- Mortgage Delinquencies Spike Due To COVID-19: What To Do If You Can’t Pay Your Loan
- Low-Income Borrowers More ly to Face Delinquency
- Borrowers Who Most Need Mortgage Relief May Not Know Their Options
- Can’t Pay Your Mortgage? Here’s What to Do
- Coronavirus mortgage relief is available — here’s what to do if you can’t pay on time
- Mortgage relief options during the coronavirus crisis
- Reach out to your lender first
- Consider refinancing your mortgage
- Consider a loan modification
- Mortgage forbearance
- How to request forbearance mortgage relief
- How forbearance works
- COVID-19 Mortgage Relief for Homeowners Facing a Payment Crisis
- To start, verify your mortgage type
- How mortgage forbearance has changed due to COVID-19
- Freddie Mac forbearance
- Fannie Mae forbearance
- FHA forbearance
- VA loan forbearance
- USDA forbearance
- Coronavirus-related loan modification options
- What if you don't have a government-backed mortgage?
- Contact your lender to get mortgage relief
Mortgage Delinquencies Spike Due To COVID-19: What To Do If You Can’t Pay Your Loan
The mortgage delinquency rate jumped nearly four percentage points to 8.22% during the second quarter of 2020, when the economic fallout from the coronavirus pandemic really began taking hold, a new report from the Mortgage Bankers Association shows.
FHA loans—popular among first-time homebuyers who might not have the savings to make a big down payment—led the pack in delinquencies, rocketing to 15.6% past due, according to the National Delinquency Survey.
That’s almost double the rate for all loans and the highest delinquency rate since MBA began its record in 1979.
The delinquency rate includes loans that are at least one payment past due, as well as loans in forbearance, but does not include mortgages in foreclosure.
“The COVID-19 pandemic’s effects on some homeowners’ ability to make their mortgage payments could not be more apparent,” says Marina Walsh, vice president of industry analysis in MBA's research and economics department. “The nearly 4 percentage point jump in the delinquency rate was the biggest quarterly rise in the history of MBA’s survey.”
The news comes as mortgages in forbearance fell for the ninth week in a row, to 7.21%. So why are delinquencies rising as forbearance numbers are falling, especially since the government’s first stimulus bill allowed up to 360 days forbearance on many mortgages?
The answer may lie, in part, in what’s not covered by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Some 30% of mortgages are held by lenders that are not beholden to CARES Act rules, which only apply to mortgages backed by the government, including Fannie Mae, Freddie Mac and Ginnie Mae loans.
What’s more, there are ly borrowers who don’t know they qualify for forbearance under the CARES Act.
Low-Income Borrowers More ly to Face Delinquency
Not all mortgage types were affected at the same rate, the MBA data shows. Loans designed to help low-income and first-time homebuyers were impacted the most.
FHA delinquencies topped the list, rising 643 basis points from the first quarter. A basis point is one one-hundredth of a percentage point. Delinquent VA loans increased by 381 basis points, followed by conventional mortgages with a 307 basis-point increase.
FHA loans tend to have higher delinquency rates than other loans because they’re geared toward low-income borrowers or folks with a smaller down payment and lower credit score.
Borrowers Who Most Need Mortgage Relief May Not Know Their Options
Although the CARES Act has been widely publicized, its forbearance feature doesn’t appear to be all that well known. More than half of mortgage holders (56%) don’t know that there are relief options available if they suffer financial hardship due to the coronavirus, according to Fannie Mae’s August National Housing Survey.
Low-income borrowers made up the bulk of people who were not aware of available assistance, according to the survey of more than 3,000 people.
Hispanic borrowers made up the largest share of borrowers who reported not being familiar with relief options (65%), followed by Black borrowers (51%), white borrowers (41%) and Asian borrowers (8%).
There’s a massive disconnect between borrowers, their lenders and how the relief message is being disseminated, says Anna DeSimone, a personal finance expert and author of “Housing Finance 2020.”
“Delinquencies in America have been a problem because consumers are not able to have that one-on-one conversation with their lenders,” DeSimone says.
“They might not even know who their current servicer is because the loan has been sold 800 times.
If consumers are not getting proper notices about loan relief options and they’re not able to contact lenders, you’re going to see delinquencies rise.”
Lenders and organizations in charge of helping borrowers find relief should also make sure their information is available in multiple languages. Approximately 5.3 million U.S. heads of household have limited or no ability to speak English, according to a report by the Urban Institute.
Part of the problem is a language barrier, DeSimone says, but also some borrowers who are behind in payments might not realize there are laws protecting them, “so they avoid answering the phone because they’re scared it’s a collection agency.”
Lenders can do more, DeSimone says. Instead of just making phone calls to delinquent borrowers, they should put friendly videos about forbearance options on their page or website.
