In the wake of significant global developments, former President Donald Trump enacted a $2.2 trillion economic recovery plan on March 27th. The Coronavirus Aid, Relief, and Economic Security (CARES) Act introduced two safeguards for homeowners with federal mortgage backing:
- Foreclosure Moratorium
- Right to Forbearance for homeowners in financial distress due to COVID-19
The first safeguard is self-explanatory. The CARES Act prevents your lender or loan servicer from foreclosing on you for 60 days post March 18, 2020. As per the Consumer Finance website, the CARES Act also stops lenders and servicers from initiating or finalizing a foreclosure against you during this period. However, the concept of mortgage forbearance necessitates further elucidation. For comprehensive forbearance options, homeowners should consult their lender or loan servicer.
Deciphering Mortgage Forbearance
The term "Forbearance" has gained prominence recently. But what exactly does it entail? Is it advantageous? Do all homeowners meet the eligibility criteria? Let's dissect these questions.
MORTGAGE TERM: Forbearance denotes a temporary halt or reduction in your mortgage payments, permitted by your mortgage servicer or lender. It's vital to understand that forbearance does not waive your outstanding balance. You're obliged to repay the reduced or unpaid installments once your income stabilizes. The nature of your loan, investor requirements in your loan, and your servicer all influence the forbearance options available to you.
Federal Mortgage Backing
For the protections under the CARES Act to apply, your mortgage must be owned or backed by one of the following federal agencies:
- U.S. Department of Housing and Urban Development (HUD)
- U.S. Department of Agriculture
- Federal Housing Administration (FHA)
- U.S. Department of Veterans Affairs (VA)
- Fannie Mae
- Freddie Mac
If you obtain forbearance approval to postpone your monthly mortgage payments for 180 days, you won't incur late charges or have delinquencies reported to credit agencies.
Mortgages Not Federally Backed
We advise getting in touch with your servicer if your mortgage lacks federal backing. Several financial regulators have prompted financial institutions to cooperate with borrowers during these challenging times. While forbearance may not be granted, your servicer could help pinpoint other feasible solutions for your financial predicament.
Applying for Forbearance
According to the CARES Act, homeowners encountering financial hardship due to the COVID-19 crisis can request forbearance for up to 180 days. If financial difficulties persist after the initial 180 days, an additional extension of 180 days can be requested. Forbearance applications must be lodged with the lender or loan servicer. Depending on your financial circumstances, you may be required to outline:
- The reasons behind your payment difficulties
- Details about your income, expenditures, and other assets
- Whether your financial status is temporary or permanent
It's crucial to consider other financial relief measures; complete payment suspension may not be necessary. Inquire about the possibility of waiving late fees, loan modification, or other available options from your servicer. PRO TIP: Should you obtain mortgage relief (forbearance, modification, etc.), request written documentation detailing your agreement from your servicer. Once your income stabilizes, you can resume regular payments without waiting for the full 180-day term. Continually monitor your mortgage payments and credit score during this time for any unexpected changes.
If you're unsure about your next steps, contact CrossCountry Mortgage today for further guidance.
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