The coronavirus outbreak has left many Americans dealing with reduced income or unemployment. In March 2020, the federal government enacted the Coronavirus Aid, Relief, and Economic Security Act, which in part directed lenders to provide mortgage relief options to affected homeowners.
Some individual lenders and state governments have also taken independent action to provide mortgage relief to homeowners.
Nerd tip: Congress passed a new COVID relief package in December 2020. This did not include specific relief programs for homeowners, though new options may become available in 2021.
If you’re worried about paying your mortgage during the COVID-19 outbreak, the mortgage relief programs below may be able to help.
To start, verify your mortgage type
The kind of mortgage you have may determine what type of assistance is available to you.
All of these mortgage types were eligible for relief under the CARES Act. Each of these entities has its own assistance programs, too.
To verify whether you have an FHA, VA or USDA loan, find your closing documents (either hard copies or electronic versions) and look for the Closing Disclosure. In the upper right of the first page of this document, under "Loan Information," you'll see checkboxes indicating your loan type: conventional, FHA, VA or other. If you can't locate this document, try looking at your monthly mortgage statement or contacting your lender at the phone number listed on the statement.
Regardless of mortgage type, reach out to your lender to discuss relief options. The government is encouraging all lenders to support homeowners who need mortgage assistance due to hardship brought about by the coronavirus.
Mortgage forbearance and the CARES Act
Forbearance lets you make a reduced payment or no payment at all for a set amount of time. Interest accrues, and the skipped amount needs to be paid after the forbearance period ends. Before you start forbearance, make sure your lender is offering repayment terms that seem reasonable.
Under normal circumstances, forbearance typically lasts about three months, but longer periods may be available due to COVID-19. Repayment may be expected as a lump sum at the end of forbearance, sometimes called a “balloon payment.” If a lump-sum payment isn’t feasible, try to negotiate for another option.
The CARES Act requires lenders to offer borrowers up to 180 days' forbearance, with the option for borrowers to request an additional 180 days' forbearance or to stop the forbearance at any time. You can be directly or indirectly affected by the COVID-19 pandemic to qualify for forbearance, and you do not have to be delinquent on your mortgage. You can apply before you've missed a payment.
Under the terms of the CARES Act, lenders won't report forbearance to the credit bureaus. "The lender should report it as 'paying as agreed,'" says Rocke Andrews, current president of the National Association of Mortgage Brokers. Once the forbearance is repaid, Andrews says, "in theory, it shouldn't affect your ability to refinance or purchase in the future."
The CARES Act bars lenders from charging additional fees, penalties or interest during forbearance beyond what would have normally accrued.
Nerd tip: The CARES Act provides up to 12 months' worth of forbearance. Not all agencies and government entities have application deadlines for making an initial claim, and those that do have extended the date several times. Even if the deadline for new applications has passed, if you are currently in forbearance and need to extend your term, you should be able to do so as long as you're still under the 12-month mark.
COVID-19 mortgage forbearance programs
Under the terms of the CARES Act, borrowers are eligible for up to 12 months of forbearance, which will not be reported to credit bureaus.
If, at the end of the forbearance term, you’re able to go back to your regular mortgage payments but are unable to pay anything additional, you may be eligible for COVID-19 Payment Deferral. With that deferral, the amount of the forbearance would not accrue interest and would not be due until the end of the mortgage — whether that’s when you sell, refinance or pay off the loan.
Even if you are ineligible for deferral, your lender cannot demand a lump sum repayment, and is required to work with you to find a different solution.
Foreclosures and evictions are currently suspended through Jan. 31, 2021. That means no new foreclosure proceedings will start, and existing ones are on hold. You can find more info on the Freddie Mac website.
Borrowers are eligible for up to 12 months of reduced or suspended mortgage payments. The forbearance will not be reported to the credit bureaus.
Fannie Mae borrowers may also be eligible for a COVID-19 Payment Deferral, which allowed the amount of the forbearance to be paid at the end of the mortgage rather than at the end of the forbearance period. No matter what, your lender could not require you to make a lump sum repayment.
