The ongoing COVID-19 pandemic has taken its toll on every aspect of the American economy. Unemployment rates are up, consumer spending is down, and far too many families across the country are struggling with the parallel stresses of a dangerous pandemic and its potentially disastrous economic consequences. Despite all that stress, there’s some good news for struggling homeowners: the Federal Housing Finance Authority (FHFA) has extended its mortgage forbearance program.
The extension means homeowners who took advantage of the program at the start of the pandemic will be granted at least another three-month reprieve. In addition, those who apply and are approved for a forbearance plan before February 28, 2021, will still be eligible for the extension. According to financial expert Dustin DiMisa, it could make a huge difference for millions of American homeowners and, ultimately, the US economy.
The last mortgage forbearance program was passed as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, implemented by the Trump administration. This program allowed all holders of federally-backed mortgage loans who were impacted by the pandemic to request up to 180 days of forbearance, plus another 180-day extension. The CARES Act was passed on March 27 of last year and was set to expire in March 2021.
On the first day of President Biden’s administration, he took immediate action to extend the federally-backed mortgage forbearance program an additional 90 days. The President and his administration understand the importance of providing meaningful support to American homeowners during this unprecedented time. Extending the forbearance program will allow payment deferrals of up to a total of 15 months.
Who Is Eligible for the Extension?
The extension applies to all loans covered by the restrictions, whether the homeowner’s state has a foreclosure and eviction moratorium in place or not. For loans overseen by the FHFA, which include Fannie Mae- and Freddie Mac-issued mortgages, the deadline to apply is February 28, 2021. Other eligibility criteria apply. Homeowners who are applying for forbearance for the first time must:
- Have a loan that is serviced by Fannie Mae or Freddie Mac, the only two HUD-insured lenders.
- Be on a COVID-related forbearance plan.
- Not be able to reinstate the full loan.
- Be experiencing economic hardship as a result of COVID-19.
- Have the ability to return to making payments following the end of the pandemic.
The lender will request information about each borrower’s financial situation to determine whether the loan is or is about to be in COVID-related temporary delinquency or permanent delinquency. Loan servicers are required to complete the payment deferrals within a month of determining a borrower’s eligibility, which means some borrowers will have to make one full monthly payment while their applications are being processed to remain eligible for a payment deferral.
When Will Missed Payments Come Due?
The extension of the CARES Act mortgage forbearance holds homeowners in forbearance to the same reasonable standards. Instead of coming due in one lump sum as soon as the moratorium expires, the delayed payments will come due only when borrowers sell their homes, refinance, or come to the end of their ordinary loan terms.
Will Forbearance Affect Homeowners’ Credit?
While delinquent loans will always negatively impact homeowners’ credit scores, taking advantage of the COVID-related forbearance extension will not have a lasting impact. Lenders will not charge late fees, administrative fees, and other penalties.
If homeowners opt to start or continue making COVID-related payment deferrals, the lenders may file reports with the credit bureaus indicating that the borrower is deferring payments. Additionally, homeowners in forbearance may not be able to get another mortgage until three months after their forbearance periods end. In comparison to allowing a home loan to become delinquent, the long-term effects of applying for a forbearance extension are minor, given that they will not adversely impact borrowers’ credit scores.
Homeowners who have FHA, USDA, or VA loans may also be eligible for COVID-related assistance. They have until the end of March to apply for extensions. Furthermore, many private lenders have voluntarily offered extra protections to their borrowers. Unlike federally-backed lenders, they are not required by law to offer these services, and each private lender is allowed to create its own terms for payment relief.
That said, the first step is still the same: borrowers who are unable to make their normal monthly mortgage payments should reach out to their lenders as soon as possible. Lenders may be more flexible regarding forbearance availability or may be able to offer other forms of help. The Biden administration has also extended
What Happens to Borrowers After the Forbearance Moratorium Ends?
There are more than 2.7 million home loans currently in forbearance. Currently, lenders are expressly forbidden from pursuing foreclosures, but that protection won’t last forever. While borrowers with HUD-backed loans won’t have to pay back the money they owe from payments missed during the coronavirus pandemic until the end of their loan terms, not all homeowners will have that luxury.
Allowing the home to go into foreclosure can have a dramatic negative impact on borrowers’ credit scores, but there are other options. Experts recommend:
- Selling the home and renting until the family’s finances have stabilized to take out another mortgage and purchase a new property.
- Paying off the mortgage in a sale, if possible.
- Refinancing the home using its equity as leverage.
- Considering home-sharing by renting one or more rooms to generate extra income that will help homeowners pick up the slack until their finances stabilize.
Some of these options may sound less-than-ideal but remember: foreclosure has lasting financial repercussions. Allowing a home loan to enter delinquency will always hurt the borrower’s credit score.
The COVID-19 pandemic has taken hundreds of thousands of lives in the United States, alone, and its economic repercussions have upended millions more. The federal and local governments are doing everything in their power to protect individual Americans and families from the worst of the lasting health and financial repercussions. Take advantage of these programs and extensions while they are available.