The fading of the COVID-19 pandemic brings to an end a generous mortgage forbearance program that has been adopted by millions of homeowners.
The 275,000 borrowers still deferring mortgage payments, however, could continue to receive breaks into 2024, and mortgage regulators plan to extend mortgage relief for non-pandemic reasons going forward.
“As forbearance wears out, we are now seeing new types of loss mitigation programs,” says George Fitzgerald, an executive at mortgage data firm Black Knight.
Here’s what to know.
Millions Took Advantage of COVID Loan Forbearance
When the pandemic ravaged the global economy in 2020, President Donald Trump signed the CARES Act, which included a break for mortgage borrowers: Almost anyone with a home loan could ask their lender to stop payments . Some 7.8 million people requested relief from March 2020 to March 2023, according to the Mortgage Bankers Association, with millions of homeowners requesting relief.
Those who entered pandemic tolerances needed to do something beyond contacting their mortgage servicer, the company that collects their monthly payments. Borrowers can put off payments for six months, and request an additional six months if they need more time.
During this time, lenders could not impose penalties or fees, nor report missed payments to credit reporting agencies. The missed payments are settled only till the end of the loan.
The window for pandemic tolerance is closing
In April, President Joe Biden signed a bipartisan congressional resolution to end the nation’s COVID public health emergency. This signals the end of the pandemic tolerance program – although how soon is unclear.
The Federal Housing Administration (FHA) and the US Department of Agriculture (USDA) have given borrowers until May 31 to request foreclosures amid the pandemic. However, those with forbearance on FHA and USDA loans could get an extension into 2024.
The agencies have not announced an official cutoff date for borrowers of conventional loans or mortgages backed by the U.S. Department of Veterans Affairs (VA) — but the FHFA has said it plans to forbid borrowers with conventional conforming loans based on individual circumstances. will be allowed to apply. rather than a widespread event such as a hurricane or pandemic. Mortgage lenders must respect the FHFA’s new guidelines as of October 1.
FHFA director Sandra L. “Based on the success of the COVID-19 payment moratorium, we are making this solution an important part of our standard loss mitigation toolkit, available to all borrowers with qualifying hardships,” Thompson said in a statement.
“Agencies are trying to pivot, and make the best use of what they’ve learned and take it forward,” says Marina Walsh, vice president of industry analysis at the Mortgage Bankers Association. “We may see tolerance being used to a greater extent for common difficulties such as death, divorce, job loss.”
You have options if you can’t pay your mortgage
Most borrowers who took advantage of the pandemic relief have resumed payments, but a small percentage are still in forbearance. Some are still struggling to recover from the COVID slump. Others may have been in trouble even before the pandemic.
“These are certainly difficult cases,” says Walsh.
If you’re having trouble paying your mortgage, contact your mortgage servicer, the company that collects your payments each month, as soon as possible. Although it’s tempting to ignore your challenges, you’re more likely to get financial help if you face the challenge head-on.
Of course, tolerance is just a temporary solution. While the plan allows you to stay in your home without making payments, you will still need to repay your loan.
If you take the full forbearance allowed, you can defer mortgage payments for up to one year, meaning you’ll have to pay back one year’s mortgage and interest. Depending on the lender, your repayment plan may look like this:
- lump sum payment: If you’re banking the money you’re not spending on mortgage payments, you can write a check for the entire missed amount.
- Short Term Repayment Plan: This arrangement allows you to repay your tolerance amount over the course of six months. For example, if you defer mortgage payments for five months and your monthly mortgage payment (including interest) is $1,000, you would pay $5,000. That’s $833 a month for six months. When you resume making monthly mortgage payments of $1,000, you’ll add $833 for the six months your mortgage is in service.
- Extended Loan Modification: This repayment plan extends your tenure by tackling the amount you owe towards your loan. For example, if you had 15 years left on your loan before forbearance and you deferred payments for five months, your new term would be 15 years and five months. This option does not change any part of your loan except the tenure.
- Flex Modification: A flexible modification designed for borrowers who cannot afford a mortgage at their current interest rate and/or term. If so, your lender will work with you to modify your loan so that it is affordable for you.
- Cap & Detail: For borrowers who cannot pay insurance or taxes, the lender will make these payments on your behalf during forbearance. After the moratorium period is over, the amount paid by the lender will be applied to your principal balance and the period will be extended. In this example, if a lender made $5,000 in escrow payments and your balance is $100,000 in 30 years, your new balance would be $105,000, with a new term of 30 years and six months.
Because mortgage rates have gone up, lenders don’t have a lot of flexibility around rates, but some are willing to extend the term of your loan. The FHA last year introduced a 40-year option for loan modifications. Let’s say your original 30-year loan for $200,000 was at 5 percent. Your monthly principal and interest would be $1,074. If you keep the same rate but extend the repayment schedule to 40 years, the monthly payment drops to $964.
Another relief option: Look into the Homeowner Assistance Fund, a federal program designed to help homeowners affected by the pandemic with housing costs, including utility bills and mortgage payments. (Some states have closed or suspended applications, so check your eligibility before going too far down this route.)
If you’re prepared to relocate, you may be able to sell your way instead. Home values have skyrocketed since 2020, and most homeowners are sitting on a pile of home equity. Selling your home can help you pay off your mortgage, and any leftover proceeds can provide living expenses while you get back on your feet financially. Here’s how to calculate your home equity.
“First and foremost, call your servicer,” says Walsh, “and call them as soon as possible, as more options are available.”