With the unemployment rate now officially hitting double digits and more than 20 million workers losing their jobs in April, families face an ongoing financial dilemma: how to pay for housing every month. Millions of households carrying mortgages see a steady mountain of payments accumulating at their doorstep and wonder how they can ever make it to the other side. While Congress has provided some help in the legislation it has passed to date, many people still face more questions than answers.
Section 4022 of the CARES Act, passed in late March, gave certain homeowners the option of a forbearance on their mortgages. People with government-guaranteed mortgages (whether those backed by Fannie Mae and Freddie Mac, the Federal Housing Administration, the Veterans Administration, or another government entity) have the ability to request a six-month suspension of payments on their mortgages during the pandemic.
To qualify for the forbearance, borrowers need to contact their loan servicer and inform the loan servicer that they have suffered financial hardship due to the pandemic. The loan servicer will provide an initial forbearance of 180 days, with the option of an additional 180-day forbearance at the borrower’s request. During the forbearance, no penalties, fees, or additional interest (beyond the interest that normally would accrue) will accumulate on the mortgage.
At the moment, the federally mandated forbearance provision and temporary moratoria on foreclosures have provided relief to many borrowers. But long-term questions still remain, which have caused both confusion and concern for homeowners.
For one, the requirement on lenders to extend forbearance relief to homeowners excludes mortgages not backed by the federal government. Data compiled by the Urban Institute and Moody’s Analytics indicate that the federal government-backed 62.2% of all first-lien mortgages in 2019. Because the remaining 37.8% of borrowers last year did not use a federally backed mortgage, their loan servicers do not necessarily have to offer the forbearance program laid out in the CARES Act.
Many of these borrowers include those with “nonconforming” mortgages — those ineligible for purchase by Fannie Mae and Freddie Mac. In 2020, Fannie and Freddie will not back mortgages over $510,400 ($765,600 in some high-cost areas).
To obtain these “jumbo” mortgages, borrowers generally have to meet strict underwriting criteria, because loan servicers cannot sell the mortgages to Fannie and Freddie. While many of these borrowers work in industries initially perceived as less likely to suffer job losses from the pandemic, research suggests layoffs are increasingly affecting sectors across the board. With a significant percentage of mortgages not automatically eligible for forbearance, thousands of borrowers at minimum could be left with few options to keep their homes in the coming weeks.
Further, even those homeowners with government-backed mortgages who do qualify for forbearance under the CARES Act have been given very little clarity on what will happen when those forbearance periods end. Even if borrowers who have lost jobs manage to find new employment, or return to their prior jobs in three, six, or 12 months, few will have the ability to cover back-due payments in a lump sum.
Accordingly, Fannie Mae and Freddie Mac recently issued a statement indicating that they will not require borrowers to pay back all their missed mortgage payments at once — which should provide some peace of mind to homeowners. But while telling borrowers how they will not have to repay their mortgage forbearance, they have yet to specify clearly how borrowers will catch up on their missed payments. Policymakers must do all they can to provide details on what will be expected of homeowners who utilize government aid, and borrowers must know all the options they qualify for and make sure the fine print of any program they agree to with their loan servicer is provided in writing.
Millions of people continue to hurt from the coronavirus pandemic. The anxiety and despair that economic hardship, particularly the thought of losing one’s home, can bring threaten to compound the physical toll of this virus with a wave of mental illness. People already fighting to weather this storm deserve better clarity on what it will take to keep a roof over their heads as they do so.
Chris Burns is the CEO of Dynamic Money and host of The Chris Burns Show on WSB. He is a regular on Fox News, as well as a regular commentator on CNN, national radio, and other outlets.