Can’t Pay Your Mortgage? Here’s What to Do
The first thing homeowners facing financial hardship because of the coronavirus should do is to find out if their loan is backed by the government. If it is, then they’re covered under the CARES Act. This means they will qualify for mortgage forbearance by simply telling their lender they can’t afford their mortgage bill. There’s no proof of hardship or documentation required.
But you have to take that first step, even if you haven’t yet missed a payment.
“It’s important to call before the loan becomes past due,” says Janelle Allison, vice president of mortgage resolution at Navy Federal Credit Union. “This advice holds true even if you've already been extended a forbearance as a result of the pandemic. These are unprecedented times, and some lenders will try and work with homeowners as the economy looks to rebound.”
Loans owned by Fannie Mae, Freddie Mac or Ginnie Mae qualify for mortgage forbearance under the CARES Act, which can last up to six months, with the option to extend forbearance for another six months.
Both Fannie Mae and Freddie Mac provide loan lookup tools, which you can use to determine if your mortgage is held by one of the big government-sponsored enterprises. Remember, the company you make your mortgage payment to may not own your loan.
Borrowers not covered by the CARES Act should contact their lenders, as well. In many instances, lenders are working with borrowers to come up with a plan that is affordable.
However, for borrowers who are not receiving help from their lenders either because they cannot contact them or the lender is not able to offer a plan that is financially feasible, they should get in touch with a Department of Housing and Urban Development-approved housing counseling agency.
“A counseling agency can help resolve mortgage delinquency and default issues,” says Leslie Tayne, a debt settlement attorney based in New York. “Borrowers can also try multiple forms of communication if they can't get in touch with their servicer, from email to online chat. Finally, they can file a complaint with the Consumer Financial Protection Bureau (CFPB).”
Coronavirus mortgage relief is available — here’s what to do if you can’t pay on time
The COVID-19 pandemic has left 22 million Americans unemployed as stay-at-home orders result in multiple business closings.
If you've lost your job, or if you're still working but earning less because of a reduction in hours, you may be wondering how you'll be able to continue making your mortgage payments.
Mortgage relief programs could help you navigate this difficult financial time.
Mortgage relief options during the coronavirus crisis
There are several things you can do to avoid defaulting on your home loan — and potentially triggering a foreclosure proceeding — if you're worried about keeping up with your mortgage payments.
Reach out to your lender first
If you're up to date on your mortgage now, it's important to keep it that way, and talking to your lender can help.
They may have a mortgage relief program in place designed to help borrowers who are struggling. For instance, you may be able to temporarily stop making payments for a set time period.
WHAT HAPPENS WHEN YOU HAVE DEBT IN COLLECTIONS?
“Most banks offer some sort of mortgage forbearance plan,” said Andrew Helling, a licensed real estate agent and founder of REthority.
During a deferment or forbearance, interest accrues on your loan but you won't be responsible for making payments. You also won't be charged any fees and your credit score won't suffer because of late payments.
Consider refinancing your mortgage
Refinancing your existing mortgage could help to lower both your interest rate and your monthly payment.
MORTGAGE RATES NEAR RECORD LOW — HERE'S WHY IT'S A GOOD IDEA TO REFINANCE
You may be wondering, should I refinance my mortgage now? It's a good question to ask, considering that the Federal Reserve has cut interest rates to zero.
If you're considering a refinance loan, do some rate shopping to see how much you could potentially save. Compare 15-year mortgage rates today with 30-year mortgage rates today and calculate your estimated monthly payment for each type of loan to see which one is most affordable for your budget.
Consider a loan modification
A loan modification allows you to renegotiate the terms of your existing home loan, versus refinancing with a new mortgage.
For instance, you may be able to change your mortgage term, obtain a reduction in your interest rate, or shift from an adjustable interest rate to a fixed rate. Loan modifications can make payments more affordable but depending on how your mortgage is restructured, it could increase your overall interest costs.
THE BASICS OF NO-CLOSING COST MORTGAGE REFINANCING
Helling said mortgage modification is usually the most flexible option in a situation the Coronavirus crisis. “Under a modification, a lender will either spread out payments over future periods or add additional months to the life of the loan.”
The federal CARES Act includes a key provision to offer financial relief to homeowners who have federally-backed mortgage loans. The Trump stimulus mortgage guidelines make it possible for you to pause payments to your loan for at least 180 days. You can also request an extension for an additional 180-day forbearance period.
How to request forbearance mortgage relief
If you're interested in forbearance for your mortgage, you'd need to reach out to your lender to discuss whether it's an option.
Currently, the CARES Act extends this relief to homeowners with federally backed mortgages, including FHA, VA and USDA loans as well as loans owned by Fannie Mae and Freddie Mac. If you have a conventional or jumbo mortgage loan that isn't federally backed, you should still connect with your lender to see if they're offering any forbearance or deferment options.
