Mortgage relief guide: Forbearance programs; freeze on foreclosures, evictions

5 min read
1

Help for homeowners and renters during the coronavirus pandemic has arrived via a variety of state and federal orders and programs.

President Trump on Saturday ordered foreclosures and evictions to cease for 60 days across the U.S. in response to the coronavirus pandemic that has idled millions of workers.

In a news conference, Ben Carson, the secretary of Housing and Urban Development, said Trump ordered the “immediate cessations” of foreclosure and eviction proceedings. Officials urged those who are affected by the health crisis and struggling to make their mortgage payments to contact their loan services about forbearance on loans.

From Capitol Hill to Wall Street to state offices, help for struggling homeowners affected by the novel coronavirus ramped up last week. Ally Bank announced its 120-day mortgage payment moratorium and Bank of America said it would suspend mortgage payments for eligible borrowers, though no time limit is yet known.

The Federal Housing Finance Agency (FHFA), Housing and Urban Development (HUD), United States Department of Agriculture (USDA), Fannie Mae and Freddie Mac all have announced a freeze on foreclosures and evictions for at least 60 days as well as forbearance or disaster relief options for homeowners who can’t afford their mortgage payments.

Fannie Mae, Freddie Mac forbearance

Freddie Mac and Fannie Mae have also said they would allow forbearance options to borrowers affected by the pandemic. Forbearance means your mortgage payments can be suspended for up to 12 months because of economic hardship that was caused by the coronavirus outbreak. The two agencies back about half of all mortgages in the U.S.

This collective move to secure the housing of Americans facing financial hardship is not only ethical but financially wise, says Jeff Friedman, partner and shareholder at Hall Estill law firm. If this were a typical economic downturn, there would be a daisy-chain reaction that would lead to evictions, landlords collecting less rent, lenders losing money, and foreclosures. But with officials working in concert on a plan that makes sense for everyone, this kind of chain reaction can be avoided.

“Here, however, the CFPB, HUD, and FHFA have stopped this process before it starts, giving renters and financial institutions the opportunity to address claims through a dispute resolution mechanism administered by the CFPB,” Friedman says. “Furthermore, local sheriffs throughout the country are ceasing eviction enforcement, and courts are refraining from taking foreclosure cases. Without this, many people would lose their apartments and buildings in the age of coronavirus. The CFPB, HUD, and FHFA are to be applauded for their swift and decisive action.”

Working on a streamlined national program

Part of the reason the swift action is possible is because lenders are using existing programs as stopgap solutions, such as disaster relief. However, lenders and mortgage industry professionals don’t want to rely on these programs in the longer-term. Currently, they’re working on a more streamlined assistance program that would help borrowers as long as COVID-19 is disrupting business and ending paychecks for millions of Americans.

Heading this effort is Ed DeMarco, president of the Housing Policy Council and the former head of the FHFA.

“We know many people have had their income disrupted and, as leaders in the industry, we all hope this disruption is temporary as we fight off the virus,” DeMarco says. “We want to give borrowers, regardless of what type of loan, access to a simple, temporary payment deferment to offer some assistance during this challenging time.”

The group is currently coordinating with government agencies, but DeMarco believes they can have the plan in place quickly. They’re also working on a solution to help people with pending mortgage applications, as workplace disruptions can rattle the loan process.

Although lenders are overwhelmed with work, DeMarco urges homeowners and buyers alike to not walk away from borrowing.

“It is critical that we continue to process new mortgage applications, including refinance, in the face of the low-rate environment,” DeMarco says. “That itself is an economic stimulus.”

Cities and states are taking action

There are COVID-19 cases in every state in the U.S., but some are reporting higher rates of infection than others. New York leads the country, with approximately 4,597 reported cases, according to the Centers for Disease Control and Prevention. Next in line are Washington and California; each have 1,187 and 652 reported cases, respectively.

This number is expected to grow, which means the increased potential of job loss and other financial burdens that can make it impossible for some folks to keep up with their mortgage.

The measures put in place by government-backed loans and GSEs protect about 65 percent of mortgages in the U.S., according to a recent report by the Urban Institute. Protecting homeowners who aren’t covered by these measures is left to individual jurisdictions.

State list of help for people who can’t pay their mortgage

Here is a list of what some states are doing to help homeowners, this list will be updated as new information comes in.

New York

New York Gov. Andrew Cuomo offered assistance to homeowners by announcing that he will delay mortgage payments for 90 days. Eligible homeowners include those who lose their job due to the coronavirus.

“This is a real-life benefit,” Cuomo said at a press conference on March 19. “People are under tremendous economic pressure. Making a mortgage payment can be one of the number one stressors. Eliminating that stressor for 90 days, I think, will go a long way.”

Participation in the program will not negatively impact credit scores.

California

California Gov. Gavin Newsom signed an executive order on March 16 to stop evictions and foreclosures for people who are affected by COVID-19 through May 31, unless otherwise directed.

Texas

The Texas Department of Housing and Community Affairs (TDHCA) will suspend evictions and foreclosures for residents impacted by the coronavirus who are part of any of the programs the TDHCA oversees, including: Homebuyer Assistance Program, Bootstrap Loan Program, and the Homebuyer Rehabilitation Assistance Program.

“Our current practice is to take each on a case-by-case basis,” says Kristina Tirloni, senior communications advisor for TDHCA. “Forbearance, the suspension of all or a part of the mortgage payment for a specified period of months, is likely the predominant means of mortgage aid that will be provided to our borrowers and perhaps all borrowers in need of assistance.”

Homeowners who took part in TDHCA’s Texas Homebuyer Programs (My First Texas Home or My Choice Texas Home) are encouraged to contact their mortgage lender if they are experiencing challenges to pay their mortgage. TDHCA does not have any oversight for mortgage loans taken out through those programs.

North Carolina

North Carolina is postponing all court cases (including foreclosures cases) for at least 30 days as a way to decrease courthouse traffic and reduce exposure to the virus.

Massachusetts

Massachusetts proposes legislation to stop eviction and foreclosure proceedings.

Virginia

Virginia officials urge mortgage holders and servicers to offer hardship forbearances and refrain from credit reporting.

Kansas

Kansas halts foreclosures and evictions through May 1, 2020.

Louisiana

Louisiana halts foreclosures and evictions.

Maryland

Maryland courts stay foreclosure and eviction actions indefinitely.

New Hampshire

New Hampshire suspends foreclosures and evictions indefinitely.

Pennsylvania

Pennsylvania courts pause foreclosures and evictions through April 3.

Indiana

Indiana suspends the initiation of foreclosures and evictions through May 5.

New Jersey

New Jersey halts evictions and foreclosures which would last no longer than two months after the state of emergency (which Governor Phil Murphy put in place due to the coronavirus) ends.

What should stressed borrowers do next

Because new mortgage rules around the coronavirus change so quickly, it’s important for borrowers to communicate with their servicer about the latest options available to them, says Jennifer Keys, senior vice president of compliance at Covius.

So far, Keys says, the government has done a good job implementing existing programs, which has helped expedite assistance. The first line of defense for homeowners is halting foreclosure proceedings.

“I think the foreclosure halts are more immediate. That gives the most immediate relief to the most urgent needs that need to be addressed,” Keys says. “The forbearance lasts for about a year and then, after that, you have loan modification which is the next step and that changes the loan permanently,” Keys says.

Keep in mind, that the deferred amount will have to be repaid, in most cases, so be sure you work with your lender to come up with a plan that makes sense for you. People facing unemployment are likely eligible for benefits, so reach out to your state unemployment office if you’re in need of assistance.