As novel coronavirus has spread across the globe, COVID-19 has affected every aspect of life. The U.S. Department of Labor reported nearly 3.3 million people filed for unemployment in the week ending March 21, the highest ever recorded.1 In California, 1 million people filed for unemployment in two weeks.2 The virus is not only overwhelming healthcare systems, but the finances of ordinary Americans. Homeowners suddenly out of work may have trouble making their mortgage payments, just another sign the COVID-19 crisis is having a drastic effect on the economy.
NEW CALIFORNIA STATE MORTGAGE GUIDELINES
State and local governments have taken action to provide financial relief. On March 25, California Governor Gavin Newsom announced that Citigroup, JPMorgan Chase, Wells Fargo, U.S. Bank, and almost 200 other state-chartered banks and credit unions would stop collecting mortgage payments for up to 90 days. The 90-day grace period applies to any borrower who proves COVID-19 has caused them financial trouble.
The change in guidelines also includes a moratorium on initiating foreclosure sales. It also stops evictions. During the 90-day period, financial institutions will waive or refund mortgage-related late fees and charges for early CD withdrawals.
Bank of America agreed to a 30-day waiver of payments and a plan that lets customers defer payments one month at a time. These payments can be added to the end of the loan term, similar to existing hardship forbearance options that include payment deferral.
Bill Haldin, a spokesman for the company, said, “Bank of America is deferring mortgage payments on a monthly basis until the crisis is over. At this point, ‘until the crisis is over’ could be up to 90 days or longer.”
NEW FEDERAL MORTGAGE GUIDELINES
For mortgage loans owned by Fannie Mae or Freddie Mac, borrowers may be eligible to delay monthly mortgage payments temporarily, President Trump announced on Wednesday, March 25 (in addition to the $2 trillion stimulus package passed on March 27). During the temporary relief period, they won’t incur late fees, have delinquencies reported to the credit bureaus, or face foreclosure or other legal proceedings. Additional assistance may be available to those who have trouble catching up with their home loan payments after the temporary relief period.
The Federal Housing Finance Agency (FHFA) has suspended evictions in multifamily properties. It will also allow Federal Home Loan Banks to use members’ residential mortgage loans in forbearance as collateral for advances. These banks must confirm they’ve extended forbearance to borrowers, and may accept e-signatures for short-term payment deferral agreements.
CARES ACT IMPACT ON MORTGAGES, FORBEARANCE, AND FORECLOSURES
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) temporarily restricts lenders and servicers of federally backed loans from pursuing foreclosures and other actions against borrowers. This is in addition to the support it provides for small businesses and debtors who file for bankruptcy.
Section 4022 of the CARES Act places a moratorium on foreclosures and provides consumers with the right to request forbearance. It applies to loans secured by a lien on residential real property that’s insured by the Federal Housing Administration, Department of Veterans Affairs, or Department of Agriculture or purchased or securitized by the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation. Borrowers with mortgages purchased by Fannie Mae and Freddie Mac are protected as well.
Under Section 4022, a borrower with a federally-backed mortgage loan can:
- Request forbearance if they are experiencing financial hardship due to COVID-19 (direct or indirect).
- Submit a request and be approved regardless of their delinquency status.
- Be granted up to 180 days of forbearance upon request to their mortgage servicer.
A borrower can also request an additional 180-day period of forbearance from their mortgage servicer (for a total of 360 days). In addition, they can request that the initial or extended period be shortened. For landlords with multifamily mortgages, the CARES Act calls for 30 days of forbearance (under Section 4023, they can extend this for an additional two 30-day periods). Landlords are also forbidden from charging fees or penalties for rent nonpayment or late payment.
What Mortgage Servicers Can’t Do:
- Charge/collect fees, penalties, or interest beyond what would be charged if all payments were made on time by the consumer. Requesting forbearance due to COVID-19 hardship won’t make your loan more expensive and the terms will remain the same.
- Request documentation to obtain evidence an individual’s hardship is due to COVID-19. Proof of hardship is based on the attestation of the borrower, meaning your lender or mortgage servicer must take your word for it.
- Initiate any type of foreclosure process, whether judicial or non-judicial. Mortgage servicers cannot provide notice of or initiate a foreclosure hearing. If there are any delinquencies in your mortgage payments, you can still request forbearance during the period specified in the CARES Act.