When requesting forbearance under CARES Act guidelines, be prepared to explain to your lender why you can't pay and how long you expect to be unable to pay. Your lender may also ask about your financial situation, including your income, debts, and any assets you have.
How forbearance works
If your request for mortgage forbearance is approved, you'll have 180 days without mortgage payments. No fees or penalties apply during this time and you can only be charged the interest you were already scheduled to pay, your loan's amortization schedule.
It's worth noting, however, that this is not free money, Helling said. “You'll need to pay back the amount you've deferred, though those terms will be determined by your lender.”
FED’S EMERGENCY RATE CUTS AFFECT MORTGAGES — HERE’S HOW YOU CAN BENEFIT NOW
Depending on your lender, these payments may be added to the end of your loan term or the mortgage itself may be modified to reflect what's owed. The lender could also require you to pay any missed payments in one lump sum.
A forbearance could offer mortgage relief in the short-term but consider the long-term financial impact. If the payments are added to the end of the loan term, it'll take you that much longer to pay off the home.
Having to pay a lump sum could put a strain on your finances if you're scrambling to come up with the cash.
And if your mortgage terms are modified, you may end up with a higher monthly payment than what you had before the forbearance took effect.
COVID-19 Mortgage Relief for Homeowners Facing a Payment Crisis
The coronavirus pandemic has left many Americans dealing with reduced income or unemployment. The federal agencies and government-sponsored enterprises, or GSEs, that buy and insure mortgages have stepped in to provide mortgage relief options to affected homeowners.
Some lenders and state governments have also taken independent action to provide mortgage relief to homeowners.
If you’re worried about paying your mortgage, the mortgage relief programs below may be able to help.
To start, verify your mortgage type
The kind of mortgage you have may determine what type of assistance is available to you.
You can find out if your conventional mortgage is owned by Freddie Mac or Fannie Mae using the loan look-up tools on their websites.
To verify whether you have an FHA, VA or USDA loan, find your closing documents (either hard copies or electronic versions) and look for the Closing Disclosure. In the upper right of the first page of this document, under “Loan Information,” you'll see checkboxes indicating your loan type: conventional, FHA, VA or other.
If you can't locate this document, try looking at your monthly mortgage statement or contacting your lender at the phone number listed on the statement.
Regardless of mortgage type, contact your lender to discuss relief options. The federal government has encouraged all lenders to support homeowners who need mortgage assistance due to hardship brought about by the coronavirus pandemic.
» MORE: What do Fannie Mae and Freddie Mac do?
How mortgage forbearance has changed due to COVID-19
Forbearance lets you make a reduced payment or no payment for a set amount of time. Interest accrues, and the skipped amount needs to be paid after the forbearance period ends. Before you start forbearance, make sure your lender offers repayment terms that seem reasonable.
Under normal circumstances, forbearance typically lasts about three months, but longer periods are available to homeowners dealing with financial issues during this time. Repayment may be expected as a lump sum at the end of forbearance, sometimes called a “balloon payment.” If a lump-sum payment isn’t feasible, try to negotiate for another option.
Fannie Mae, Freddie Mac, along with the FHA, VA and USDA, have required lenders to offer options other than lump-sum repayment to borrowers using COVID-19 forbearance. The agencies and GSEs have also barred lenders from charging additional fees, penalties or interest during forbearance beyond what would have normally accrued.
Lenders shouldn't report forbearance to the credit bureaus.
“The lender should report it as 'paying as agreed,'” says Rocke Andrews, current president of the National Association of Mortgage Brokers. Once the forbearance is repaid, Andrews says, “in theory, it shouldn't affect your ability to refinance or purchase in the future.”
Nerdy tip: If you were already behind on payments when you asked for forbearance, that delinquency may show up on your credit report and last until you are current with payments. This is one reason it's better to request mortgage assistance before you have missed a payment.
Freddie Mac forbearance
Freddie Mac borrowers are eligible for up to 12 months of forbearance, which won't be reported to the credit bureaus. If you are already in an active forbearance as of Feb. 28, 2021, you may request an additional three months of forbearance (up to 15 months total).
If, at the end of the forbearance term, you’re able to go back to your regular mortgage payments but are unable to pay anything additional, you may be eligible for COVID-19 Payment Deferral. With that deferral, the amount of the forbearance wouldn't accrue interest and would not be due until the end of the mortgage — whether that’s when you sell, refinance or pay off the loan.
Even if you are ineligible for deferral, your lender cannot demand a lump sum repayment and is required to work with you to find a different solution.
Foreclosures and evictions are currently suspended through March 31, 2021. That means no new foreclosure proceedings will start, and existing ones are on hold. You can find more info on the Freddie Mac website.
