Because of the recent situation with COVID-19, many homeowners are struggling with layoffs, social distancing and, consequently, an inability to pay their most basic bills, including their mortgage payments. For those who find themselves in this position, you may be covered under a forbearance program called the Cares Act.
What Does the Cares Act Offer?
The act, short for Coronavirus Aid, Relief, and Economic Security offers two protections for borrowers who are unable to make their payments because of situations relating to the Coronavirus and loss of income.
- A temporary suspension of foreclosures for 60 days which began March 18, 2020.
- The right to ask your mortgage servicer to reduce or suspend your payments for 180 days. If you are still having difficulty paying your mortgage after six months, you have the right to ask for an additional 180 days forbearance.
During this time, payments are temporarily suspended. This means that, yes, you will need to pay them at a later time. But you will not incur any penalties or additional fees or interest, nor should the servicer report any delinquency to the credit bureau.
Make Sure You Fully Understand Your Responsibilities and Consequences
In order to take advantage of the forbearance benefit, you must submit a letter to your mortgage lender explaining your hardship. The safest way to understand what your responsibilities are during and after the forbearance period is to ask your lender what options you have, what they will require of you and get all answers in writing. Your loan servicer may ask for the missed payments in one lump sum, but this cannot be the only option in the case of the Cares Act.
Each lender must offer other options such as attaching the missed payments to the end of the loan or adding them to the balance of the mortgage. Your lender may even go so far as to offer other modifications to the terms of the mortgage to ease the financial burden. This is entirely between you and the lender.
With that said, it is always our recommendation to make your mortgage payment if at all possible. The reason being, there has been no guidance as to whether a borrower who is allowed forbearance under the Cares Act will be elibigle to refinance their loan in the future, or how it will affect their able to purchase another home if desired. It is very important to be cautious of the potential consequences of taking any mortgage forbearance.
Who is Eligible?
There is a caveat when it comes to the Cares Act. Your mortgage must be federally backed. This means that your loan must be owned or guaranteed by any one of the following:
- Fannie Mae (FNMA)
- Freddie Mac (FHLMC)
- Federal Housing Administration (FHA)
- U.S. Department of Veterans Affairs (VA)
- U.S. Department of Agriculture (USDA)
What if the Mortgage is Not Government-Backed?
If your mortgage is not government-backed, it still doesn’t hurt to call the lender. You may still qualify for some type of assistance. Most mortgage servicers are trying to work with borrowers to ease these financial burdens and assure that homes don’t end up in foreclosure.
Additional Relief for California Borrowers
Governor Newsom has also announced that four of the country’s largest banks have agreed to suspend mortgage payments for 90 days for their borrowers in California. Wells Fargo, JPMorgan Chase, Citibank and U.S. Bank, in addition to approximately 200 other state-chartered banks and credit unions have agreed to the 90-day forbearance. This could cover loans that are not eligible for the federal Cares Act.
Unfortunately, times such as these tend to attract scammers. Do not hire any company that claims that they can reduce your monthly mortgage payment without a great deal of research. Your best course of action is to work with a licensed mortgage professional or with your lender directly.
Supporting Each Other
Here in California, we are all supporting each other during this time of great turmoil. At Granite West Funding, our team of licensed California mortgage brokers would be happy to discuss any mortgage options with you to enable you to take advantage of today’s low rates before they’re gone. Call us at (559) 540-2275 to speak with one of our professionals and get the advice you need to navigate these very stressful times.