Fannie Mae has also suspended foreclosures and evictions through Jan. 31, 2021. See more on Fannie Mae's website.
The FHA has set a deadline of Feb. 28, 2021, to apply for initial forbearance under the CARES Act.
In addition to provisions of the CARES Act, the FHA always has several mortgage relief programs in place. This includes standard mortgage forbearance lasting up to six months and special forbearance for unemployment (which can last a year or more).
At the end of your FHA forbearance term, you may be eligible for HUD's COVID-19 Standalone Partial Claim. This is a no-fee, no-interest junior lien (a type of second mortgage) that does not have to be paid back until you sell your home, pay off your mortgage or otherwise end the loan. The FHA says it offers other repayment options for homeowners who are ineligible for the Standalone Partial Claim. FHA lenders cannot require a lump sum repayment.
The FHA has suspended foreclosures and evictions through Feb. 28, 2021. Find more info on the Department of Housing and Urban Development website.
Aside from the CARES Act, VA lenders have been encouraged to help borrowers impacted by COVID-19 use existing mortgage relief programs. This includes special forbearance, the duration of which can vary based on the homeowner's situation.
Under the CARES Act, VA lenders could not require a lump sum repayment at the end of your forbearance and had to provide other repayment options.
The Department of Veterans Affairs has stopped all foreclosures through Dec. 31, 2020. See mortgage assistance information on the VA website.
The USDA has set a deadline of Feb. 28, 2021, to apply for initial assistance if your mortgage is backed by the USDA Rural Housing Service.
If your ability to pay your loan has been affected by the coronavirus, you can receive 180 days’ forbearance as long as you file by that date. Assistance can be extended another 180 days, if needed.
Borrowers facing imminent default can make reduced mortgage payments or go into forbearance for up to 12 months. At the end of the forbearance period, you are not required to make a lump sum repayment. Your lender should contact you with options for repayment when your initial forbearance period is ending.
Foreclosures and evictions on USDA guaranteed loans are suspended through Feb. 28, 2021. Find more information on the USDA website.
Loan modification options related to effects of coronavirus
Freddie Mac and Fannie Mae have allowed lenders to offer loan modifications typically reserved for homeowners who are victims of natural disasters. Contact your lender to understand your loan modification options. Depending on your employment outlook, a Flex Modification, which is offered by both GSEs, may be another option. If your mortgage is backed by Freddie Mac or Fannie Mae, the COVID-19 Payment Deferral option described above may be less onerous than a loan modification.
If you have an FHA loan or a VA loan, talk to your lender about loan modification options. Both agencies offer this type of mortgage assistance, but to date, neither has altered their usual programs to specifically assist homeowners impacted by the coronavirus.
What if you don't have a government-backed mortgage?
Not all mortgages are backed by government agencies or the GSEs. Sometimes called “portfolio loans,” these mortgages aren't resold and are kept in-house by the lender. Portfolio loans — which can include mortgages for self-employed borrowers, borrowers who are not U.S. citizens or borrowers who have experienced a foreclosure — don't meet Freddie Mac and Fannie Mae's standards. Lenders may also choose to hang onto a mortgage for other reasons.
Portfolio loans are not covered by the CARES Act. However, your lender may have its own assistance programs. Follow the steps below to contact your lender.
Contact your lender to get mortgage relief
No matter what type of loan you have or what government assistance may be available, contact your lender directly if you are worried about paying your mortgage.
You don't have to wait until you are delinquent on your mortgage, and calling before you miss a payment will likely give you more mortgage relief options. If you've already missed a payment when you ask for forbearance, Andrews notes, that delinquency will show up on your credit report (and will stay there until the loan is made current again).
Here's what you should have ready when you contact your lender:
An estimate of your current income (and future income, if you anticipate that it may change).
An estimate of your current monthly expenses.
Your most recent mortgage statement.
Documentation of what caused your situation to change.
Beware of third parties offering mortgage assistance. Look for help from your lender, not from other organizations offering mortgage relief. If you want to get advice about talking to your lender, find a HUD-approved financial counselor on the HUD website. These counselors offer no-cost assistance, and can help you feel better prepared to call your lender.