Part of the US government moves to sustain the economy also includes providing homeowners with mortgage relief which would help owners who will not be able to pay their mortgage within the next few months maintain their homes for a while.
The coronavirus mortgage relief is a move of the US government to help homeowners who may not be able to pay their mortgages within this period. The government, through Fannie Mae and Freddie Mac, has instructed loan providers to assist borrowers with a 12-month mortgage forbearance. This includes waiving of all penalties and late fees while all evictions and foreclosure sales are to be put on hold until May 17, 2020.
All negative reports to the credit bureaus will be ineffective until further notice. While loan modification options would be made available to homeowners to maintain their homes until the 12-month period is over. However, borrowers will still have to pay the amount once the forbearance period is over with the possibility of additional help as granted by the servicer.
This new policy is only applicable to mortgages under Fannie Mae and Freddie Mac, though the federal regulators are expectant that other mortgage loan providers will put this policy into effect. The mortgage relief is yet, not available to everyone as Freddie Mac expects proof of “decline in income” before qualifying.
The forbearance program announcement was made last week by Fannie Mae and Freddie Mac. An FHA loan program was also announced by the Department of Housing and Urban Development.
While Fannie Mae and Freddie Mac have put this policy into consideration, the Mortgage Bankers Association have estimated that if loan forbearance is granted to just a quarter of all borrowers within the next six months or more, there would be over $75 billion demand on servicers with a possibility of the amount hitting $100 billion. It will only be a matter of time before the mortgage finance system goes bankrupt. As a result of that, the association sent a letter to the Federal Reserve requesting financial support.
Bob Broeksmit, CEO of the Mortgage Bankers Association, said concerning this issue: “Nobody predicted the demand this would place on servicers, so they need an ability to have the liquidity to make it happen, and if there’s not some kind of ability through a liquidity facility, then the servicers won’t be able to meet their obligations to the investors and the whole process will break down.”
This creates a hitch in the mortgage relief program as mortgage servicers are obligated to pay investors who own mortgage-backed securities. There’s also the issue of servicers to pay third-party insurers and tax authorities. Under a stable economy, the MBA would be able to grant forbearance for a few borrowers.
For the time being, this policy would only apply to mortgages backed by either Fannie Mae or Freddie Mac. FHA backed loans are also included. However, it does not apply to people renting a home, though, some cities have agreed to pause rent evictions until further notice.
Also, mortgage lenders are offering homeowners the option to defer their loan payments for up to 90 days.
Banks that are allowing homeowners to defer payment due to Coronavirus
- Bank of America
- Cadence Bank
- Chase bank
These are the list of banks that have publicly announced that they would allow homeowners to skip their mortgage payment.