What are your mortgage options?
By Lynnette Hoffman
These past few months many American's have lost their jobs due to Covid-19. As many struggle to make their mortgage payments, there are options that are available. The Care Act of 2020 was passed to offer borrowers relief in the time of crisis, but is this your best option?
First, let's explain a little about the mortgage business. Once your loan has been closed and you move in, many banks turn around and sell the loans. Who do they sell the loan to? Chances are your loan was bought by one of the many Government Sponsored Entities (GSE's) or federal agencies like Fannie Mae, VA or USDA. Once the loan is sold, another company called a "servicer" will service the loan. This is the company that makes sure the payments are made, taxes are paid and insurance is current. There are several involved in managing your mortgage once you have moved into your home. All of these companies will play a role if you fall on hard financial times.
In the Care Act of 2020, borrowers are given the option if they can not make their payments of asking for a forbearance. A forbearance is an agreement between the borrower and the lender that allows the borrower to delay foreclosure, the literal meaning of a forbearance is "holding back.' I have always told borrowers, if there is any way you can make your mortgage, please do so. Any type of modification or alteration to your loan just means the bank is making more interest and you are paying down less principal. If you can not make your payment, there are more options available through the forbearance.
During the forbearance, you have the option of pausing or reducing your payments. In the Care Act, lenders have the option to offer 6 months with an additional 6 months for a total of 12 months. I don't recommend this length of forbearance if at all possible, try to do the minimum changes to your original loan.
If you need a forbearance, call your lender or servicer immediately. They will ask you questions and give your different options for length of the forbearance and repayment options. One of the options in your forbearance will be to make up all of your payments at once when you go back to work. The other option may be to make up your payments over the next few months, basically make a larger payment than before to make up for the lost payments. The final option is a "modification," adding your payments at the end of the forbearance to the end of the loan.
A modification gives borrowers the chance to resume regular payments without having to pay the full arrearage back. This is done once the borrower has completed the agreement of the forbearance. The lender will contact you 30 days before your forbearance will expire to explain this process. If they do not call you, call them. Do not let time go by, you will need this time to get the documentation in order. During COVID-19, many lenders and servicers are hearing from borrowers who are unemployed. It is important to remember, if you don't call them, they can't work with you.
As a former banking executive, I have worked with Fannie Mae, Freddie Mac, US House Finance Committee and the US Senate Banking Committee. There is nothing more important during a financial crisis, then the relationship you will have with your loan servicer/lender. They will do everything within the guidelines allowed to keep you in your home. The bank does not want your home to go into foreclosure, everyone loses in the foreclosure scenario, there is no winner.