How COVID-19 Is Affecting Your Mortgage
Dear Rich Lifer,
COVID-19 has had a devastating effect on Americans.
It has claimed almost 200,000 lives and sickened 6.65 million.
It has disrupted the economy and put people out of work.
It has forced the closure of businesses and schools around the nation.
But it could also be affecting part of your life without you realizing it — your mortgage.
About one million homeowners have fallen through the safety net Congress set up early in the coronavirus pandemic to protect borrowers from losing their homes.
These millions are now vulnerable to foreclosure and eviction.
Did you know homeowners with federally guaranteed mortgages can skip monthly payments for up to a year without penalty and make them up later?
These types of homeowners can call their mortgage company and ask for the relief, known as forbearance.
Qualification for forbearance is, “intentionally broad,” according to John Hastings, a senior loan officer at Movement Mortgage in Minneapolis. Basically, any borrower can qualify if they are experiencing a financial hardship caused directly or indirectly by the Covid-19 emergency.
The openness of this qualification scale was intended to make forbearances easier to get but has also caused confusion among lenders and borrowers.
Many homeowners have missed the memo, so to speak, on this protection, and are now suffering the consequences.
If you think you may fall into this category… read on…
Are You Past Due?
Due to the economic toll of coronavirus, many Americans have missed payments on their mortgages and now find themselves falling into deeper and deeper financial holes filled with overdue payments and late fees.
These homeowners are soon to be at risk of losing their homes, once national and local restrictions on evictions and foreclosures expire.
According to mortgage-data firm Black Knight Inc., about 1.06 million borrowers are past due by at least 30 days on their mortgages and are not in a forbearance program.
Of those 1.06 million, about 680,000 have federally guaranteed mortgages; and therefore, qualify for a forbearance plan under the March stimulus plan.
The rest have loans that aren’t federally guaranteed, and their lenders aren’t required to offer forbearance, though many have chosen to do so.
Lenders and consumer groups said the number of past-due mortgages that aren’t in forbearance could grow — several million people who are currently in forbearance will reach the six-month point of their plans by the end of October.
An extension of up to six months is possible … but homeowners must ask for it.
Lenders said they are reaching out to these borrowers before their forbearance periods expire.
“Falling Through The Forbearance Safety Net”
About 250,000 borrowers who were in forbearance at one point since the pandemic began are again delinquent on their homes, according to Black Knight.
Many of the borrowers who are falling through the forbearance safety net tend to be among the more financially vulnerable, with lower incomes and weaker credit scores.
A recent survey of the National Housing Resource Center found that 56.6% of respondents didn’t know about the forbearance program.
Further, many respondents didn’t have a clear understanding of their options, and many (69.9%) declined forbearance because they thought they would have to pay back their mortgages in a lump sum.
Consumer advocates and housing-policy experts are now pushing for more transparency about forbearance and are discussing a national ad campaign to educate homeowners about their options.
This website was set up by a group of government agencies and has tons of helpful information for borrowers about mortgage and housing assistance.
Forbearance Phone Tag
There have also been issues between lenders and borrowers when it comes to communication regarding ongoing or soon to expire forbearances.
Pete Mills, a senior vice president at the Mortgage Bankers Association, says, “Servicers are absolutely reaching out to borrowers who are delinquent and not already in forbearance.” He maintains that borrowers need to be more proactive about reading out to their lenders in order to understand their options.
However, Sue Stevenson, a mortgage-default counselor near Seattle, has reported that homeowners have had trouble getting through to mortgage-service companies on the phone.
They are often sent to voicemail, and their calls are never returned.
Other times they are forced to hold for long periods of time, only to have their call dropped and have to start the process all over again.
Then when the call is answered, representatives are often forced to read from jargon-filled scripts that can be confusing to the common homeowner.
Stevenson went on to say, “Representatives are restricted in what they are allowed to say, leading to misunderstandings because it’s not in layman’s terms, so it can just be so confusing.”
The Mortgage Bankers Association and lenders, on the other hand, say call wait times are down since the beginning of the pandemic.
Are Lenders Panicking?
Some mortgage lenders are now asking customers who are taking out a mortgages to confirm they don’t intend to seek forbearance.
This move is meant to curtail the losses that many lenders are now experiencing because of the pandemic and subsequent forbearances.
This odd requirement comes in the form of a new document, included in many borrowers’ closing paperwork, which basically tells borrowers that they won’t be allowed to skip payments until their loans are backed by the government.
Lenders are calling these forms “Covid-19 borrower certifications” and essentially are asking borrowers to confirm they won’t have changes in their income in the near future.
This is just another sign of the struggle lenders are having in determining who will be able to pay back their loans.
Lenders are also tightening credit by raising minimum credit scores and lowering maximum debt-to-income ratios.
So, whether you are a homeowner confused about your options or a lender trying to protect your business, you have one thing in common — coronavirus has thrown you for a loop.
Clear communication seems to be the missing link, but we hope this game of phone tag will end sooner rather than later.
To a Richer Life,
The Rich Life Roadmap Team