Given the fact that COVID-19 has caused a significant portion of the United States to shut down, or at least drastically slow down, it’s no wonder that most homeowners are looking for a way to reduce the pressure of mortgage payments until things go back to normal-ish (like steady incomes from steady jobs). To help with that, the $2.2T stimulus package known as the CARES Act mandates that servicers provide a forbearance to any homeowner (a forbearance is a temporary postponement of payments). This article will briefly discuss how the CARES Act impacts forbearance requests. A subsequent article will discuss potential pitfalls to watch out for.
As one would expect, forbearance requests increased by nearly 1,900% over two weeks (March 16, 2020 to March 30, 2020); this is 50% increase from the previous 2 week period, which showed a nearly 1,300% increase in forbearance requests (March 2, 2020 to March 16, 2020). While forbearance is a much-needed safety line, there are some things you should know.
First, do not make the mistake of thinking forbearance means you never have to pay this – it is a band-aid, not an entirely new body. Thus, you still owe the money, your payments just get placed on “pause” for a brief period of time. Homeowners with a federally backed mortgage are eligible for 6 months of forbearance under the CARES Act (they can request an additional 6 months as well). However, during forbearance, lenders cannot make negative credit reports, and they cannot penalize clients with fees or penalties if a borrower takes a forbearance.
Second, lenders wont just automatically place loans on forbearance, you need to ask your specific lender for that benefit. Next, you need to determine if you qualify for forbearance. In order to qualify for the CARES Act forbearance benefits, your mortgage must be backed by: (1) Fannie Mae; (2) Freddie Mac; (3) Federal Housing Administration (“FHA”; (4) U.S. Department of Veterans Affairs (“VA”); or (5) U.S. Department of Agriculture (“USDA”).
Third, understand that lenders don’t want to give you several months to not pay; that hurts their bottom line. To that end, they are going to make you justify why you are entitled to forbearance, so be prepared to answer a handful of questions. The questions will include why you can’t make your payments, whether the reason is a temporary issue or a permanent one, and the amount of your current assets and liabilities.
At the Chernov Team we understand that knowledge is power, and knowledge of the new CARES Act forbearance policies is powerful knowledge indeed. At the Chernov Team we know that whoever comes to the table most prepared leaves with the most, and the Chernov Team always leaves with the most.
