The Coronavirus Aid Relief and Economic Security (CARES) Act put protections in place for consumers who have been financially impacted by the coronavirus pandemic. Since the pandemic has caused a widespread economic downturn, many people are facing layoffs or reduced hours and pay. This led to two protections for homeowners with federally backed mortgages. Lenders or loan servicers were not allowed to foreclose a property for 60 days after March 18, 2020. For those borrowers experiencing financial hardship due to the pandemic, borrowers have a right to request forbearance for up to 180 days and an extension for up to another 180 days.
Forbearance is able to help homeowners affected by the coronavirus by allowing a borrower to suspend or reduce their mortgage payments for a limited time while the borrower regains their financial footing. The borrower is still required to repay any missed or reduced payments in the future. At the end of forbearance, repayment of the outstanding balances will be expected. Options which must be negotiated with the lender for repayment include pay all the missed payments at one time, spread out the missed payments, or add the payments to the end of the mortgage. Any borrower who has received a reprieve should get the agreement in writing in order to protect them if there are errors in their mortgage statement or credit report. The agreement will clearly document the forbearance and can be provided to title or escrow as part of any future sale. The borrower will need to negotiate with the lender the terms of the forbearance, including the length of forbearance period, reduced payment amount and the terms of repayment.
While the CARES Act aims to protect homeowners that have been financially impacted, there are unintended consequences relating to forbearance that borrowers should be aware of. First, most lenders require that borrowers must be out of forbearance and current on their mortgage to refinance. Second, when buying a new home lenders and investors treat these modifications differently and want borrowers to pay their mortgage on time for a minimum of 12 months. Finally, the CARES Act mandates that mortgage lenders will not report a borrower as delinquent during the forbearance, however, they cannot control how lenders will view it and therefore it could affect the consumer ability to borrow in the future.
Scammers have also taken advantage of homeowners who are worried about their financial status. These scammers have begun to contact borrowers posing as governmental agencies, mortgage relief organizations and attorneys. They promise to get a loan modification, charge a high up-front fee and may even ask the borrower to sign papers they don’t understand or even sign over the property title. Scammers have also told homeowners to stop making payments or to make payments to a different servicer. For homeowners to avoid falling prey to these tactics, they should never pay an upfront fee and should not provide personal or financial information to anyone besides their lender or mortgage servicer. Even then, information should not be provided to someone calling you; only when you verify and contact a vendor directly should you provide any personal information.