Fannie Mae forbearance
Borrowers are eligible for up to 12 months of reduced or suspended mortgage payments. The forbearance won't be reported to the credit bureaus. Fannie Mae borrowers already in forbearance as of Feb. 28, 2021, may request an additional three months of forbearance for a total of 15 months' delayed payments.
Fannie Mae borrowers may also be eligible for a COVID-19 Payment Deferral, which allows the amount of the forbearance to be paid at the end of the mortgage rather than at the end of the forbearance period. No matter what, your lender cannot require you to make a lump-sum repayment.
Fannie Mae has also suspended foreclosures and evictions through March 31, 2021. Learn more on Fannie Mae's website.
The FHA has set a deadline of June 30, 2021, to apply for initial COVID-19 forbearance. You can request an initial six months of forbearance and an additional six months if needed.
If you are already in active forbearance that began on or before June 30, 2020, after 12 months you can request up to two additional three-month extensions, for a total of 18 months of forbearance.
In addition to COVID-19 Forbearance, the FHA always has several mortgage relief programs in place. This includes standard mortgage forbearance lasting up to six months and special forbearance for unemployment, which can last a year or more.
At the end of your FHA forbearance term, you may be eligible for HUD's COVID-19 Standalone Partial Claim.
This is a no-fee, no-interest junior lien (a type of second mortgage) that doesn't have to be paid back until you sell your home, pay off your mortgage or otherwise end the loan.
The FHA says it offers other repayment options for homeowners who are ineligible for the Standalone Partial Claim. FHA lenders cannot require a lump-sum repayment.
VA loan forbearance
The Department of Veterans of Affairs has extended the deadline to apply for an initial COVID-19 forbearance to June 30, 2021.
VA borrowers are eligible for a six-month forbearance, which can be extended another six months. If you requested an original forbearance on or before June 30, 2020, you can apply for two additional three-month extensions if needed. Each extension needs to be requested separately.
The Department of Veterans Affairs has stopped all evictions and foreclosures through June 30, 2021. See mortgage assistance information on the VA website.
The USDA has set a deadline of June 30, 2021, to apply for initial assistance if your mortgage is backed by the USDA Rural Housing Service.
If your ability to pay your loan has been affected by the coronavirus, you can receive 180 days’ forbearance as long as you file by that date. Assistance can be extended another 180 days if needed. As with FHA and VA loans, if you were in active forbearance on or before June 30, 2020, and need additional deferral, you can apply for two additional three-month forbearance periods.
Foreclosures and evictions on USDA guaranteed loans are suspended through June 30, 2021. Find more information on the USDA website.
» MORE: What to do if you can't pay your mortgage
Get answers to questions about your mortgage, travel, finances — and maintaining your peace of mind.
Coronavirus-related loan modification options
Freddie Mac and Fannie Mae have allowed lenders to offer loan modifications typically reserved for homeowners who are victims of natural disasters. Contact your lender to understand your loan modification options.
Depending on your employment outlook, a Flex Modification, which is offered by both GSEs, may be another option.
If your mortgage is backed by Freddie Mac or Fannie Mae, the COVID-19 Payment Deferral option described above may be less onerous than a loan modification.
If you have an FHA loan or a VA loan, talk to your lender about loan modification options. Both agencies offer this type of mortgage assistance, but to date, neither has altered its usual programs to specifically assist homeowners impacted by the coronavirus pandemic.
» MORE: Understanding mortgage loan modifications
What if you don't have a government-backed mortgage?
Not all mortgages are backed by government agencies or the GSEs. Sometimes called “portfolio loans,” these mortgages aren't resold and are kept in-house by the lender.
Portfolio loans — which can include mortgages for self-employed borrowers, borrowers who are not U.S. citizens or borrowers who have experienced a foreclosure — don't meet Freddie Mac and Fannie Mae's standards.
Lenders may also choose to hang onto a mortgage for other reasons.
Portfolio loans aren't covered by any of the mortgage relief programs listed above. However, your lender may have its own assistance programs. Follow the steps below to contact your lender.
» MORE: Mortgage lenders' responses to coronavirus
Contact your lender to get mortgage relief
No matter what type of loan you have or what government assistance may be available, contact your lender directly if you have concerns about paying your mortgage.
You don't have to wait until you are delinquent on your mortgage, and calling before you miss a payment will ly give you more mortgage relief options. If you've already missed a payment when you ask for forbearance, Andrews says, that delinquency will show up on your credit report (and will stay there until the loan is made current again).
Here's what you should have ready when you contact your lender:
An estimate of your current income (and future income, if you anticipate that it may change).
An estimate of your current monthly expenses.
Your most recent mortgage statement.
Documentation of what caused your situation to change.
Beware of third parties offering mortgage assistance. Look for help from your lender, not from other organizations offering mortgage relief. If you want to get advice about talking to your lender, find a HUD-approved financial counselor on the HUD website. These counselors offer no-cost assistance and can help you be better prepared to call your lender.