Pandemic Mortgage Forbearance

Mortgage delinquencies skyrocketed in April. One big reason: the pandemic mortgage forbearance through the CARES Act.  

Epic Increase in Mortgage Delinquencies

The number of home mortgages that became delinquent in April was the largest one-month increase in U.S. history. 1.6 million mortgages current in March were not paid in April, according to Black Knight, a mortgage data provider.

For some perspective, the percentage of all mortgages that became delinquent nearly doubled in that one month—from 3.39% to 6.45%. This percentage increase was also the largest in history. It broke the last record monthly percentage increase set in 2008, during the Great Recession. The April increase was nearly 3 times the monthly increase back then. This is in spite of the reality that the Great Recession was an epic mortgage crisis.

The size of April’s increase reflects the unprecedentedly sudden economic effects of the pandemic—the self-induced shut-down.

It was also substantially fed by the mortgage relief provided by the Coronavirus Aid, Relief, and Economic Security Act (“CARES”) Act passed by Congress in late March. As of May 19, 2020 more than 4.75 million mortgages had entered into the forbearance—authorized deferred payment—plans. Black Knight Press Release, May 22, 2020.

So homeowners are clearly taking advantage of the pandemic mortgage forbearances. Should you, too? It’s been nearly two months since the CARES Act became law, a good time to review its mortgage benefits. Here is what is provided.

CARES Applies Only to Federal Mortgages

At the outset be aware that CARES applies only to federally- owned or -backed mortgages. About three-quarters of all mortgages are federally owned or backed by a federal agency or entity. These include U.S. Department of Housing and Urban Development (HUD), U. S. Department of Agriculture (USDA Direct and USDA Guaranteed Federal Housing Administration (FHA) (includes reverse mortgages) ), U.S. Department of Veterans Affairs (VA), Fannie Mae (check here to see if your loan is backed by Fannie Mae), Freddie Mac (check here to see if your loan is backed by Freddie Mac).

Also check out the U.S. Consumer Financial Protection Bureau’s How can I tell who owns my mortgage?

If You Don’t Have Federal Mortgage

Contact your mortgage servicer if you have a mortgage not owned or backed by a federal agency or entity. Financial regulators have urged all financial institutions to work with borrowers in this extraordinarily disruptive time. Interagency Statement on Loan Modifications…, April 7, 2020.

Here’s a list of some of the pandemic-related services offered by a huge number of the nation’s banks. Many include references to mortgage payment deferrals and forbearance.

CARES’ Pandemic Mortgage Forbearance/Relief Options

For federally owned or backed mortgages, the CARES Act provided two separate forms of relief. These included a short moratorium on foreclosures and forbearance of monthly payments.

The foreclosure moratorium was so short that it’s already expired. It was in effect for only 60 days starting from March 18 through May 17, 2020. During this period CARES prevented the starting or completion of a judicial or non-judicial foreclosure. CARES Section 4022(c)(2).

The forbearance part of the law is the focus of the rest of this blog post.

Mortgage Servicer “Shall Provide the Forbearance”

The CARES law is quite straightforward. The mortgage servicer (the entity you make mortgage payments to) “shall… provide the [requested] forbearance”:

• to a borrower who “submit[ted] a request”
• including an “affirm[ation] that the borrower is experiencing financial hardship during the COVID–19 emergency”

The servicer can’t:

• require “any additional documentation … other than the borrower’s attestation to a financial hardship caused by the COVID–19 emergency”
• charge any “fees, penalties, or interest (beyond the amounts scheduled or calculated as if the borrower made all contractual payments on time and in full under the terms of the mortgage contract)”
• require that the mortgage be in any particular “delinquency status” in order to provide the forbearance

CARES Section 4022 (b) and (c)(1).

Length of Forbearance

“Upon a request by a borrower for forbearance… such forbearance shall be granted for up to 180 days, and shall be extended for an additional period of up to 180 days at the request of the borrower, provided that, at the borrower’s request, either the initial or extended period of forbearance may be shortened.”

CARES Section 4022 (b)(2).

There’s a potentially important timing condition when the borrower submits the extension for an additional 180 days of forbearance. “[T]he borrower’s request for an extension [must be] made during the covered period.” CARES Section 4022 (c)(1). “Covered period” is a phrase used earlier in the Section, referring almost certainly to the officially declared national “COVID-19 Emergency.” That is, the borrower must submit the request for a 180-day extension while this emergency is still in legal effect.

After Getting Your Pandemic Mortgage Forbearance

The CARES Act does not say anything about the timing for repayment of the deferred payments. That crucial issue is the topic of our next blog post. No matter what the government and the banks come up with, many people may be in need of additional options to catch up with their mortgages. Contact your local bankruptcy attorney to determine your options.