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Many people are having to work from home or shelter in place because of the pandemic, which is causing a dramatic decrease in business for companies in the restaurant, travel and manufacturing industries, among others. As unemployment rises, so do the number of people who struggle with paying their mortgage. Boomers — those born from 1946 through 1964 — account for 41 percent of all mortgage debt, the largest of any generation.
The damage is already beginning. Initial claims for unemployment benefits the week ending March 14 shot up 70,000 from the previous week, a rise that was largely attributed to efforts to slow the virus's spread. And, while unemployment insurance can help the workers laid off, it's never enough to cover all of the lost wages.
The Federal Home Loan Mortgage Corporation (Freddie Mac) and the Federal National Mortgage Association (Fannie Mae), the nation's largest mortgage servicers, have put out new guidelines for treating borrowers affected by the pandemic. About 80 percent of all mortgages conform to lending guidelines from the two agencies, which package mortgages for investors, among other services.
Freddie Mac and Fannie Mae say they will provide mortgage forbearance for 12 months. Forbearance means you and the lender can agree to temporarily reduce or suspend mortgage payments, and the lender agrees not to foreclose during that time. However, the deferred payments still need to be made in the future. Both Freddie Mac and Fannie Mae also agree to suspend evictions and foreclosure sales for 60 days.
In New York, Governor Andrew Cuomo waived mortgage payments for 90 days for people facing hardship because of the coronavirus.
The U.S. Department of Housing and Urban Development has also imposed an immediate halt to evictions from Federal Housing Administration (FHA)-insured single-family properties. It has also halted new foreclosures and suspended those in process.
Mortgage struggles are inevitable
Although mortgage delinquencies haven't spiked yet, “the issues are coming,” says Keith Gumbinger, vice president at HSH.com, a mortgage information service. “Fannie Mae and Freddie Mac dominate the marketplace, and these guidelines will cover the vast majority of borrowers."
If you think you are going to be laid off (or if you already have been), contact your mortgage lender. “Being proactive works in your favor,” Gumbinger says. “The burden falls on the homeowner.” If the economy contracts sharply because of the pandemic, it will help to be ahead of the crush of mortgage forbearance applications.
If your loan isn't handled by Fannie Mae or Freddie Mac, then get in touch with your lender as soon as you can. Forbearance and other arrangements are generally made on a case-by-case basis. “It's a one-off negotiation,” Gumbinger says.
What Freddie Mac and Fannie Mae are promising
• Homeowners who are adversely impacted by this national emergency may request mortgage assistance by contacting their mortgage servicer
• Foreclosure sales and evictions of borrowers are suspended for 60 days
• Homeowners impacted by this national emergency are eligible for a forbearance plan to reduce or suspend their mortgage payments for up to 12 months
• Credit bureau reporting of past due payments of borrowers in a forbearance plan as a result of hardships attributable to this national emergency is suspended
• Homeowners in a forbearance plan will not incur late fees
• After forbearance, a servicer must work with the borrower on a permanent plan to help maintain or reduce monthly payment amounts as necessary, including a loan modification.
• Providing mortgage forbearance for up to 12 months
• Waiving assessments of penalties and late fees
• Halting all foreclosure sales and evictions of borrowers living in Freddie Mac-owned homes until at least May 17, 2020
• Suspending reporting to credit bureaus of delinquency related to forbearance
• Offering loan modification options that lower payments or keep payments the same after the forbearance period