Homeowners delaying mortgage payments during coronavirus — here's how to catch up

Mortgage providers have seen a surge in homeowners seeking relief from their monthly payments in recent weeks. Here are ways to catch up on due payments. (iStock)

The coronavirus pandemic has led to chaos on Wall Street, volatile stock market sessions and unemployment for millions of Americans as measures designed to stop its spread forced businesses across the U.S. to close their doors or sharply curtail operations.

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As reported U.S. coronavirus cases surpassed 1 million as of May 3 — with the death toll nearing 66,000, the unprecedented economic shutdown has caused sudden economic hardship for many — including homeowners struggling to pay their mortgages.

However, those who are able to afford to refinance their home loans may want to consider doing so, as mortgage rates have dropped to a record low. Interest rates can make a dent in how much you owe over the life of a loan. Use Credible's free online tool to see what rates you qualify for and if it makes financial sense to refinance now.

Mortgage providers have seen a surge in homeowners seeking relief from their monthly payments in recent weeks.

If you find it difficult or impossible to pay your mortgage now because of the pandemic, a number of options offer possible relief, with mortgage forbearance (a temporary pause in payments) the first and most likely choice.

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"Over 26 million Americans have filed for unemployment over the last month, leading to nearly 7 percent - 3.5 million - of all mortgage borrowers asking to be put into forbearance plans,” Mike Fratantoni, the Mortgage Bankers Association’s senior vice president and chief economist, announced in late April, noting that mortgage forbearance requests had grown to roughly 100 times baseline levels in early March.

The recently passed Coronavirus Aid, Relief, and Economic Security (CARES) Act bars mortgage companies from starting foreclosure proceedings on homeowners with federally backed loans for a 60-day period that started March 18. Federal law generally prevents mortgage companies from initiating the foreclosure process until a homeowner is more than 120 days late, according to the Consumer Financial Protection Bureau, which noted that institutions also must work with borrowers to avoid facing foreclosure.

Several states have also temporarily suspended foreclosure proceedings because of the coronavirus economic shutdown.

Ways to catch up on your mortgage payments

Refinancing

Homeowners seeking to lower their monthly mortgage payments often refinance their loans at lower interest rates. If you're still feeling somewhat financially secure, refinancing could be a good option if you're hoping to save money in the longrun. Fill out Credible's simple forms to determine if the money-saving benefits outweigh the cost.

However, the MBA’s Mills pointed out refinancing isn’t a likely choice for someone who’s lost their job.

“If this is about keeping your home, then forbearance is the tool,” he said, noting that your credit score doesn’t come into play in forbearance and loan modification. “A refinance would be hard if you’re unemployed because we’d have to write the loan to your income.”

Mortgage forbearance

Longer term, the CARES Act allows homeowners with federally backed mortgages to request a mortgage forbearance of up to 180 days and, if necessary, a 180-day extension beyond that. During forbearance, your mortgage company will not assess penalties or additional interest or fees, the CFPB noted.

Most mortgages, such as those guaranteed or insured by the U.S. Federal Housing Administration, Department of Veterans Affairs and Department of Agriculture, or sold through Fannie Mae and Freddie Mac, qualify as federally backed.

You must request forbearance relief by contacting your loan servicer – the company to which to send your mortgage payments – and need only claim to have financial hardship related to the pandemic. No further paperwork is required, but you should expect to answer a few questions about the nature of your hardship, Pete Mills, the MBA’s senior vice president for residential policy, said in an interview.

The missed payments won’t be reported to credit bureaus, he noted.

WHAT IS IS MORTGAGE FORBEARANCE?

Call volumes are high and mortgage companies have switched to remote work or reconfigured call centers amid the coronavirus pandemic, so homeowners should expect long wait times and be patient, Mills said. You might also be able to reach your mortgage servicer through its website.

It’s important to remember that mortgage forbearance is a temporary pause in payments, not a waiver or loan forgiveness, Mills said.

“If you don’t need it, if there’s been no change to your employment or income … don’t take it. It’s not a personal financial planning tool, it’s for people who’ve lost income because of the COVID crisis,” he said.  “Don’t stand in line in front of someone who truly needs it.”

Important: Be sure to ask the mortgage company in advance about your options for making up the missed payments once the forbearance period ends. The choices may depend on the type of loan you have.

Borrowers with USDA, FHA, VA, Freddie Mac and Fannie Mae loans won’t have to repay the entire amount all at once, the CFPB said on its website. Mills noted that people who need forbearance because of financial hardship are unlikely to have a large amount readily available anyway.

The options, he said, include deferring payment to the end of the loan; a repayment plan that spreads the missed payments over several months, adding them to the regular monthly mortgage amount once the borrower starts paying again; and a loan modification to lower monthly payments, which could be especially helpful for those who lost their jobs and found new work at a lower wage.

Homeowners whose mortgages aren’t federally backed may nonetheless find forbearance relief through their banks, which may have more flexibility in designing repayment options, Mills said.  Regulators have encouraged banks to work with homeowners facing pandemic-related financial hardship, the CFPB noted.

You can ask your loan servicer if you have a federally backed mortgage or check with the relevant federal agencies online. The CFPB provides links.

Loan modification

You may need to modify your mortgage to ease repayment if you enter a forbearance arrangement, but even before the pandemic, financially stressed homeowners could seek relief from loan modification programs to avoid foreclosure.

Modification allows you to extend the length, lower the interest rate or even reduce the principal owed on your mortgage to lower your monthly payments, without having to pay the closing costs associated with refinancing, Debt.org noted on its site. Traditional modification programs, however, may require significant documentation and could affect your credit score.

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If you explore this option, ask the lender about potential costs as well. Check with your mortgage servicer to see what type of modification might be available to you.

Even if you’re participating in forbearance under the CARES Act, the MBA suggests that you ask your mortgage company if you’ll need to file an application or provide documentation for post-forbearance repayment options. Ask about any costs and other details associated with the repayment plan.

Troubled borrowers might find it helpful to talk with a knowledgeable credit counselor to explore their options further and figure out the best route to take.

State programs

Some states offer their own new or existing mortgage relief programs apart from what the federal government offers. The CFPB suggests that homeowners contact their state government housing authorities to find out what may be available.

In California, for example, Gov. Gavin Newsom announced an agreement with banks and credit unions to offer mortgage relief, including up to 90 days forbearance.

Arizona’s Save Our Home AZ offers foreclosure assistance including principal reduction and mortgage subsidies for qualifying homeowners. In late March, Gov. Doug Ducey announced a new agreement with state banks to protect families from facing foreclosure or eviction for at least 60 days.