- Move for a foreclosure judgement or order of sale. The foreclosure moratorium prevents a mortgage servicer from initiating any part of the foreclosure process or executing a sale for 60 days following March 18, 2020.
- Execute a foreclosure-related eviction. Residents of federally subsidized housing or who live in a dwelling covered by a federally backed mortgage can’t be forced to leave through eviction for 120 days after the Act went into effect. Eviction notices cannot be issued until the moratorium period expires. However, the moratorium does not apply to vacant or abandoned property.
Financial and Credit Impacts
Under Section 4013 of the CARES Act, banks don’t have to recognize loan modifications related to the crisis as trouble debt restructurings. This includes changes to interest rates as well as repayment plans. However, the changes in generally accepted accounting principles only apply during the modified terms of the COVID-19 outbreak, while loans overdue by 30 days as of December 31, 2019, are not eligible for the status outlined in the new law.
Changes in credit reporting have also gone into effect. Borrowers will be reported as “current” in credit reporting if they make late payments between January 31, 2020, and 120 day after the CARES Act was passed. Borrowers reported as delinquent prior to this period can bring their account current during this time and be reported as “current”, unless a consumer’s loan has been charged-off.
WHAT STEPS DO I TAKE NEXT?
If you’re facing unemployment, lost your primary source of income, or are otherwise facing difficulties as a direct result of the COVID-19 crisis, you should:
- Contact Your Mortgage Servicer ASAP: Discuss your situation and plans for resuming making mortgage payments. If more assistance is needed, talk about options for preventing foreclosure and losing your home.
- Document Your Financial Hardship: Collect pay stubs, communications from your employer, stock portfolio statements, and other documentation to show you qualify for government relief options.
- Document All Correspondence Between You and the Servicer: Record your calls, save emails, and file mailed paperwork from your mortgage servicer. At this time, servicers are very busy and may lose important documentation, so it’s important you remain diligent.
- Be Prepared to Repay What You Owe: You will eventually have to pay back your lenders, even if you qualify for mortgage forgiveness. Communicate with your lender about available options and keep track of what you owe, so you can pay your bills once the situation improves.
- File for Unemployment: File as soon as you can, and make sure your wage information and identity match your employment records. An unemployment claim can take three weeks to be processed. However, Governor Newsom has waived the one-week waiting period to file, so you can start collecting right away.
HOW LONG WILL THE FORBEARANCE LAST?
To offset high housing costs and the economic effects of coronavirus, California’s agreement with major banks allows homeowners to delay each month’s mortgage payment by up to 90 days.
WHAT EFFECT WILL THIS HAVE ON MY CREDIT REPORT?
Seeking COVID-19 relief will not lower your credit score. Financial institutions will not report late payments or other derogatory remarks to credit reporting agencies.
HOW LONG WILL THESE PROGRAMS LAST?
Many financial institutions have committed to a 90-day grace period for payments, while foreclosure sales or evictions will not be initiated for at least 60 days. However, it’s not clear yet how long or severe the COVID-19 impacts will be. Ongoing conditions will be continuously assessed.
WHAT DO I DO IF MY FINANCIAL INSTITUTION DOESN’T OFFER MORTGAGE RELIEF?
Major financial institutions and nearly 200 state-chartered banks and credit unions in California are on board. The state is emphasizing the need for financial relief. Any other institution is welcome to meeting and supporting the current commitments. Contact your lender for information on relief options.
WHEN DO THESE MEASURES GO INTO EFFECT?
These measures are in effect immediately. To find out if you’re eligible for relief and to sign up for assistance, contact your financial institution right away.
MY MORTGAGE SERVICER IS NOT COOPERATIVE, NOW WHAT?
File a complaint with the Department of Business Oversight or call a DBO Consumer Services Office at 866-275-2677 or 916-327-7585.
OAKTREE LAW CAN HELP
If you’re struggling with monthly mortgage or housing payments, several options are available to homeowners, including hardship forbearance options and mortgage payment reduction, among others. At OakTree Law, we specialize in helping consumers find financial solutions such as loan modification to reduce the stress of financial hardship. Our financial services are available to home and small business owners. Learn more by requesting a free evaluation online or call us directly at 888-348-2609.