
Some of the borrowers who exited forbearance no longer needed the relief plans, and others were able to work out longer-term repayment options, like a modified loan with a lower interest rate. Others with recently expired forbearance plans have already fallen behind on their payments, according to the MBA. Of those borrowers, some likely needed an extension and simply forgot to ask for one—or didn’t know they needed to ask.
Homeowners with Federal Housing Administration loans are more likely to be in forbearance than those with mortgages backed by Freddie Mac or Fannie Mae, according to MBA data. Just 3.13% of Fannie and Freddie mortgages were in forbearance in early January, compared with 7.67% of FHA loans.
FHA borrowers typically have weaker credit, lower incomes and smaller down payments than Fannie and Freddie borrowers. Job losses during the pandemic have disproportionately affected low-wage workers, including employees of restaurants, hotels and shopping malls that have been devastated by the stay-at-home economy.
And people who find they need to sign up for mortgage relief in the near future might not be able to get it. The current deadline to sign up for forbearance on many federally backed home loans is the end of February. On his first day in office, President Biden asked the Department of Housing and Urban Development and other agencies to extend the deadline until at least the end of March. (The U.S. Department of Agriculture already agreed to do so.)
Dean Lemieux, 51, of Daphne, Ala., signed up for forbearance with his lender, Mr. Cooper Group Inc., in December.
Mr. Lemieux, a project manager in the oil-and-gas industry, lost his six-figure income last spring when oil prices fell to their lowest level in years. He and his wife drew down their savings to stay current on their mortgage through the fall.
“It was like we were on the Titanic,” Mr. Lemieux said. “Now we’re in the life raft with the forbearance.”
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