As homeowners grapple with mass layoffs and business closures, housing advocates are growing increasingly concerned the country will soon face a housing crisis to rival the one that nearly took down the economy a decade ago.
Federal officials have imposed a nationwide halt to foreclosures and evictions for more than 30 million Americans with home mortgages backed by the Federal Housing Administration or two government-controlled companies, Fannie Mae and Freddie Mac.
But the federal moratoriums don’t cover more than 5 million homeowners with mortgage loans not backed by the government. And while the halt to foreclosures and evictions will keep many people in their homes temporarily, a bigger financial shock is brewing as others fall behind on their payments, industry analysts say.
Mortgage servicers, which collect homeowners monthly loan payments, say they have already begun to see an uptick in borrowers seeking help and could quickly become swamped.
“Servicers are laboring under the same constraints as everyone else, telecommuting and practicing social distancing,” said Bob Broeksmit, president of the Mortgage Bankers Association. “This is hitting at a time when their capacity is already constrained because of the pandemic.”
Here’s what you need to know about who is eligible for mortgage relief:
Q: What if I am a homeowner facing foreclosure or eviction?
A: The U.S. Department of Housing and Urban Development and the Federal Housing Finance Agency, the regulator for Fannie Mae and Freddie Mac, have directed mortgage servicers to halt all new foreclosure actions and suspend those already in progress.
The HUD order applies to single-family homeowners unable to pay their Federal Housing Administration-backed mortgages. There are 8.1 million active FHA loans.
The moratorium also applies to loans backed by Fannie Mae and Freddie Mac, which covers about half of the country’s mortgages or about 28 million borrowers. (The government seized control of Fannie Mae and Freddie Mac in 2008 as the housing market unraveled, and the firms’ losses piled up. The companies, which play a critical part in the housing market, buying mortgages from lenders, then packaging them into securities to sell to investors, remain under federal oversight.)
The moratoriums will last until mid-May, but could be extended, according to regulators.
Q: How do I figure out if my loan is backed by Fannie Mae or Freddie Mac?
A: Homeowners can look up whether their loans are backed by the mortgage companies through Fannie Mae and Freddie Mac’s websites.
Q: What if I don’t have an FHA loan or one backed by Fannie Mae and Freddie Mac?
A: About 5 million homeowners with loans valued at $3.7 trillion are not covered by the HUD or FHFA moratoriums, according to Inside Mortgage Finance, an industry research group. Some states, including California and New York, have paused foreclosure and eviction that would also apply to those borrowers.
But without a blanket moratorium, these homeowners must negotiate arrangements with their mortgage servicer one-by-one.
Q: I haven’t missed a mortgage payment yet but just lost my job. What are my options?
A: While it can take months or years for someone to lose their home through the foreclosure process, many Americans may soon fall behind as companies shutter their doors to guard against the spread of the coronavirus and lay off workers.
For borrowers with loans backed by Fannie Mae and Freddie Mac, mortgage servicers have been ordered to offer generous forbearance programs allowing borrowers affected by the coronavirus to skip their mortgage payments for as long as a year.
Borrowers must apply for the mortgage relief through their mortgage servicer, which collects monthly payments and will decide how long the assistance will last.
“The government is essentially offering a yearlong payment holiday so those who lose their jobs from COVID-19 can stay in their homes without worrying about mortgage payments or foreclosure,” Jaret Seiberg, financial services analyst at Cowen Washington Research Group, said in a research note.
Many people in forbearance programs won’t have to make another mortgage payment until May 2021, Seiberg said.
But, again, the level of relief a homeowner receives will depend on who owns their loan.
California Gov. Gavin Newsom recently announced that the nation’s largest banks, including JPMorgan Chase and Wells Fargo, had agreed to temporarily suspend residential mortgage payments for people affected by the coronavirus in the state for 90 days. But one bank, Bank of America, declined to sign on, saying it would offer mortgage relief on a case-by-base, month-by-month basis instead.
Q: How long will it take to arrange a deal with my mortgage servicer?
A: Some borrowers may have trouble reaching their servicer quickly as the industry is grappling with same issues as the rest of the country, including employees working from home and practicing social distancing.
Borrowers shouldn’t panic, said Broeksmit, president of the Mortgage Bankers Association. While mortgage payments are typically due the first of the month, borrowers are not likely to be considered late until the 15th, he said. “You have a little bit of time before you need to make arrangement with your servicer,” he said.
A forbearance program can typically be approved within a few days, and unlike during the 2008 housing crisis, borrowers won’t be required to submit tons of paperwork, Broeksmit said.
Q: If given mortgage relief, do I have to repay the payments I skip?
A: Mortgage servicers are expected to allow millions of borrowers affected by the crisis to skip some mortgage payments. But the money will have to be paid back. Think of it as a loan rather than a gift.
Some borrowers will be told to repay the entire past due amount all at once, while others will be given several months to catch up. But regulators are also encouraging banks to simply extend the length of the borrower’s mortgage rather than forcing them to catch up in a short amount of time.
Repayment arrangements must also be arranged through mortgage servicers.